SPECIAL REPORT: Subtle Improvements point to positives for Ontario

There are many positive points surfacing that gives one hope that the independent sector is progressing to a more professional execution of its business. For example, the continuing process of owners moving out of the bays to be up front to deal with business and client/customer issues is probably the most important point in building profit for a shop today, and the effort to do so is showing up in the numbers. With this movement of management out of the bays, technicians’ productivity is slowly increasing, from a provincial average of 60% in 2000, to a provincial average of 62% as at June 2001. Jobber purchase loyalty is also starting to actually show its existence in all regions of the province, which is a first. Important trends for professional business management and profits have started; now, it will be everyone’s function throughout the province not to lose sight of these positive points, and remain focused on them over the next year.

The negative side is that too many shop owner’s lack self confidence, which does show through the numbers loud and clear, and this must continue to be addressed. This is reflected through the average provincial labour rate which has only increased 5.3% (before inflation is factored in) over June 2000, which is nowhere near enough to cover the increase in technician wages/benefits, and the increase in training and equipment requirements needed to keep a shop moving forward with today’s vehicle technology. The provincial average guaranteed hourly wage for a licensed technician at June 30, 2001, was $20.56. This wage level requires a minimum retail maintenance door rate in Ontario of $80.00 per hour. The fear of raising door rates remains in the minds of too many owners, as the continue to say “I can’t get that here”. Many progressive shops have stated that it is not the door rate that the client wants to know, it is the “total value received for what the client is paying for” that is the true issue. This province must stop focusing on price, which has created a ” race to the bottom” attitude in pricing structure, and start focusing on “value delivered”. When you deliver exceptional value consistently, the right price that the shop needs to succeed is very obtainable, as price becomes much less of a concern with a satisfied client because they perceive that they received value for the price paid. Ask yourself these two questions, “what value do we bring, and deliver, to a client with his/her vehicle maintenance, that the real competition can’t come close to?” and “what makes us distinctly different from the competition in our market area?” If you can’t clearly answer these two questions, well, maybe it’s time to re-invent your shop as to what it is and stands for, or, it’s time to close the doors and move on, because you can’t obtain a professional income and enjoy a career in this business running a shop based just on price.

The following is a summary by region:

Southern Ontario

There are shop owners in this region that should be congratulated as they are definitely trying to make the effort to change, however, it is acknowledged that change is not easy. This area of the province has had a “rough ride” over the past number of years because it has always had the lowest labour rates, lowest productivity, lowest gross profit return, and many owners had an negative attitude. Not everyone here is off the hook yet by any means, but it must be recognized that many survey participants have been trying to get through the metamorphosis required to move their shop forward. Consider that June 2000 had an average labour rate of $57.67. By December 2000, their average labour rate was $59.91, and now, as at June 30 2001, their average labour rate is $63.21. That is a 9.6% increase in one year. Yes, they are still the lowest in the province, and yes, it still must go higher, but at least the gap is closing with the rest of the province, and an effort is being made. Consider that many shops didn’t have a tier rate in place two years ago and now the average survey participant has a tier labour rate of $73.80. Consider that last year, jobber “first call” loyalty was in the 58% to 64% range, but an effort has been made to create a good working relationship with their chosen jobber, and this June, “first call” loyalty is hovering around 69% to 70%. Consider that the owners in this region are struggling to get out of the bays, and it is hard to get out when you can’t find, or afford, any competent technicians to replace you. This is showing up in the sales mix of the shop and the time spent in the bays by the owner. In June 2000 the average sale mix was 86.2% aftermarket and 13.8% dealer parts, and now as at June 30, 2001 their sales mix is 81.8% aftermarket and 18.2% dealer parts. They are starting to see the customer/client fleet change over introducing higher vehicle technology to the bays, but, who is going to diagnose and fix them? The average owner is the top technician in the shop and has been forced to stay in the bays to look after their clientele. In June 2000, the average owner spent 37% of their time in the bays and by December they were up to 50%, but now it has slipped back to 42%. When management is in the bays, the business and other technicians’ productivity do suffer. Owners should consider that by getting their labour rates up to where they should be, and by managing the business professionally, in time, the monies become available to go after and hire the best technicians in their area; technicians that perhaps management perceives it can not afford to hire today. There is light at the end of this tunnel, so keep pressing Southern Ontario.

Central Ontario

The Drive Clean program has been keeping the volume of business flowing throughout Central Ontario, however, it has not translated into additional net profit for the average shop. Management has not kept their labour rates at the proper level to off-set their increased operating costs. This results in a shop “keeping busy” as total sales per hoist are up 22.0% over 2000, before inflation is factored in, but it did not guarantee an increase in net profit. Too many shops are exchanging dollar for dollar. The average total bay gross profit was 60.2% in June 2000 and remains at 60.7% for June 2001. Labour rates increased only 3.9% from $66.74 in June 2000 to $69.37 in June 2001, however, the average technician hourly wage in this region of the province has increased 11.9% and requires a minimum retail labour rate of $80.80. An $11 increase in labour rates will get the average shop in the right pricing area. This translates into an additional $14.30 in labour on the average work-order as the average shop in this region is producing 1.3 labour hours per work-order. Consider adjusting your rates now, and then focus on the “value” your shop delivers to its clientele.

Oil gross profit dropped 7.9% to an average of 39.6% as at June 2001 from 43.0% June 2000. Tire gross profits remain virtually unchanged averaging 21%, but battery gross profits are up 10% from 28.6% to 31.5%. Parts gross profits are also up 8.1% from 30.8% in June 2000 to an average of 33.3% in June 2001 when aftermarket and dealer parts are combined. Supplier loyalty has improved, however as in other regions of the province, it is not as strong as it should be. The average shop has 63.5% of their aftermarket parts purchased going to one supplier, which is up from the 62% in June 2000. For best business results in terms of best use of management’s time, and business gross profit enhancement, it is recommended that a shop develop a professional relationship with their chosen supplier to bring a minimum of 85% of parts purchased to that one supplier.

Owners and managers in this region of the province must learn to ignore the pricing policies of the weaker shops. They must also ignore the pricing strategies of the weaker jobbers who enter their shop selling white-box parts and offering a “deal” for today. These jobbers have short term thinking, and they lack the understanding as to how to run a shop at the professional level required today. The better sho
ps develop solid business relationships at all levels, including with their jobber. Plan, and then manage, your business towards a five-year vision. Focus on understanding what type of customer/client you want to do business with, and what value you can deliver to them to set you apart from the rest. Charge the right price for the value delivered and your bottom line will improve substantially.

Eastern Ontario

Although Eastern Ontario remains the most effective region in the Province, in terms of gross profit and productivity management, and have many of the successful business management techniques in place, they are still leaving a tremendous amount of money on the table.

This region’s average labour rates have increased only 2.9% in the past 12 months, which is clearly unacceptable if you’re going to be the best in this business, maintain, and keep competent staff. The average labour rate for this region should be a minimum of $78.39 which is a $14.44 increase from the current average of $63.95. The average shop in this region produces 1.32 hours of labour per work-order, which translates into an extra $19.06 in labour revenue per work-order. That is very achievable and should not be ignored. If a shop averages 290 work-orders per month, the additional labour revenue would come in at $5,527.40 per month. If the shops do not move now with their rates, then they will not be positioned properly when the Drive Clean program comes to this region in July, 2002. Positioning your business for future growth and prosperity is a constant study, and it is time now to get ready for next year. The average shop involved with Drive Clean, will see their costs increase dramatically between now and December 2002, and waiting to move next year, trying to play catch-up with your labour rates will be too big of a psychological shock to the business.

As stated, this region continues to maintain the highest average for technician productivity. The lesson other regions can learn from Eastern Ontario is by noticing that the average owner/manager spends only 17% of their time in the bays. This is the lowest percentage in the province, which, in turn, creates the most productive technicians in the province. When management gets out of the bays and focuses on customer/client management, coupled with proper bay scheduling, productivity goes up. When productivity goes up, and it is managed professionally, profits go up. That is not a bad deal.

In Conclusion

The independent sector of the automotive aftermarket industry in Ontario has come a long way over the past five years, but still has many steps that must be taken to achieve the level of professionalism, and income, desired. It will take individual management discipline and focus, coupled with industry support, to see this through. Every business today must understand the transformation from an “asset” based business to a “talent” based business. Owners and managers can not absorb the cost of benefits and increased wages for good people. The consumer must pay for quality, reliable, talent. That only happens when the shop charges the right labour rates. Slow down, proceed to educate the consumer, and then deliver full value to the consumer for the price being charged. It is important to remember that we cannot become what we need to be by remaining what we are.