Auto Service World
Feature   April 1, 2000   by CARS Magazine

Chronically low overall prospects labor rates undermine

Performance SummariesOil gross profit has increased 4.0% over 1998 to 47.1%. Tires are down slightly from 20.8% in 1998 to 19.6% by December 1999.Batteries remain constant at 30%.Parts gross profit, h...

Performance Summaries

Oil gross profit has increased 4.0% over 1998 to 47.1%. Tires are down slightly from 20.8% in 1998 to 19.6% by December 1999.

Batteries remain constant at 30%.

Parts gross profit, however, has decreased from 35.7% to 29.5, a 17.4% drop.

Business strategies must be shored up in this region, as total sales per hoist only increased 6.4% (not including the inflation factor) over 1998. The average labor rate moved up to $58.60 in 1999 from $55.80 in 1998; however, that is far from the desired target, as we know the average technician’s hourly wage is $19.20 for this region of the province.

The basic door rate for Southern Ontario should be at the $72 level based on the cost for technicians.

Management must remain focused on improving this particular problem over the course of the year, but at least shops are headed in the right direction. Management time in the bays went from 40% in 1998 to 29% in 1999, allowing technician productivity to increase slightly, from 52% in 1998 to 59% in 1999.

This region must get more aggressive with the labor issue. For starters, educate the client base about the need to carry out services in a professional manner and in a professional environment. The client base will buy into it.

Customer perception means a lot. However, without improved labor billings, coupled with basic business management principles, cash flow will remain tight, progress on site and equipment improvements will not take place, and management will continue to struggle financially rather than succeed.

The Drive Clean program has had a turbulent effect on the average shop in this region; however, congratulations must go out to many shop owners who are slowly succeeding in bringing the situation under control. Often it’s a matter of dealing effectively with the sheer volume of business.

The first six months of 1999 saw everyone running around trying to get some semblance of order within this still relatively new vehicle emissions test and program.

Management went back into the bays for the first six months, spending as much as 43% of their time in the bays, resulting in technician productivity taking a dive.

Things improved in the second half of 1999, which saw management moving back up front, spending only 25% of their time working in the bays. Labor rates were also adjusted upward to start to more accurately reflect technical expertise and economic reality.

Results also indicate that the average shop of 3.8 hoists in this region is still writing 298 work-orders/invoices per month, down ever so slightly from the 303 from the first half of the year.

Productivity, however, is still way too low at an average of 55%. Once again, there are too many shops in this region negating the positive effects of a higher door rate by discounting or not charging out the full amount. This procedure will only result in a lack of economic improvement.

Management must take responsibility for this situation, and has the means to correct the problem.

Total bay gross profit continues on the slow decline, dropping down to 57.1% in 1999 from 57.9 in 1998.

Parts gross profit also dropped in this region by a whopping 9.3% to 32.0% from 35.3% earned in 1998.

Parts sales mix changed from an average 80% aftermarket/20% dealer in 1998 to a 78.2% aftermarket/21.8% dealer mix in 1999.

As the sales mix swings towards dealer parts, then it makes sense that parts gross profit will start to drop, but this is also an indication of the fact that management did not charge out the right labor component to handle this level of expert work.

From Mediocre Results To Excellent Year-End Performance in Eastern Ontario

Congratulations to this region of Ontario for turning a so/so first half of 1999 into an excellent year.

Oil gross profit remains steady at 50.5%.

Tire gross profit was down 7% to 23.8%, compared to the 1998 average of 25.9%.

Batteries saw a 12.5% increase to average 33% in 1999 compared to the 29.6% average of 1998.

Parts gross profit, on the other hand, continued the downward provincial sweep trend and dropped 12.8% to 33.9% over the 1998 average of 38.9%.

This is still the highest gross profit average in the province as shop owners work closely with their parts supplier, with 69.5% of all purchases going to one parts supplier.

Shop owners in this region focused sharply on productivity, creating an outstanding 66% technician productivity rate, which produced an average of $14,475 in sales per hoist in an area with a lower dollar labor rate average than Central Ontario.

This level of productivity helped to offset the drop in parts gross profit, with the average shop coming in at an average total bay gross profit of 59.5%, the highest in the province.

The biggest weakness in this area is the door rate, as the average class “A”, “S” & “T” technician is earning $19.73 per hour.

This level of technician compensation calls for a maintenance/mechanical door rate of $74 per hour.

It cannot be overemphasized how important it is to have a good productivity rate, but it is also important to have the work go out at the right rate.

In Conclusion

The entire independent sector in the province of Ontario is going through the traditional psychological fear of changing its labor rates.

We have seen it since 1966 where we had to fight with the independent sector of the industry to move into the $30 range of labor rates from the $20 range.

A shop owner would then glide through the $20s, and hold it at $29 for the longest time, until we had to push them over the $30 hump.

Then the shop owner would just glide through the $30 range and get stuck at $39. We have experienced this entire pattern at each $10 dollar level, including the $40s, the $50s and now once again, here it is, with the $60s. This is one tradition that we should bury.

Everyone has this fear that they are going to go broke by charging the right price that is required to deliver the level of service desired to their client base.

The only comment I can share with you on that thought is that over our entire lifetime of our company we have never, ever, seen a shop go broke by charging too much. But we have seen more than our fair share of shops go under for not charging enough.

Auto service enterprises must get a basic door rate in the low $70s to grow the business and to be fiscally capable to address future personal and business needs.

Express your entrepreneurial muscle and move your business forward and achieve a decent level of profitability and success. SSGM

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