[triceratops]

If the final price of repairing the bumper was the same (or nearly same) as buying and installing a new bumper, why do you say the former has a higher profit margin? Surely it's more profitable to spend fewer hours and earn the same revenue - as they would do by installing a new bumper?

[kd5bjo]

It’s a matter of parts vs labor cost. For the shop, the labor cost is already sunk: they’re paying their mechanics to be present whether or not they’re actively working on a job. The replacement bumper is an expensive part that requires little labor, and so doesn’t offset the shop’s previous investment in labor contracts as much as the repair work would.

Also, mechanics in the US usually charge book time instead of actual work time to customers: you pay for the hours that the manual says the job should take regardless of how fast or slow the mechanic actually is. So, more efficient mechanics prefer labor-heavy jobs because working faster than average effectively brings in a bonus.

[dsfyu404ed]

>: they’re paying their mechanics to be present whether or not they’re actively working on a job.

Usually this is not the case. Google "flat rate pay", it is the norm for automotive shops. As you get into more specialty stuff (commercial truck and heavy equipment repair, pure body and paint work) hourly pay is more common but still not the norm.

>Also, mechanics in the US usually charge book time instead of actual work time to customers: you pay for the hours that the manual says the job should take regardless of how fast or slow the mechanic actually is. So, more efficient mechanics prefer labor-heavy jobs because working faster than average effectively brings in a bonus.

This is correct but what you're missing is that because of how flat rate pay works the shop rate is XX and the tech gets YY of that so the incentive for both the shop and the tech is to work as fast as possible without doing so bad a job that the customer comes back telling you to fix it.

It's also worth pointing out that labor and parts pricing schemes is one of the back end things shops tweak in order to differentiate themselves and/or obtain competitive advantage so that adds a whole 'nother layer of incentives on top of the incentives provided by flat rate pay.

Parts markups schemes (if any) vary wildly from shop to shop. Some shops have a couple suppliers and order everything for them. Some shops stack up two weeks of work and have the service writer spend their afternoon ordering stuff through the same eCommerce channels consumers use. Some shops try not to stack up future work, have accounts with all the local parts stores and get stuff delivered same day. Some shops vary the parts markup by part class (e.g. one markup for body parts and a different markup for brake parts). Some shops charge the customer cost and make their money on labor to incentivize customers to splurge for "while you're in there" type repairs (e.g. rotors to go with pads).

Some shops proudly discount the labor (lower shop rate) and try to make it up on parts.

Labor cost to the shop also varies by tech. The guy who can re spray a bumper is gonna make a higher fraction of the shop labor rate than the guy who can only install a bumper cover.

The service writer can also have their pay tied to incentives to sell parts, or maybe a class of parts, or maybe labor, etc. etc.

Depending on the specifics of the particular shop slapping on pre-painted bumper covers may very well make the same amount of money as a proper re-spray. There's so much variation it's hard to generalize.

[triceratops]

OK, maybe I'm coming at this the wrong way.

> For the shop, the labor cost is already sunk.

For me this means - "labor hours are constrained, so I should spend them wisely". If I wanted to buy more labor hours, I have to hire a new person and pay more money. That means preferring jobs where the markup is on non-labor things i.e. new parts. As long as my job pipeline is full and my employees are at 100% utilization, preferring less labor-intensive jobs will drive greater profits. Because I can complete more jobs overall, leading to more revenue.

Don't get me wrong, I understand that the markup on labor is higher than the markup on parts. But if you're betting on higher profits by selling more labor hours, then you're also constrained by physical space, your ability to hire labor and pay a competitive wage, the risk of a downturn etc. It's almost like software consulting vs software products. Selling products is always going to be more scalable and profitable.

Is my logic wrong somewhere?

[kd5bjo]

Your reasoning looks right if your employees actually are at 100% utilization. If they’re not, however, the marginal cost to the shop of labor is 0. (1) Thus, it’s better to prefer the option that lets you charge more labor hours when you’re light on jobs.

For most brick-and-mortar shops, it sustainability, not scalability, that dominates. If you’re tooled up assuming the market will stay hot, you’ll struggle when the inevitable downturn comes. On the other hand, if you can stay break even at 50% of normal volume, you’ve got a chance to ride through a recession with your business intact.

The comparison to software breaks down when you’re talking about products, because the shop is a reseller; there’s a pretty hard limit to the amount of retail markup the market will bear before competitors crop up.

(1) As it turns out, this isn’t completely true; see the other reply.

[clarry]

You can buy the consumables for a paint job for a few dozen bucks, and then charge for a day or two of labor. You make 800 eur. Selling labor is how your body shop makes money.

Or you can buy a new bumper for 600 eur, charge a thin margin on it, and then add maybe one hour of labor. Most of what you charge goes to Honda, you make maybe 150 eur, and then hope the next job comes soon so that your tools and people don't sit idle for too long.

[imtringued]

You also have to pay for the working space. The reason why paint jobs cost so much has more to do with the lengthy setup than the actual labor or consumables. You need to maintain a specific temperature. You must detach the painted parts and tape them. There are minimum volumes of paint you have to use before you can mix them. This is why painting one part is so expensive. Painting three bumpers at once is much cheaper but nobody wrecks 3 bumpers at once.

[clarry]

How is "lengthy setup" not labour?

[triceratops]

Yeah, selling labor makes sense if you're short on jobs. If your order pipeline is full it makes more sense to sell marked-up parts and use less labor.