Stuck in Neutral?

To appreciate and understand the relative issues within the industry, you combine the December 2004 and June 2004 surveys and measure them against the 2003 and 2002 surveys, and they confirm what some within the Aftermarket have talked about for the past year and where the majority within the sector have ignored the message. The consequences of the Aftermarket’s inertial management style commenced playing out last year very dramatically and now the financial “trauma” to the industry’s businesses may be severe.

The average Independent shop in Canada today is watching consumer service intervals change, the surge of dealer parts purchases within the shop, and is slowly starting to grasp the concept, while realizing the need and requirement, for a tiered labour rate system.

We have truly moved to a knowledge based business and the average shop owner is experiencing a tremendous amount of “anxiety” for his/her future as they have not kept up with the pace of change.

I’m confident the average Jobber in Canada feels the very same way.

Our sector of the industry has been, and still is, reactive instead of being proactive. This has cost our industry dearly. Consider the following facts:

* Overall, throughout Canada, Independent shop revenues have dropped on average 8.2% year over year

* Shop total gross profit has improved and moved from 58.4% to 61.3%

* Average labour dollars billed per technician in the shop has dropped 1.0%

* Average shop maintenance labour rates increased 8.3% and diagnostic rates increased 13.1%

* The average shop owner in Canada went back into the bays. In one year he went, on average, from 22% of his time to 25% of his time working harder at trying to get busy.

* Overall bay productivity dropped on average from 70% to 66%

* Aftermarket /dealer parts sales mix went from 80% / 20% in 2002 to 78% / 22% in 2003 to 74% / 26% in 2004

* Shop loyalty to their chosen Jobber went up in 2004, which is a trend to maintain, but the shops overall aftermarket parts purchases went down on average, 24.5% compared to 2003.

Do the math!!

These facts are startling … but certainly not unexpected when one studies the TREND in the Independent sector of the industry. It is perhaps time for the industry to bury the term “business is soft” and let honesty rise to the surface loud and clear with “business is hard”.

The challenge for the aftermarket industry is how to address the “freight train” rolling towards us at a very rapid speed that was discussed as far back as 2001 in various articles in this magazine and Jobber News. Unfortunately many shop owners and Jobbers acted like deer staring into a headlight and they froze, in essence saying “what’s that?”.

In November last year, in SSGM, I wrote an article pointing out the statistics from Desrosier Automotive Consultants as to the TREND of past and future vehicle models. This firm has been consistent in its message to the industry for the past few years about the changing mix of vehicles on the road from domestic to import vehicles across Canada. The Imports are on a mission and they are making positive progress. The Dealerships in this country are on a mission and they are making positive progress. The aftermarket appears to be trying to figure out what should be its mission and is falling backwards while it stares into the lights.

This article is critical about the lip service our sector of the industry has given to its future in the sense it attempts, verbally, to acknowledge the issues but forms no definitive solutions. The actions of the industry speak for itself as they appear to remain the same. “Are you busy?” is the common question still in the vocabulary.

The math proves that in order to maximize shop bottom-line profitability, the average shop does not want to be busy, they want to remain steady. If service intervals of vehicles have changed, then the front counter processes must change to address the service intervals. As the import mix grows, then the shop measurement of its sales must change in order to measure client base trends and shop technical training and equipment needs. If the competition is after the shop clients then the shop must change how it communicates and educates its client base. If technology is the future of the vehicle then “how to source information” and “how to charge for diagnosis” must be addressed in every shop. If the wholesale segment of the aftermarket is concerned about its sales of products then the terms fit, form, function better be the hands-on display and ultimate message to the shop owner.

The following is a brief summary of each section reported in the survey:

Western Canada:

The combined numbers from the West show that gross profit on the fluid levels increased from 35.0% in 2003 to 45.0% in 2004. A positive trend as the fluid part of the business remains important to address the needs of modern vehicles. Tire gross profit dropped to 19.4% from an average of 26.5% in 2003; batteries are also down from an average of 32% in 2003 to 24.9% in 2004, however aftermarket parts improved slightly from 41.9% to 44.1%.

Many owners in the West made a positive move for their business by moving out of the bays but are still struggling with the processes that have to be put in place to make it work properly. I can only encourage them to forge ahead with the processes and stay focussed as labour productivity has started to move forward, albeit, very slowly. Based on what technicians are being paid in the West, the average maintenance door rate should be $90.50 and the diagnostic rate should be $132.00. They are currently averaging $79.21 and $90.71 respectfully. If the West is going to keep up with the investment required in knowledge and equipment, it had better not get caught in the “competitive price game” but embrace the “competency comparison game”. Knowledge is and will remain to be the ultimate competitive advantage for our future.

Southern Ontario:

Two steps forward and three steps backwards pretty well summarizes this area of the country. The owner has panicked, laid off the equivalent of 1 technician and went back in the bays himself to spend on average 34% of his day in the bays. Gross profits improved in the average shop but total shop revenue dropped a whopping 30% for many shops over the previous year. Labour billed per technician dropped 11.9% and that is difficult to understand when the sales mix changed from 80% aftermarket parts and 20% dealer parts in 2003 to 71.6% aftermarket and 28.4% dealer parts in 2004. Some of that sales mix change came from aggressive pricing from the OE sector of the industry, but most came from the fact that the vehicle fleet on the road is starting to change. The problem lies in Managements perception of original equipment parts needs/requirement over aftermarket parts possibilities, again. One more time for the aftermarket wholesale end of the business … FIT, FORM, FUNCTION.

Management should have been able to seize the trend and bill for their knowledge on these newer vehicles that are entering into the new service interval process, however, with sales down, and perhaps a lower level of self-confidence, management fell into the “price competitive” syndrome of 4 years ago. Management still has not got its head around the total change required in shop processes to make the dots connect; however, I’m confident if they forge ahead and “regroup” they also can pull out of it. The fact is that the vehicles are on the road and they need to be professionally serviced. Who out there wants to look after them?

Central Ontario:

The math does not lie. This sector of the country was doing a great job at moving the fluids; the oil changes kept coming in and maintenance issues
were being addressed. There were months when the bays were really busy, sometimes too busy. They were not steady. Some shops that I know personally in this area were just flying in the fall and sales records were being broken. Well done to a degree but people are burning out. Will the busy volume sustain itself? I don’t think so. Why? Because it was the “busy/silly” season in Central Ontario and there was a lot of pent up maintenance demand left over from a terrible cool summer. The processes within the shop still have to be fine tuned and Management must stay on this. “Steady” far out performs “busy” on the bottom line. The good news is that they are on their way but I hope they were not fooled by the spurts of busy times thinking that the shop is now straightened out. Not so. There is still much work to be done at the front counter and in the back office with follow-up procedures, client education and retention. Don’t drop the ball now Central Ontario. You are further ahead today compared to 2003 but it is so easy to slip back to 2003 issues and numbers and everyone knows that would be very dangerous.

Eastern Ontario:

Shops in this region of the country have been struggling for two to three years now, and the struggle continues. They use to be the leaders in the country. The numbers show that their processes are “same old, same old”. They are working harder today than ever before and their bottom line is no where to be found. They have focussed on cost cutting to their business to create the bottom line rather than consider common sense on their expenses in terms of what is required to be spent to execute it right, and focus on shop productivity improvement coupled with proper client retention. This decision will come back and haunt them soon if it already hasn’t done so. Consider that Management spends more time in the bays and has raised the average door rate by only 2.1% over 2003 before inflation is factored in. Do that math, that is going backwards and proves that this area is moving towards price competitive rather than quality/service focussed. Based on what the average technician is being paid in this region, their maintenance door rate should be a minimum of $82 with a minimum diagnostic rate of $109. The region is currently averaging $73.94 and $83.49 respectfully. I would hope that everyone, including Jobbers in this region, start asking “how is the shops productivity compared to last month, last year?” rather than “are you busy?” The right focus must be re-embraced in this region if they are going to get back on track. Consider the words you have heard before: “If you can’t measure it, You can’t manage it.”

As the industry and consumer continue to “reformat”, the independent shop sector can expect another challenging year in 2005 and 2006 because everyone isn’t yet on the same page but consider where we are going. The positives out weigh the negatives by far for our future:

* The right management focus and discipline will survive the business and excel the profitability

* Technology development is forcing the backyard “mechanic” and “cock-roach type” shops to be relegated to junk or leave the game

* The “client” will require a shop they can trust more than ever before if they want to enjoy the perks of today and tomorrow’s vehicle technology

* Competency coupled with professionalism will rule!!

* Fewer Jobbers in the future with fewer independent shops

* Solid business relationships mean everything and will provide lower individual stress levels

Our future is bright but it must be admitted, the shakeup will be tough on many in our industry.

Finally: Consider this: “It is not what you know, BUT what you do with what you know“.

May I encourage everyone to go to www.ekw.ca and register to participate in our secure statistics. It would be great to get many shops from the Atlantic Region and more from out West to get on board. I know many have registered but one must remember to participate when the questionnaire is sent to you. May I encourage you to participate. The more active participants we have that get involved means the more depth in analysis for regions of our country.