Cover Story: 2001 Central Canada Report

The stress of worldwide events, the weather, consumer attitudes, and the changes within our industry have broken through the surface and are taking its toll on the average shop in Ontario.

Our December survey confirms that 2001, which started out with reasonable expectations, ended as an ugly second half as the average shop in Ontario saw total revenues per hoist for the year, as compared to 2000, decline 1.5% before any inflation number was factored in.

It turned out that the second half of 2001 was the killer. The combination of September 11 events coupled with a “no start” winter saw average revenues per hoist plummet 14.2% from the first six months of 2001. The worst hit area, again, was Southern Ontario, as Central and Eastern Ontario regions remained flat. Consider the two weeks after September 11 coupled with the traditional slowdown of two weeks in December, and it is like the average shop lost a whole month of business. It would make sense then, that any gains in the first half of the year would be wiped out.

Everyone seems to acknowledge changing times, but it amazes me how many people talk about it but do nothing to his or her business to adjust. Events outside “your world”, and changes within our industry, are going to remain a constant and you can not control these, so let’s get over it and deal with it, as you must recognize the potential affect on your business.

With the right frame of mind, negative events can be turned into positive circumstances when you take the time to think about it. A simple example would be September 11. As everyone seem to go into a “cocoon”, and enter a “negative” frame of mind with all the doubt in the world, the opportunity to enhance your customer/client relationship was available for the clients that did show up at your shop during those few weeks after the tragic event. Instead of just handing the vehicle over to the customer/client at the end of the work, perhaps you could of created some positive feelings for the client by delivering a fully washed, vacuumed vehicle, shined inside and out with an engine shampoo thrown in. You had the time. You had the time to show the customer/client what a great vehicle they really had, and discuss the fact that with some common sense preventive maintenance, and perhaps a small monthly budget of $125 per month, the vehicle could last many more years of driving pleasure. You had the time to walk the client around their vehicle and show them what a great vehicle they had. Open the hood and see a sparkling clean engine, and………WOW, my car doesn’t look so bad after all does it? There is no need to go and buy or lease a new vehicle and pay anywhere from $200 to $600 in after-tax dollars. This vehicle is just fine. Thank you for showing me another side. What a positive experience during negative times.

The message is, consider analysing all negatives and adjusting your business to find a positive. Slow down and reflect on all circumstances.

The following is a summary of each region:

This region was hard hit in the second half of 2001. It seemed as soon as “trying times” appeared everyone here went for the pricing game to create some activity. The unfortunate result of this decision, as it always is in the service provider sector: activity does not mean profit. Oil gross profit dropped from an average of 41.4% in June to 38.7% by December. Tires went from 20.1% to 19.6%. Batteries from 31% to 30.4% and aftermarket parts and dealer parts combined dropped from 31.0% to 29.3% even with a slightly higher than normal percentage mix of aftermarket parts over dealer parts and total bay gross profit, including labour, dropped from 58.2% to 56.6%. This region of the Province over the past one and a half years appeared to be moving forward, but it is amazing the lack of self confidence, and focus, that remains in this Ontario marketplace. Everyone in Southern Ontario is talking about the “other guy”, the other shop, the other jobber, but when challenged about their own actions, the excuses come screaming to the surface. This region also continues to price shop its parts and hard goods, versus getting focussed on customer/client relationships and its productivity. The average labour hours produced per work order/invoice in this region remains a very low 1.28 hours. Supplier relationships are not in place. Trust between shop management and the supplier remains very low. There is also a large concern on how much “white box” product has hit this region. Quality products, and quality service is given up to provide a little cash flow and better price for today. This business attitude is a recipe for disaster. Management is totally responsible for its dilemma, but if the owner insists on remaining in the bays, spending 41% of his working day, the lack of profit problem will not get resolved. The math doesn’t lie. Supplier accounts payable cannot get paid each month as the average accounts receivable is a huge $30,255 and 49.3% of that number is tied up with commercial accounts. Until responsible, entrepreneur action by jobbers, and service provider shops, takes place to “lead” this region out of its problems, we will continue to hear about shop and potential jobber bankruptcies, and everyone will just continue to point their finger at someone else.

With all the world activity in the second half of this year affecting consumers feelings and attitudes, this region of the Province was able to at least hold on to a revenue base. It doesn’t mean they were profitable, but it appears that shop owners are starting to concentrate on the right thing, that is, shop productivity and the labour produced. The average work order rose from an average of 1.30 labour hours produced per work order/invoice to an average of 1.36 with a very slight increase, 2.2%, in their labour rate over a one-year period. Oil gross profit is virtually the same, 39.7% versus 39.6% on June 30 of this year. Tire gross profit came in at 20.4% versus 21% in June. Battery gross profit experienced a drop averaging out to 29.8% over 31.5% in June. Aftermarket and dealer parts combined came in at 31.7% from 33.3% in June. These subtle changes, even with the offset of increase in labour productivity brought the average shop’s total gross profit percentage in at 59.4%. This area averaged 60.7% in June, but averaged 58.9% in December 2000, so there is improvement, even though it is slight. It appears that the better shops have now got the “activity” that the Drive Clean program brings under control, which was critical in order to start focussing on labour productivity.

Once again, as in the past, supplier relations are not strong in this region. 58% of aftermarket purchases go to one main supplier. Obviously, there is an issue to be discussed here, but it appears the average jobber in this region would rather avoid sitting down with their “customer” and see what it would take to turn it into to a “client” relationship and achieve a 75% to 90% purchase loyalty relationship that is paid in full each month. The average service provider shop does obviously not trust the jobber’s intentions and does not want to waste his/her time even discussing this issue with the supplier. As in Southern Ontario, entrepreneurship mind-set is required here rather than an employee mind-set. Nothing will change until people stop pointing fingers, and sit down and discuss their reality situation. The math doesn’t lie: supplier relationship affects the gross profit of the shop. When both come to the table with honest intentions, profitability of both businesses changes for the better.

This region is still holding the gold medal for the Province in its performance. It isn’t perfect, but they are outstanding as compared to Southern and Central Ontario. Consider that they still maintain the highest gross profit percentages. Consider that Eastern Ontario Management has learned to stay out of the bays and manage their businesses. Consider that they are focussed on client relationships, as their revenue may appear to be slightly lower, but they are averaging 1.53 labour hours per invoice compared to Ce
ntral Ontario’s 1.36 hours and Southern Ontario’s 1.28 hours per work order/invoice. Eastern Ontario’s total gross profit percentage is coming in at 61.6% which is higher then the other regions, however, it is down from June’s 62.4% and December 2000 number of 62.8%. This region maintains one of the highest supplier loyalty percentages in the Province with, on average, 76% of all aftermarket purchases going to one main supplier. This region does understand the principle of working smarter, not harder.

The biggest weakness in this region, which still must be addressed, is its labour rates. They are currently averaging $63.83 per hour. The labour rates in this area should be at a minimum of $78 for maintenance/mechanical work and a minimum of a $110 Tier rate, based on current average technician wage costs. This July, the Drive Clean program hits this region, and they are not really ready for it. They must study, and understand the math of their own business and whom they are selling to. When one has an attitude of “know it all”, or an “over abundance” of self-confidence, you get hit from the side that will knock you off the rails.

This area’s labour rates have been falling behind for 4 years now, instead of leading the Province as it once did. That is not just sales lost, that is Net Profit lost. This must change, as the Drive Clean program can and will put shops out of control, and with the incorrect labour rate, and workflow strategy, they will fall back to Central Ontario’s experience and consequences. Maintenance and Tier labour rates must be properly in place, and well managed, to enhance the profitability of the shop. The workflow of how the Drive Clean program will affect a typical day’s business must be studied. The math must be re-visited in depth. If not, client relationships will be lost as the shop will be perceived at being too busy to look after me. When client relationships are affected, NET PROFIT is affected with huge, long-term consequences.

As much as many reports look negative, one must realize that there is a lot of positive out there as well. There are jobbers trying very hard to change their relationships and develop a “client” strategy of getting all the business and bring “value” to their client’s shop. These jobbers must be applauded and supported, as they are taking the right message to the market, and we know their bottom line reflects it. These jobbers are working smart, with a lot less stress in their organization. Everyone just wished they would get their peers on board, executing the same strategy.

There are also many great Service Provider shops out there as well, as they understand business management/ measurement, and relationships within their business and with their client base. These shops too must be applauded, and recognized, but again, everyone wished these shops would be screaming at their peers to change and get on board in building a professional, profitable business. It would serve our industry well.

Once again, the math doesn’t lie, slow down, discover your business, measure it correctly which in turn will allow you to manage it correctly, and the future will be everything you wanted it to be. If you don’t, what is the alternative? It does not take much strength to do things, but it requires great strength to decide what to do.

Robert (Bob) Greenwood is President and CEO of E. K. Williams & Co. (Ontario) Ltd. and Automotive Aftermarket E-Learning Centre Ltd. Bob has over 27 years of Business Management experience within the automotive industry, counseling individual shops in Ontario.

E. K. Williams & Co. (Ontario) Ltd. offices specialize in the independent sector of the automotive industry, preparing analytical operating statements for Management purposes, personal and corporate tax return completion, Business Management consultation and Business Management and Employee Development Courses. Visit E. K. Williams & Co. on the Internet at www.ekw.ca and sign up for their FREE monthly management letter sent to you by E-mail.

Automotive Aftermarket E-Learning Centre Ltd. is a company devoted to developing Automotive Shop Business Management skills through the E-Learning environment over the inter-net. Students learn at their own speed, and at a time, and place, that best suits their needs; available 7 days a week 24 hours a day.

Visit Automotive Aftermarket E-Learning Centre Ltd. on the Internet at www.aaec.ca

Bob can be reached at (613) 836-5130, 1-800-267-5497, FAX (613) 836-4637 or by E-mail; greenwood@ekw.ca or greenwood@aaec.ca

Independent General Automotive Repair Shop December 31, 2001 Statistical Report