2000 Ontario Business Survey

We all acknowledge that this industry is changing and has many challenges for the independent sector. Why is it, however, that we have a tendency to take two steps forward and then out of the blue take four steps backwards? It seems that only a small number within our industry have the self discipline to keep a focus on the business path that is required to overcome the challenges allowing one to grow, and maintain a profitable business.

It is very worthwhile to do a detailed study of the most “cancerous” area in Ontario, which is Southern Ontario, and have everyone learn from this.

Southern Ontario

This region which comprises the Brantford, Cambridge, Guelph, Kitchener/Waterloo, London, St Thomas, Windsor and the Essex County regions is in serious trouble. 64.3% of the survey participants came from a city location within these regions. The balance came from suburbs and rural areas. Our survey participants have reported that their average shop’s total gross profit was 53.4% for the six months ending December 31, 2000. This is a 7.9% decrease from the 58.0% averaged in the December 1999 survey. When comparing the numbers year over year, one can confirm that this region of the province runs its business based on a strategy of “price”, NOT “service”, “quality” and the ability to manage their business with various “productivity measurements”.

They want every sale possible from every “customer” that walks through the door. This is the biggest mistake any entrepreneur can make in this business. In this region, oil gross profit went from 47.1% gross profit return in 1999 to 36.1% as of December 31, 2000. Tires went from 19.6% to 16.8%. Batteries went from 30.2% to 24.4% and total parts gross profit dropped from 29.5% to 27.5%. Technician labour productivity took a “skydive” from an average of $5,906 as at December 1999 to $4,735 as of December 2000 and this was even after a slight labour rate increase of 2.2% for the year. The number one problem in this region is the owner/manager himself, and no one else within that shop is to blame. As at December 1999 the average shop owner in Southern Ontario was spending roughly 30 to 35% of his time in the bays, but then the “old bad habit” returned this year: management returned to work in the bays. Bad habits are like a comfortable bed….easy to get into, but hard to get out of. The average survey participant stated that they were now spending 50% of their time working in the bays as at December 31, 2000 which in turn drove the average technicians productivity from 59% in 1999 to 44% in 2000. This action by management and the resulting lack of productivity only accomplished one or both of two things…management bought themselves a job, and/or they are on their way to going broke.

Consider that every single positive discipline, business measurement and proven strategy known to create a profitable independent maintenance and service business in this industry seems to have been totally ignored, or thrown out the window, by this area of the province. The obvious question is WHY?

Consider one explanation that you would hear from this region, would be expressed as follows:

“My business is noticing a slightly higher level of “newer” vehicles coming in for service compared to two or three years ago. Technology service is growing faster than I have been able to anticipate, and my shop has not kept the staff’s talent up with this change. I can’t find any competent technicians with this kind of knowledge to work for me. I can’t afford the better technicians right now anyway, therefore, I must go back into the shop and resolve my customer/clients problems myself. Due to this problem of labor (knowledge) shortage, resulting in my decision to take action this way (by going back into the bays and doing it myself) I am finding that I don’t have the time, or focus, to pay attention to the rest of my business. I am financially poorer today than I was a year ago, and I am worried about future equipment requirements to handle this technology coupled with how to pay for it, training requirements, my current debt load and future income for my family. What am I to do when the entire marketplace is so desperate to make a sale, for cash flow purposes, that they all have a “race to the bottom” in their pricing strategy? No one seems to want to change in this region and really move forward, and it seems no one company is showing leadership to get us out of this mess together. I’m in a rut and I do not enjoy my business.”

Find a client, fire a customer

Southern Ontario, as do all independents, must realize that change is not an option. They can not run a profitable independent shop based on price. It is perhaps time to consider working smarter rather than harder.

The fact is, with price as a business strategy, the average shop beats up his jobber on price, shops around for parts to numerous jobbers; no loyalty business relationship is in place. They also can’t pay their jobber in full each month either because the shop is not profitable and receivables are out of line, so that’s another reason to shop around, spreading the debt load around to everyone. Only 58.2% of the aftermarket parts purchases go to the one main supplier in this region from the average shop.

This is the lowest loyalty rating in Ontario. Shopping for price on parts, because a good business and trust relationship is not in place with the jobber of choice, has been proven by many to be a waste of time. Management’s time in this business is worth the shop’s labour rate. Shopping for 15 minutes to save $10 on a part when your labour rate is $60 per hour just cost your business money. Management is supposed to make money for the company. The manager is now out of control and lost the vision and focus required to move forward.

It is time to step back, slow down, compare apples with apples and answer the question “who are you selling to?” The “client” doesn’t question you on price because he/she trusts you. You earned that relationship, but on the other hand, the “customer” questions you on every price and challenges you to match the guy down the road. You would never take advantage of a client, but the customer assumes you have taken advantage of them, even before you get started. Focus on building a client-based business. It is time to fire the customer. Find a client, fire a customer, find a client, fire a customer, and one more time, find a client, fire a customer.

Consider also that the jobbers in this area are not helping either, especially the ones that are out there promoting “white box” first and foremost rather than quality parts, because of the “best price”. These jobbers just don’t get it. He/she does not understand the independent shop’s business and how it really is suppose to work. Perhaps it’s time they learned. They are displaying, and executing, an irresponsible action to their customer, and to the industry, by promoting only price to their installer customers rather than delivering quality and value to the installer. Most likely these jobbers have huge receivable problems too, because to them a sale is a sale is a sale. The problem is, they made the sale to people who can’t pay. What does that accomplish?

Educate your customer/client base

Consider that the independent sector is in the quality/service business and must sell their knowledge by counseling and educating their customer/client base. The installer cannot run this type of business and be both the cheapest and be the best, therefore, his/her knowledge must go out the door at the right rate if a good profit is to be made, and sustained. The jobber, on the other hand, must ask “what value do we bring to the installer?” Support the installer by re-enforcing the service and quality equation. Council the installer to deliver his/her knowledge at the right labour rate (3.9 times the top maintenance technicians hourly wage, and 5.0 times the diagnostic hourly wage). Mathematically, it has been proven that all one is really asking from the customer/client is $14 to $18 more in total per visit to do it ri
ght. Do they understand the breakdown of their numbers of their business?

Slow down, Mr. Installer, and review the driving habits of your customer/client and educate them on the maintenance required based on their driving habits and expectations with their vehicle and the manufacturer’s recommendations. Print it out for the customer/client.

In regards to the lack of competent technicians, this will be with us for the balance of our careers. We have lost an entire generation. If additional staff is required, consider hiring the best available technicians from the real competition, such as the car dealerships. Pay your technicians well, treat them well, train them to be “part of the business”, BUT charge the right labour rate at the door for their knowledge and your value you bring to the table. Educate your customer/client base.

Don’t sell yourself short, as too many of the shops have. Now, we all know that all this isn’t as simple as I can lay it out here, but surely you are beginning to see the picture. Management must get out of the bays and up front, building the relationships with the client base they want to grow with and manage the back end. Consider it is time for Southern Ontario to get focused at all levels of the industry. If they don’t, please show me the math as to what is the alternative?

Central Ontario

It would appear that the shops are getting a handle on the volume the Drive Clean program brought to them. Last year we talked about how out of control they were with the sudden influx of customers that Drive Clean created. This December, the surveys are showing the average shop has increased their total gross profit percentage from the shop by 3.1% (before inflation) bringing it up to an average of 58.9%. Total sales per hoist have improved by 9.1%. The average labour hours produced per invoice moved from 1.12 hours last December to an average of 1.37 hours per work order/invoice. This is an excellent improvement, and is on the right trend, as it shows they are slowing down and starting to get the services that are required for that automobile. This has translated into a 62% technician productivity percentage as at December 31, 2000 versus the 55% last December. The average shops labour rate has moved from $66.24 last year to only $68.52 and this clearly is not good enough. Based on the average technician’s wages in this area, the average labour rate should be $83.69. A shop cannot afford to pay their technicians more without passing it on to the consumer. Slow down and get focused on your value that you are bringing to the table for each one of your customer/clients, educate the customer/client, and get paid for your knowledge. One other concern in the Central Ontario region is that supplier loyalty is slipping, as the average shop allows 61.1 percent of all purchases to go to one supplier. This is down from 64.1 from last year. What should be investi-gated here is that is there a relationship/trust issue, delivery problems, or, is the supplier not stocking his/her store properly, forcing the installer to shop somewhere else, or is the installer starting to slip back into the game of price shopping? Keep focused Central Ontario, you’re on the right track on more things this year than you were last year.

Eastern Ontario

Eastern Ontario is making some great strides forward and should be complimented for their efforts. Total shop gross profit is up from 59.5% as at December 1999 to 62.8% as at December 2000. Included in this is a 2.3% increase in their parts gross profit to an average of 34.7% (aftermarket and dealer parts combined), which is the highest in the province, and a 8.9% increase in their labour rate to an average of $65.91 per hour. Their businesses are growing from an average of 4.2 hoists in 1999 to an average of 5.2 in 2000. Management is staying out of the bays, maintaining a focus on working on the business, and not in the business. Their supplier loyalty is growing as well with the average shop providing 73.7% of all aftermarket purchases going to one supplier, the highest loyalty percentage in the province. Once again the biggest weakness in this region is the door rate that they should be charging based on their average technician wage cost. The minimum average labour rate in this region should be at $81.08, so they, also, still have some work to do.

Conclusion

All regions of the province have witnessed a consolidation of the industry and this metamorphosis will continue. It will mean the average independent must become selective as to which jobber with which he or she wants to do business. After that decision is made, make a commitment to bring 85% or more of your aftermarket parts purchases to that one supplier, then ensure the supplier is paid in full each month.

Build the business relationship of open discussion and understanding of each other. If your jobber doesn’t want that kind of relationship and sustain it, find one that does, because with out a proper relationship your profitability suffers. Both parties must make money, so work closely together on that issue.

Watch, and monitor your customer/client relationships by monitoring the average billed hours per work order and the frequency with which a given client should be in your shop for maintenance work on their vehicle, based on their driving habits and expectations with the vehicle.

Don’t rely on the weather to be the meat of your profits, manage your business to drive the profits, and let the weather be the gravy to the business. Do not get caught getting back in the bays yourself to complete the work. Your function is to be up front, building the business relationships required to gain client trust, get all their business, and managing the team in the back to execute to exceed your customer/client’s expectations.

One of the problems with our industry is that we would rather be ruined by praise than saved by criticism, so let’s move forward realizing that every accomplishment, be it big or small, has its stages of drudgery and triumph; first a beginning, secondly a struggle, and finally a victory. Too many just wish this would happen overnight rather than over a couple of years. The year 2000 is behind us, it is time to refocus and move on. Being beaten is a temporary condition…giving up though, is what makes it permanent. SSGM