This blog originally appeared on Rural Lifestyle Dealer as part of the author’s Equipment Dealer Tips, Tales & Takeaways blog. Interested in a deep-dive into absorption from industry experts? Don’t miss this summer’s Dealership Minds Summit. Learn more here.

Much has been written on dealership management about 'Absorption' or absorption rates. It is important, especially in these trying times of almost depression like sales for dealers and manufacturers. We have also been reading much about impending tariffs that might affect the farm implement business. The issue that caused the clapper to ring my bell are the recent emails from all our suppliers that have the same message: "There may be tariffs that might affect our costs, therefore we are announcing a 5% PRICE INCREASE that will occur in April."

Let me get this straight in my thinking. We have billions of parts in stock across the country that are sitting, and some have been sitting for years, that are going up 5% in one day. There is a lead time on parts. How long does it take to unload a container, or air freight shipment that has to go to a packager or be put in inventory? When we need a part that is not in the country, we are told 2 weeks to a month unless we pay an extra fee and have one bypass the normal stocking process when a part is out of stock awaiting shelving. Would one say this is a windfall profit to the bottom line? I suggest it is a preemptive absorption move in tough times. Are we dealers supposed to follow suit and tack on 5% on the stock we have on our shelves on April 15th? Remember the days in the grocery store when you saw a 67 cent price tag on a can of beans that was placed on top of the old 43 cent price tag? Just food for thought, that has no artificial flavoring or dyes.

Parts are really embarrassingly high right now. My crew tells me I am a dinosaur and to get used to it. I refuse. We report items that are out of line and in many cases the suppliers do lower prices. Most do not. We realize the companies cannot look subjectively at every part. Instead, they rely on a computer formula to set pieces. One of the parameters is a percentage increase factor for a part that is slowing in sales. This bothers me. Too many times, the reason a part slows in sales is that an aftermarket competitor to the big guys comes in and undercuts the price and steals the sale. This happens again and again, and the OEM guys think there is dwindling demand on this little part and raise the price, when in fact the part is selling like crazy — by a competitor. With Dr. Google available 24/7 at no charge - customers shop for parts.

Another example of not 'watching' parts. We once sold a kit for a cornhead to prevent ears being thrown out the front. The kit was about $600 to the customer about 20 years ago. This customer, later in the year, stepped on a piece of the kit and bent it. He called and asked us to order a new hinge. I looked up the part and it was $5,000.00! I went through the process of price checking and was told they could not adjust the price because they had no sales history.

I just checked and it is still in the price book, only now it is $5,100. The point is that today we dealers and manufacturers have no idea on parts pricing on all our parts as to correct pricing, and whether our competition is getting our sales due to price. The numbers of parts to check are just too large. Maybe AI could help? We will see.

Interesting side story: Ed Swingle, a founder of AGCO was a prior employee of Allis-Chalmers. I was hired about the same time, became friends and when I went into the dealership I was always on Ed about the high price of parts. He always referred to the line 'one has to pay for quality.’ One day he rode into Independence from his home in Blue Springs with AC engineer Dave Murray. He looked in the back seat and saw a box from Auto-Shack (pre 1987) and learned it was a starter solenoid for Dave's car. "Why did you not buy a genuine GM part?" Dave replied that it was for an old car he seldom drove, and it was $29. GM wants $89 for an OEM one. The light bulb came on. Ed directed a Heritage line of parts. Same part number but with a V at the end for value. Want quality with a warranty, get the genuine part. Want a value part, get that from the same dealer. Unfortunately, the program never matured to what Ed envisioned. Ed passed away in a plane crash of the AGCO corporate jet in England, along with co-founder John Shumejda in 2002. A terrible loss.