From the Magazine: Headwinds awaiting your shop

How economic uncertainty will impact auto service

The mechanical automotive service market in Canada faced significant challenges in 2024 and appears poised for continued turbulence as we head into 2025.

Reflecting on the macroeconomic environment in 2024, the start of 2024 saw mechanical retail service locations performing well. Inflationary pressures were weaning and consumer confidence remained relatively steady, as reflected in the Consumer Price Index (CPI). However, by the second quarter, disinflationary trends began to emerge as the Bank of Canada maintained tight monetary policy to combat the lingering effects of high inflation.

Historically, the automotive service industry demonstrates an inverse relationship with economic conditions: In prosperous times, new vehicle sales increase, reducing the average vehicle age and lease/finance turnovers, which dampens service revenue growth. However, this cycle has been atypical.

The sustained period of tight monetary policy and higher interest rates, compared to the past decade, presented a mixed landscape. While OEM sales showed signs of recovery, consumers grappled with the dual challenges of elevated vehicle prices stemming from inflation and increased borrowing costs. As consumer confidence waned, many found it difficult to bear the costs of non-discretionary vehicle maintenance.

Publicly traded companies in the service sector mirrored these struggles. For example, Monro, Inc., one of the largest aftermarket service chains in the U.S., reported a 6.4 per cent year-over-year revenue decline in its regulatory filings in the second quarter of last year. Although the U.S. economic environment differs from Canada’s, it serves as a benchmark while highlighting unique Canadian complexities, including currency fluctuations, a weakening dollar, taxation pressures, housing affordability challenges, and labor trends.

From a parts perspective, I see automotive service providers needing to focus on product choices and building incredible service experiences and trust with their customers to drive success.

Looking ahead to 2025, political uncertainty in Canada will likely continue to influence the sector. Key concerns include how the Canadian government navigates the economic landscape, the implications of U.S. trade tariffs and the ongoing weakness of the Canadian dollar.

While the U.S. Federal Reserve appears to be pausing its tightening monetary policy, Canadian consumers remain under strain. Economic indicators suggest Canada may ease monetary conditions, which could widen the bond yield disparity with the U.S., further weakening the Canadian dollar. For a sector reliant on imports from the U.S., this currency weakness will exacerbate cost pressures, ultimately affecting consumer purchasing power.

Despite these challenges, the automotive service market remains a diverse and resilient industry. Segments such as collision and auto-glass, which often rely on insurance-paid components, have seen growth opportunities, particularly with the evolution of advanced driver assistance systems (ADAS). These technologies represent a beacon of hope for revenue growth within the service sector.

For service providers, the path forward lies in adapting to changing market dynamics and focusing on operational efficiency.

Key areas for improvement include:

■  Performance coaching and training: Equip service providers with the tools and knowledge to improve efficiency and profitability.

■  Customer experience enhancement: Differentiate through superior service and create loyalty among vehicle owners.

■  Exploring untapped segments: Unlock profitable opportunities in areas like auto-glass and ADAS services.

From my experience — spanning service operations to overseeing multi-faceted auto service chains across the country — the narrative with customers must evolve. Service providers must drive customer experience, encourage investment, and embrace innovation. This includes adapting to the technological demands of modern vehicles and their owners.

The future will see a reduction in the number of service shops as the industry continues to consolidate and adapt to rising costs in training, personnel and overhead. There is going to be a significant compression in consumers to bear the threshold of maintenance services and increase the pressure on automotive service locations to become more creative and navigate these rising cost and consumer spending pressures.

From a parts perspective, I see automotive service providers needing to focus on product choices and building incredible service experiences and trust with their customers to drive success.

Many shops take a cookie-cutter approach, but drivers will need to include significant investments into deep customer interactions including community events, local sponsorships, customer education events and marketing to continually drive new customers to the shop.

Meanwhile, providers will have to ensure the optimization of operational functions at the counter to close opportunities when presented at the shop.

Zakari Krieger is the Fix Network, Canadian vice president of Prime CarCare, responsible for the Canadian retail business, encompassing the Speedy Auto Service and Novus Auto Glass business lines

This article originally appeared in the February 2025 issue of CARS magazine