Auto Service World
Feature   August 1, 2007   by J.D. Ney, Assistant Editor

Stats Can Releases Industry Report

Strong growth could be curtailed with continued shortage of skilled labour

Statistics Canada recently distributed its annual report of the independent repair industry, which details the relevant stats and figures for the 2005 financial year. In all, this newest report paints a somewhat murky picture of the repair industry. While some markets and financial indicators are undoubtedly strong, others are showing some signs for concern. So, despite profits which have been on the rise over the course of the last several Stats Can surveys, new factors appear ready to take increasingly significant bites out of those profits.

According to this year’s report, the automotive repair and maintenance firms continued to show steady growth in 2005, continuing on from an equally robust 2004. However, according to many in the industry, any profits that may have been enjoyed were swallowed up by rising labour costs due to a shortage of skilled labour.

In fact, total operating expenses for the industry grew to $11.1 billion, up 2.6 per cent from 2004. While other rising costs were certainly at play, much of this increase can be attributed to a nine per cent growth in salaries and wages in 2005.

Fortunately for those operating shops, the increase in expenses was offset by a 2.6 per cent annual advance in operating revenues, leaving the industry’s operating profit margin stable at 5.3 per cent in 2005. So, while kudos should obviously be handed around to the industry as a whole, the issue of skilled labour is a serious one. Given the declining numbers of qualified and trained people available from the collective pool of workers, basic supply and demand laws will cause this issue to be even more serious, if students and potential new technicians are not strongly encouraged to get into this clearly profitable business.

Many shop owners from across the country routinely fail the see their own role in this equation. Often choosing to rely on associations or government to fix the labour shortage, shop owners can help themselves by taking part in high school co-op programs, or special internship opportunities. It has been mentioned by several readers that they find these programs unreliable, or any number of other reasons, but barring a huge influx of new technicians due to a government program, this particular problem will likely require some grassroots solutions.

Further, the study goes on to breakdown the industry by providing the profit splits between the various market niches that exist. According to the report, businesses classified in the automotive repair and maintenance services industry earned operating revenues of $11.7 billion in 2005. Mechanical and electrical repairs and maintenance generated 61 per cent of these operating revenues while auto-body, paint and glass repairs generated another 31 per cent.

Adding to the study’s comprehensiveness was a quick look into the source of the total revenue numbers, and according to the findings, nearly two-thirds of the industry’s 2005 operating revenues were generated by shops located in Ontario (36 per cent) and Quebec (25 per cent). This is quite understandable given that those figures are roughly proportional to overall population. Geographically speaking, the most significant finding was in terms of growth, where the report noted that the industry’s operating revenues grew most rapidly in Alberta, where they jumped nine per cent. Given that Province’s continued population boom, owners in that province especially can probably expect the trend to continue, as those racing for the oil patch are bound to have their fair share of fender benders, particularly if the provincial government is slow to react to infrastructure necessities.

Finally, the study mapped out the landscape of the industry in terms of small and large players, and the revenues they reap, with some perhaps surprising results. According to Stats Can, the industry is literally dominated by small firms. In fact, the market share of the industry’s 20 largest firms represented only five per cent of the industry’s total operating revenue for the 2005 fiscal year. That said, the survey did not include vehicle repairs provided by retailers such as car dealers and retail chain stores selling and servicing motor vehicles, as those numbers are covered instead by the Quarterly Retail Commodity Survey. Not an insignificant group the mass retailers are certainly playing an increasing role in the industry. What is likely to change in that arena, that will certainly impact next year’s numbers, is the relatively recent push by some of the major retailers to jump in the repair fray. Stores like Wal-Mart and Costco will likely take a certain chunk out of the overall pie, and repair facilities like Canadian Tire are making a continued drive to further cement their place within the industry. Whether or not those outlets will have a significant impact on overall profitability remains to be seen, as their pricing strategies often leave them in a perpetual loss leader cycle.

In the end it would appear as though the industry as a whole is a vibrant and healthy one, albeit with the potential to enter into some very tough times labour wise within the next few years. If salary pressures continue to build without any pro-active steps being taken independent of association or government decree, the repair business could be heading into some difficult years.

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