For the past several months I have had some shop owners ask me, "Is this the new normal?" What they mean is the sense that the economy is not improving, not as many vehicles are coming into the shop and those that do, are spending less money....
For the past several months I have had some shop owners ask me, “Is this the new normal?” What they mean is the sense that the economy is not improving, not as many vehicles are coming into the shop and those that do, are spending less money. In addition, they mention that they are not replacing staff that have left or have laid off a technician, or need to lay off a technician, in some cases for the first time in their business careers. Many of them state that over the years they have always carried their employees through the tough times in order to have them there when things picked up, but now they feel their businesses will not survive if they don’t do something. Well, things are not picking up in some regions of our country, at least not like they used to. I have also seen the expression “the new normal” used by the news media, financial commentators, government spokespeople and some economists.
What Is the “New Normal?”
In the last several months I have gained some experience and have been reading from a wide range of sources that I believe provide some insight on how to address the “new normal.” First of all, close to 30 per cent of Canadians cannot afford their car. This piece of information has been around since the Province of British Columbia brought their emissions program into place in the early 1990s. This information was discovered when they were examining studies used to decide at what levels to set the repair cost waivers. It has since been corroborated that 25 per cent of Americans could not afford their car in a study done by AAA in the United States. I have personally studied charts created by Stats Canada and come up with the same conclusion. That means that the Independent Automotive Service Providers, which hold roughly 50 per cent of the market share for service and repairs, are dealing with only 20 per cent of the driving population that can truly afford their car. The dilemma for Canadian consumers in this position is that we do not have enough public transit in certain parts of Canada for people to give up their cars. They are in a vicious cycle of needing the car to go to work and not being able to afford all the costs associated with it.
Secondly, the economic challenges that we have been facing in the last several years have not been caused just by the sub-prime mortgage fiasco. There have been many complex global factors that have us in this perfect storm of long-term slow economic growth. Inflation-adjusted median household income in the U.S. peaked in 1999 at $53,252 (at the peak of the Internet stock bubble), dropped to $51,174 in 2004, went up to 52,823 in 2007 (at the peak of the housing bubble), and has since trended downward to $49,445 in 2010. The last time median household income was at this level was in 1996 at $49,112, indicating that the recession of the early 2000s and the 2008–2012 global recession wiped out all middle class income gains for the last 15 years. This income drop has caused a dramatic rise in people living under the poverty level and has hit suburbia particularly hard. Between 2000 and 2010, the number of suburban households below the poverty line increased by 53 percent, compared to a 23 per cent increase in poor households in urban areas. (This is American data, but the Canadian data runs parallel – I have misplaced my source at this time. This data was referenced from Wikipedia. For more in depth reading that corroborates this data see: “The Ascent of Money” by Niall Ferguson and “Why Your World Is About To Get A Whole Lot Smaller” by Canadian economist Jeff Rubin.)
Thirdly, we have experienced a 294 per cent increase in gasoline prices from 1998 to 2008, adjusted for inflation. In addition there has been no relief for the consumer, even though the cost of crude oil dropped to $40 a barrel in 2008 and has not reached the triple digit levels that it had in late 2007 and early 2008. Once world demand for oil increases to the point we enter triple digit crude oil pricing again, the consumer is going to be hit with increasingly expensive transportation costs.
Where Do We Go From Here?
For a continent whose major economic activity for the last 60 years has involved the manufacture of vehicles, the exploration and refining of hydrocarbons, the construction of highways and infrastructure, and the manufacture of tires and all the affiliated products required for the automobile, it is difficult to see this shrink away. On top of that, add the “car” and “driving” culture of North America where it is every 16 year olds entitlement to have a driver’s license and own a car. We have been averaging somewhere in the neighborhood of three cars per household in the last few years, and much of consumer debt can be attributed to the cost of paying for and keeping all of these vehicles on the road.
The “new normal” is facing a reality where fewer people are going to be able to afford their vehicles, both in terms of their household income, the number of vehicles, and the cost of operating said vehicles. The “new normal” is adjusting to a shrinking market for our services as society transitions to more cost-effective ways of transporting people to and from work and their other activities.
With the new car manufacturers now creating vehicles with such advanced technology in them, it seems that since they have been required to give us access to information on the “right to repair” issue, they are now going to price us out of the market with the need for expensive proprietary testing and diagnostic equipment.
Bob Greenwood, in some of his latest research, has stated that the average independent automotive shop in Canada is $150,000 behind in the equipment, training and computerization required to keep up with today’s vehicles.
I would think that is only going to get worse.
So where does that leave all of you? Believe it or not, this all ties into the dialogue that has been going on in the industry regarding the need for having a license or a certificate to purchase automotive parts, brake and safety related parts in particular. Currently you need a plumber’s license, a gas fitters license, hairdresser’s certificate, and now a special license to purchase automotive paint and finishes.
Logic would dictate, along with safety considerations and our industry’s financial benefit, that an automotive technician license be required to purchase automotive parts. I whole-heartedly agree with this principle. I too am disgusted with the frightening work performed by many do-it-yourselfers. Backyard mechanics that steal business away from legitimate shops frustrate me, and I am equally dismayed by the number of technicians who moonlight at cut-rate prices.
However, as they say, there is more to this than meets the eye. As expensive as a major home repair might be, as a homeowner, you have equity in your home and if you don’t have the cash you can always borrow against your home if you need a new furnace. If you are renting, the landlord pays for most home repairs.
As well, any repairs and maintenance you do to your house either adds value or maintains the value of your home. So either way, as homeowner or renter, there are few incentives to be a DIY.
Now take the next highest priced purchase in our life that depreciates the fastest, a car. If we don’t have one, we generally can’t get to work to pay for it and all the rest of our living expenses. So imagine a day when the Canadian government makes a law that only a licensed automotive technician is allowed to enter a parts store and purchase brake pads and rotors to perform a brake job.
I know it is what we as an industry would like, and for many good reasons, but could you imagine the outcry across this country when that would happen? Because of socio-economic conditions allowed by our governments, there is no political will to touch this hot potato.
So you have one option left. That is to realize that currently 70 per cent of the driving public is able to afford their vehicles. It is your job to somehow attract them to your shop, to get your market share.
It is going to be a while before the car is phased out of society. But it is your job to earn the business; with quality workmanship, fantastic customer service, and “wow” factor relationship building.
Stay tuned for an article on how to help all 100 per cent of drivers save time and money on their car.