Parts dealer speaks out against State Farm parts bidding program

May 14, 2012

Body shops aren’t the only segment of the industry opposed to State Farm’s new online parts bidding program. Parts dealers have concerns, too.

The program, which is being tested in Tucson, Ariz., Grand Rapids, Mich., Charlotte, N.C., and Birmingham, Ala., requires shops affiliated with State Farm’s Select Service direct repair network to source parts from vendors through a Web-based process facilitated by Parts Trader. Repairers are required to submit parts orders through Parts Trader, and vendors bid for the sale by offering their lowest possible price quote.

Marvin Windham, parts manager for Benchmark Chrysler Dodge Jeep Ram in Birmingham, Ala., and co-owner of Overnight Parts Alliance, which distributes wholesale OEM parts for 31 franchises, says his company is choosing not to participate in the program.

Windham says the Parts Trader program—which State Farm says is meant to curb problems with parts returns and cycle time by improving quality, part availability, process efficiency, order accuracy and competitive pricing—does not provide any value to his operation. He cites three main concerns:

First, State Farm has said that the repair process will be enhanced as repairers gain the ability to see a larger selection of available parts to make purchasing decisions. The electronic parts ordering application is another resource that can assist repairers in managing their overall performance. But Windham says his shop customers already have efficient means of submitting parts orders electronically.

“I’ve chosen not to use it because Parts Trader provides no value to us at all,” he says. “It’s ultimately just a portal for shops to send estimates to us. But they already have a way to send orders to us electronically without charge.”

Second, State Farm has said its new parts process should reduce the amount of time and effort shops spend searching, locating and sourcing all part types. But Windham says the program creates extra administrative work on the dealer side, and the program does not lend itself to productivity gains.

When parts come in for bidding, Windham says they have to look up and verify each part the same way they would if actually selling the order. They have to specify the order, input price information and send it back to the shop via Parts Trader. That process takes up to 15 minutes per order, without knowing whether the bid will even get selected. It ends up being all wasted time if the shop doesn’t select the bid, Windham says.

Third, State Farm has said its bidding program is designed to promote price competition within the parts industry. Windham says his company already offers its lowest possible parts prices. And he wants to ensure that shops continue to benefit from any parts discounts offered.

“I want to give discounts to my shops, but this program gives discounts to State Farm. I don’t want to take part of my discount that I offer to body shops, which I have built relationships with over the course of 35 years, and turn around and give it to State Farm,” Windham says.

Windham says profit margins within wholesale parts operations are already very low, and high fixed costs don’t allow him to reduce the MSRP on parts and still offer normal discounts to shops.

“I can’t give my standard shop discount off of a discounted MSRP. I can only offer so many dollars off of a part,” Windham says. “If I give a 5 percent discount to State Farm, then I have to take 5 percent away from my shop customer. I’m not willing to do that. I have relationships strictly with the shops, not with State Farm.”

Windham says several wholesale parts dealers could be run out of business if State Farm’s program continues and becomes a national program. There are many wholesale dealers that provide additional services to shops, such as huge parts inventories, technical information for repairs, several delivery routes in operation, and customer service representatives that offer high levels of service.

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