Opportunities Available For Aftermarket Growth
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The 2009 Canadian Shop Survey conducted by the Automotive Industries Association of Canada is part of the First Annual Canadian Aftermarket Benchmarking Survey that also covers the jobber and collision repair markets.
This project was conducted in partnership with the Automotive Group of the Business Information Group, publishers of SSGM, Jobber News, Bodyshop and L’automobile magazines.
Official jobber survey results and analysis appear exclusively in Jobber News, collision repair sector analysis in Bodyshop magazine.
The 2009 Canadian Shop Survey conducted by the Automotive Industries Association of Canada confirmed many long-standing assumptions about the Aftermarket Shop Sector, but for some reason many within our industry still have blinkers on instead of looking around to see what opportunities are really available.
Creatures of old habits may sustain their businesses but they cannot improve or grow it. Awareness of today’s realities and learning to embrace opportunities is necessary to open new doors to enhanced growth and profitability.
Based on the facts gathered in the survey, some basic math can be applied to get a picture of what the average shop really looks like and consequently what opportunities there are for the aftermarket to make a real difference.
Shop Performance
One of the key measures shops should be looking at is shop efficiency and the average total shop efficiency number last year comes in at 48.89 per cent.
This number is a calculation based on the potential labour dollars that could be produced in a shop compared to the actual labour revenue billed. This number should be a minimum of 75 per cent with a target of 80 per cent.
When a shop reaches these efficiency objectives, there is enough gross profit dollars for management and staff to enjoy a professional income as well as enough business net income dollars after tax to sustain the business and provide for future growth. Shops below these objectives have a tendency to really struggle with business financial issues.
These shop efficiency objectives have also mathematically proven to provide for a proper business ROI.
The average shop is billing 1.34 hours of labour per invoice. According to manufacturer recommendations for professional maintenance of their company’s vehicles to ensure reliability and safety, this number should average 2.5 billed hours for basic consumer vehicle work. For the industry, this means that the average shop has not embraced the preventative maintenance model or the internal processes and measurements required to move their business forward.
Shop owners must also embrace client relationships over customer acquaintances to secure a place in the new world of preventative maintenance rather than relying on the breakdown and repair world.
The move must be made from running the business based on price and volume (car count) to a focus on quality/value and transactional management. Consider that if the shop’s car count remained the same for 2010 the only way to improve profitability and total shop efficiency while maintaining high levels of client service is to increase the billed hours per transaction.
Increased billed hours per transaction puts the shop on the road to working smarter, not harder. When shops fully educate their clients on manufacturer recommendations, they are simply serving the public at the right professional level. This can only be achieved when client relationships are in place and internal business recording connects to reporting processes.
Shop Size And Why It Matters
The average size of a shop in the survey was five bays with four hoists. In the automotive and service business, size does matter. If the consumer is to be served in a professional manner, more time is going to be spent per transaction which means the vehicle will be on the hoist for a longer period of time. We have found that a shop today should be a minimum of six bays, but preferably eight with utopia being 10 bays.
This size allows for a number of things to develop within the business:
• A greater depth of technician expertise can be in place in order to service a wider variety of vehicles, therefore doing more business with the local community; for example hybrids and electrical diagnostic expertise.
• The space for a proper depth of mechanical and technical equipment to service all makes and models.
• Higher technician productivity levels can be achieved with two hoists for each technician on staff. Space is required to achieve that productivity level.
• A proper and clean designated diagnostic area within the shop. Consider that a designated diagnostic area can be set up for reflashing vehicles, thus allowing for a broader range and depth of high speed computer equipment.
• A larger staff contingent, which in turn provides management with the option to train, facilitating the delegation of duties and business responsibilities so they are not “chained” to the business.
The Bottom Line On Dollars And Cents
The survey results show the average shop door rate is $82.00 per hour with a diagnostic rate of $94.43.
The average technician earned $25.54 per hour. This fact and all business issues mentioned above came together to provide the average shop last year with a net income before tax of only $25,532. The average shop owner bought himself a job. A shop of five bays cannot move forward with a net income at that level.
The minimum basic door rate, based on what the average technician is being paid should be $107.26 with a diagnostic rate of $136.63.
The calculations to achieve these door rates take into consideration the legislated employer obligations such as CPP, EI and VP along with other average employee benefits that are typical cost for an employer today.
A small change can have a significant impact. Consider that if a shop owner implements the right business processes along with the right measurements and improves his average billings by only one half hour per invoice, based on last years invoice numbers and last years actual door rate, the shop would have realized a minimum of an additional $118,859. That is a number worth considering and provides an excellent starting point from which a business can grow and prosper. Even achieving half of that additional billed time, one quarter hour per transaction, can have a significant impact on the shop’s bottom line. What a fantastic and achievable opportunity.
Looking Ahead
One final point to recognize is that 80 per cent of the survey participants don’t have a formal succession plan yet 45 per cent are between the age of 46 and 55 years of age. Twenty-nine per cent don’t know what they will do yet and 39 per cent plan to sell to a family member.
Respectfully, with these business results, what do they have to sell and how are they going to get paid? Going back to an earlier point, being profitable enough to release the owner from the daily business allows time not just for vacations but also business planning, focusing on the future and making sure everything is in place to reach personal and business goals. Investing the time to focus on the business pays off. Working day-to-day rarely does.
As the industry studies the results of this survey, I would hope that everyone can see the huge opportunity in front of us.
It means that as a sector of the automotive industry, we must work together to ensure that the front line troops, the Automotive Service Providers (ASPs), are carefully studied and professionally supported. No shop owner can operate as an island in today’s challenging economic climate and the industry has the opportunity to come forward and get involved. SSGM
Key Facts Revealed By The Shop Survey
• The average shop size that participated in the survey was five bays with four hoists.
• 51 per cent of the partici
pants belong to a “Banner Group”
• 68 per cent of the shop respondents are open five days a week
• They have the equivalent to 3.5 Licensed Technicians on staff with 1.5 Service Advisors
• The average technician was paid $25.54 per hour
• The average maintenance door rate was $82
• The average diagnostic door rate was $94.43
• The average monthly labour sales were $26,734.91
• The average monthly total parts sales were $27,797.82 of which 75.8 per cent were aftermarket parts sales
• Total shop gross profit came in at 53.09 per cent
• And 19 per cent of shops use five or more jobbers to purchase parts from; four per cent use five, 11 per cent use four, 31 per cent use three and 27 per cent use two, but only seven per cent of the shops survey participants use only one supplier as absolute.
Robert Wm. Greenwood AAM, is president and CEO of Automotive Aftermarket E-Learning Centre Ltd. and a business consultant in the automotive aftermarket.
Note: AIA members can obtain a free copy of the survey by calling the AIA offices at 1-800-808-2920. Non-members can purchase a copy for $74.99 online at the AIA e-Store
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