Let’s Return to Old Time Rebuilding COLUMN BY JOHN JERVELUND Several years ago, the Automotive Parts Remanufacturers Assoc- iation (APRA) and Auto Electric Rebuilders Association of Canada (AERAC.) held a joint meeting/trade show in Vancouver and I was invited to speak on my theories of how to run a business profitably, which I did, with a great deal of confidence. Because of the changes that have occurred in the interim and are continuing at an ever increasing rate, I am no longer comfortable telling you how to do it. So what I am going to do is give you some thoughts and theories, and let you decide which, if any, are useful and might be implemented or incorporated into your business. I am now of the opinion that we need to return to “old time rebuilding.’ Many of the suppliers are saying “we can sell it to you as cheaply as you can build it,’ and that is not true. If you believe this, you are headed for trouble. Suppose you can buy a Ford PMGR for $50 and you sell it for $100, thereby making $50. You calculate that it would cost you $50 to build it. There is the issue of time to do the work to factor in. You can buy in 10 minutes and build in 20 to 50 minutes. I did a calculation that, replacing arma- ture, brush rack, drive, solenoid and bushings, including labor and overhead, it should cost you about $50 to rebuild a Ford PMGR. A supplier recently offered new PMGRs for $50. The only difference between a new and the rebuilt I described is the housings and field case. Since these items do not need replacing every time, it is less expensive to rebuild than buy. My point here is that the $50 it cost for you to rebuild, included something for your labor, rent, insurance, etc. The sup- plier would have to be below your build price by about 15 to 20 percent for the effect on you bottom line to be the same. If you buy the unit for $50, all of the money goes into the supplier’s pocket, whereas if you build it, part of that $50 cost is applied to your fixed expenses (rent, heat, wages, etc.), therefore when you make $50 profit you have two profits, not one. I am not saying don’t buy, but think about it. If you have eight hours of profitable rebuilding work and three more hours comes in — buy it, but if you only have five hours and three comes in, build it. Another thing to consider is how many times do you have to put everything new into a rebuilt? The probable answer is not often. Because we are rebuilders, we sal- vage, rework and reuse parts. That is the theory behind the rebuilding industry. Why throw out or scrap good used parts when they can be reused and save costs? In my calculation of what it would cost to rebuild a PMGR I assumed that all the parts inside need replacing, which is not necessarily true, but I did not allow for replacing any housings. Another time to buy is when you need cores. If you buy at $50 and sell at $100 exchange, you generate a core. If you get an aftermarket core back, unless you know for sure that you can get parts, throw it out. Only save OEM cores and only try to build OEM cores. Save cores until a slow period and then do all you have at one time. Build what you can and throw out the rest. All of us have parts that are good and we’ll use one day… maybe. Each square foot in your shop has a cost attached to it and takes rent (mortgage), heat, electricity and taxes. If all that is lying there is a bunch of old cores, they better be expen- sive ones. If it’s old parts, you better get a lot for them when they are used because just sitting there they’ve increased in cost. I have a jobber in Brantford who will sell you a Ford PMGR for $65 exchange with a 90-day warranty. If you want a year, that is $129. People tell me, “I can’t compete with that!” and that is nonsense. If it costs me $50 and I sell at $65, I made money and I competed and because of the jobber, I only have to give 90 days. They only give 90 days, not 91 or 95, only 90 days, and they say to get one year it will cost $129. Same at my place and my cost is still $50, so I made even more money. By selling at $65, I made about 25 per- cent on margin — that’s not bad. Profit is Not a Dirty Word Profits: the difference between cost and selling. Definitely not a dirty word. It can be calculated by markup or margin. If you use markup, you are wrong! Discounts are given as a percentage of the selling price. In this case, if you gave a 10 percent discount you would have to give $6.50 off, not $5. All differences between cost and sell- ing need to be calculated as margin, not markup. If it costs you $40 and you want to make 30 percent, you must sell if for $57.15, not $52. If you needed to give a volume discount of 10 percent, you wouldn’t want to tell the customer what your cost was by offering him $4. $57.15 minus 30 percent is $40, but $52 minus 30 percent is $36.40. There are many ways to calculate “mar- gin,” which is setting your profit as a per- centage of your selling price. My way is to subtract your desired profit pe