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What to do with Obsolete Parts?

What to do with Obsolete Parts?

1 minute 22 second read.

This is a case of a Dealership with the following scenario:

With a total Parts Inventory of $679,000 the following situation show a dealership that wants to increase the current profitability of the Parts Department.

Inventory 0-12 Months old: $645,000

Inventory over 12 months old: $34,000 (This is considered “Obsolete Parts”).

Obsolete Inventory, is costing more than what you can think. Those dollars parked at the shelves, become “Frozen Capital” and can be better utilized elsewhere where the capacity to earn a profit (i.e. in a Used vehicle that can be sold for profit).

Some strategies to reduce the obsolete inventory:

1).- Maximize parts returns to the manufacture (% available every month). Every manufacturer allows for certain parts to be returned. Usually a percentage of the part purchases objectives. Utilize it wisely to return the maximum amount of obsolete parts possible.

2).- Even if you need to Increase the purchase of current saleable parts to increase the return allowance, it might make sense if this will make more “room” to return old parts otherwise obsolete.

3).- Plan to purchase seasonal parts (i.e. Winter tires) when the price and availability will be the most convenient for the dealership. Anticipate the demand with a projection of the current sales of vehicles. (you might want to go back and track the correlation between Sales/Leases of vehicles and Parts/tires increases for the past couple of years).

Do not let the Parts Department fall behind, as an experienced Automotive consultant, we and can help you increase the profit in this department.

Gabriel Krozkin, CPA, CGA is a dealership consultant. If you would like a complimentary initial consultation or wish to discuss the general operations of your dealership, please contact him

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