Reevaluating Part Margins in the Auto Collision Industry: A Case for Fair Adjustment 

The auto collision repair process is complex, involving a host of tasks that extend far beyond fixing dents and repainting panels. From securing jobs and completing estimates, blueprinting, repair planning to disassembly and reassembly, body shops juggle a variety of responsibilities. Among these tasks, ordering parts — a seemingly routine process — often becomes an unexpectedly labor-intensive and time-consuming endeavor. It's part of the process that tends to be overlooked, in my opinion. 

Recently, we ordered parts for an Isuzu NQR.  We had never repaired one and did not have a relationship with a parts vendor.  The vendor was super to deal with but could only provide a 5% discount from the suggested list price.  

It’s time to ask an important question: What’s really in a parts margin, and is it reasonable to adjust margins or add service fees to reflect the hidden costs of additional parts ordering and management? 

We are asking ourselves this question now because we have spent a lot of time chasing parts this year!  

The Hidden Costs of Ordering Parts 

On the surface, ordering parts may seem straightforward. However, as every shop owner and manager knows, it’s a process riddled with inefficiencies and labor-intensive steps. Let’s break it down: 

• The Time to Order

Even with the best processes in place, ordering parts takes time. For common components or vehicles, it might involve a simple transaction. However, some types of vehicles or certain types of damaged parts may require additional research and effort. This often demands significant time spent contacting dealerships, navigating inventory systems, or searching multiple vendors. The more challenging the part is to source, the more time it consumes.  

• Receiving and Processing Parts

Once parts arrive, the work isn’t over. Drivers need to be directed to the appropriate area, invoices must be retrieved, and parts need to be posted to management or accounting systems. In some cases, this may also involve cutting a check on delivery, depending on the shop’s accounting practices.  

• Inspection and Comparison (Mirror-matching)

Opening, inspecting and comparing the parts is a critical step to ensure accuracy and quality.  Someone has to be assigned to remove the old parts from storage or part racks and confirm the part(s) is/are correct.  Despite having provided all of the correct information when ordering the parts or dealing with the most experienced dealers, receiving the wrong parts or damaged parts occasionally are inevitable, requiring further time and effort to address.  The fault here will either lie with the shop or the parts vendor, but it might be difficult to justify adding additional margin here. 

As a rule of thumb, steps 1-3 have always been treated as “included” labor. 

• Chasing Backordered Parts

Backordered parts have become a growing issue. This can involve hours of follow-up with dealerships or vendors to track availability and timelines. Coordinating between multiple suppliers only compounds the problem.  

Should additional margins be considered when dealing with problematic cars or difficult parts? 

• Handling Returns

Not every part arrives as ordered. Whether due to damage or incorrect shipments, parts often need to be repackaged and returned. Creating return paperwork, coordinating pickups, and following up on replacements require additional effort.  Again, it might be difficult to add additional margin, but it might be time to consider another vendor if it's a vendor issue. 

• Follow-Up on Credits

If parts are returned, the next challenge is securing credits or refunds. This requires diligent follow-up with vendors to ensure refunds or account adjustments are processed. Shops with credit accounts must also reconcile statements and ensure timely payments, adding yet another layer of administrative labor. 

• Core Charges

Core parts add further complexity. Shops must implement systems to track parts with “core charges,” create return paperwork, coordinate pickups, and chase refunds. Like so many other tasks, this is often done without compensation. It's our belief that insurers created this problem. Therefore, should you consider adding a fee for handling core charges? 

• Insurance Requests

To complicate matters further, insurance companies frequently request copies of part invoices. This involves locating the invoices, redacting sensitive information, and sending them via email or fax. Though it’s a minor step, it adds up when multiplied across jobs.  It's our shop's opinion that this is personal accounting documents between “us” and our “vendors,” and we do NOT share. But for those of you who do…You may want to add a handling fee to provide the service.    

Why Adjusting Part Margins Is Reasonable 

Given the extensive labor involved in ordering, managing, and reconciling parts, it’s clear that current margins often fail to reflect the true cost of these services. Here’s why adjusting margins or adding fees is not only reasonable but necessary: 

• Labor Costs 

Every step of the parts process — from ordering to returns — requires labor. Whether it’s an estimator tracking down a backordered part or an admin reconciling statements, these tasks take time and resources. Labor isn’t free, and parts margins should reflect the cost of the time spent managing these processes. 

• Operational Costs

Handling parts involves infrastructure: storage space, systems for tracking returns and credits, and procedures for managing deliveries. These operational costs are significant and should be factored into pricing. 

• Free Services Add Up

Many of the services involved in parts management — such as processing returns, returning cores or providing invoice copies — are generally offered for free. When viewed collectively, these "free" tasks represent a substantial burden on a shop’s resources. 

• Compensating for Delays 

Backordered parts and shipping delays disrupt workflows, often requiring shops to invest extra time and effort to keep jobs on track. Adjusted margins or fees can help offset these disruptions. 

• Industry Norms 

It’s not uncommon in other industries to include administrative or handling fees for complex transactions. The auto collision industry should not be an exception, particularly given the intricate nature of parts management.

The Path Forward 

To remain competitive and profitable, body shops need to reevaluate their pricing models. Adjusting part margins or introducing nominal fees for certain services can help ensure these hidden costs are adequately covered. Here’s how shops can implement these changes effectively: 

• Transparent Communication: Educate customers and/ or your insurance partners, if applicable, about the true costs of parts management. Transparency can help build trust and reduce pushback. 
• Streamline Processes: Invest in technology and systems to improve efficiency in parts ordering and tracking. This can help minimize labor costs and reduce the need for large margin adjustments. 
• Introduce Service Fees: Consider charging a reasonable fee for specific services, such as processing core charges or providing invoice copies. These fees can be itemized on estimates to clearly communicate their necessity. 
  The auto collision repair process is inherently complex, and parts management is a critical yet undervalued component of that process. By addressing the hidden costs of parts ordering and management, shops can protect their bottom line while continuing to deliver high-quality service to their customers. It’s time for the industry to acknowledge and account for the true value of its work. 

So, back to the Isuzu NQR…we bumped up the suggested list price to reflect a 30% parts margin. The insurance company balked…but they paid!  Keep in mind that list prices are only “suggested,” and it's our business, our money, and our time invested to make this repair happen.