Who dropped the ball?

In late March, a woman brought her 2001 Ford Focus with 137,000 kilometers on it to the shop of a good friend of mine in a major city in Canada. She’d never been to Morris’s place before, but she worked nearby and needed a headlight replaced.

Now, I should tell you that there’s a policy at Morris’s shop, that every vehicle that comes into the shop gets a short complimentary visual inspection. The owner of the vehicle is always informed of this prior to the start of any service or repair.

The technician replaced the headlight and performed the visual inspection. He noted quite a few items of concern and recommended that a comprehensive inspection be performed to assess the vehicle more thoroughly.

She approved the more extensive inspection and when it was completed the shop identified $7,000 in necessary repairs – not including some overdue maintenance. Most notably, of the four suspension springs, three were broken, and the timing belt was frayed and cracked. It had never been changed.

She’d been taking her car to a well-known tire franchise, getting what she thought was all the necessary service work done, but which were actually primarily oil changes. Six months ago, in September, she bought four tires at this shop. One of those tires already has cuts on it from one of the broken springs. When asked how long he thought the springs had been broken, Morris’s technician said that based on the corrosion on the broken ends, it must have been a long time.

This car owner now had a difficult decision. She had to pay $7,000 to get the Ford Focus all caught up… or she would have to replace the vehicle.

After an agonizing weekend, she decided to replace the car.

This story really upsets me. If it really is as cut-and-dried as it seems (and I haven’t heard the tire shop’s side of the story yet), this is a blatant example of what happens far too often in the automotive service sector. I’m going to use it to illustrate the financial damage we are causing in people’s lives when we don’t have the intestinal fortitude to be true professionals.

One of the main reasons people replace their old car is the perception of reduced reliability. In general, the aftermarket service provider has done very little to change that perception.

The aftermarket is so busy competing on price that volume is the only way to make money, so shops get so activity based that they don’t truly help their customers make the best decisions for their vehicles. In reality, older vehicles can be as reliable as any new vehicle if they are well maintained.

If the tire shop had done its job properly, someone would have been performing proper inspections on the vehicle, looking up recommended maintenance, and keeping it in good shape. They would have gained all the sales from that process, and they would not have lost the customer to another shop or a new-car dealership.

Yes, this would have cost the customer money – probably between $1,200 and $1,500 a year – but it would have been more manageable than a $7,000 hit. She would never have gotten into a bind, and she would not have had to replace the vehicle for $26,500 – much of which she had to borrow.

She’s not alone. Listen to these Canadawide statistics:

•  J.D. Power and Associates reports that the average car sold in Canada in 2014 cost just under $30,000 (no trucks or SUVs in this statistic).
•  The average car payment in 2014 was $549 a month – a whopping $6,588 a year.
•  The average term of a car loan in 2014 was 69 months.
• Negative equity has grown from 16.6% in 2009 to 29.4% this year. This means that people are replacing vehicles before they have paid them off, and are rolling the remainder of the previous loan into the new loan.

CAA estimates that it costs $10,374 a year to operate a midsize car or small crossover driven 20,000 kilometers a year. The Treasury Board of Canada Secretariat released a study, commissioned by Corporate Fleet Services, which showed that the depreciation on four- to five-year-old cars alone stands at $3,423.42 (almost precisely one third of the total cost). Depreciation and insurance costs drop significantly after the fifth year.

The rest of the costs break down as follow:

Fuel (24%)                                             $2,489.76

Insurance (17%)                                 $1,763.58

Interest (1%)                                        $103.74

Preventive Maintenance (10%)   $1,037.40

Registration (2%)                              $207.48

Repairs (3%)                                        $311.22

Sales Tax (7%)                                     $726.18

Tires (2%)                                             $207.48

Miscellaneous (1%)                           $103.74

Based on these statistics, it’s going to cost between $1,400 and $2,000 a year in repairs and maintenance to keep a vehicle safe, economical, and reliable. The actual cost could be lower or higher, depending on how expensive the model of vehicle it is, how old it is, and how much it is driven.

If this Ford Focus had been kept up to date, the owner would have spent more in repairs and maintenance, but would have been thousands of dollars ahead in reduced depreciation and insurance.

The owner of the Focus felt forced to purchase a new vehicle with anywhere from four to six years of debt, and payments of over $500 a month. By the way, she faces the same annual costs of maintenance and repair for her new vehicle as her old vehicle, and now faces the added cost of thousands of dollars in depreciation.

So what went so horribly wrong at the first shop?

I think a combination of things occurred. This shop sounds like they are what we call “activity based.” That means they focus on getting the car in and out as fast as possible. Sales are usually focused on things the customer asked for, and things that are easy sales, like tires, oil changes, brakes, shocks, or struts. These are what we call gravy jobs, quick, easy, and profitable.

What is wrong with this picture?

Most customers don’t know what their vehicle needs. Most activity-based shops are so busy trying to make money on high volume and low margins that they aren’t doing proper maintenance.

In the end, we have millions of cars out there that need tons of maintenance and lots of repair work. The owners of these cars no longer trust their cars and end up replacing them prematurely.

The Automotive Industries Association of Canada reported there was $19.1 billion dollars in unperformed repairs and maintenance last year. There are 23.4 million registered light vehicles in Canada. That is an average of $815 per vehicle!

All successful automotive shops need to make a decision to become professionals. This means that they understand that a vehicle is the fastest depreciating financial purchase anyone can make. They have to understand that it is not the value of the vehicle that matters, but the monthly and annual cost of transportation. And they have to understand how easily depreciation eats away the hard-earned money of the average Canadian.

Professional automotive service providers listen carefully to their customers’ concerns, inspect the vehicle properly, and present a maintenance schedule that will make the car last a long time.

A well-designed plan will fit the customer’s budget, and keep them in control of their time and money.

Shops that do this well have way less stress and are much more profitable.

Murray Voth is a consultant and trainer with Total Automotive Consulting & Training Inc. in Edmonton, Alta., which runs the ProShop program across Canada. He can be reached at mvoth@proshopmanager.ca