The Independent Sector Clings to a Dead Horse Business Model

“If you have been riding a horse for many years, and the horse is now dead, you must have the smarts to realize it is time to get off the horse.”

It truly is decision time for the Independent sector of the automotive aftermarket industry in Canada. We have reached the end of an era. We are now at the end of a way of doing business as the Independent sector. Yes there have been many success stories, but trying to build on those successes is not easy in a sector of the industry that is not adapting to the realities of this new century.

Consider the old business model meant the following:

decent margins on all hard goods

abundant quantities of technicians

mechanical vehicles that readily “broke”

shop equipment that would last 6 to 8 years

one piece of equipment for all makes and models

bank managers that you really knew

bank financing based on collateral

a standard consumer

“bang them in and bang them out” volume driven business

if the shop was “busy” it met substantially higher net profits

mechanic owners could do it all

shop facilities were readily accessible and affordable

Now acknowledge today’s realities:

Margins are tighter than ever, and the trend “universally” is to lower margins due to extreme offshore pressure producing goods with much lower labour costs.

Average age of a technician in Canada is over 50 and not enough replacements are coming into our industry. We are not considered by the public, or promoted by guidance departments within the formal education system, as a great paying “profession” but only a lower paying “trade”. Public/government perceptions are reality, and it is killing us. Truly, only the brightest minds need apply today.

Vehicles are built to last longer, with higher quality parts which now changes the number of major repair and type of service intervals required.

Many pieces of equipment today are designed based on a model vehicle rather than equipment designed to meet all model vehicle requirements, which in turn means more shop equipment in one facility and continuous software upgrades. Expensive equipment that lasts maybe 2 to 4 years before additional equipment is required to address newer vehicle technology is purchased/leased from net income created in the business. If you are not profitable, the shop can not sustain the level of equipment required.

We are forced to deal with bank “account managers” instead of the traditional bank manager that we struck up a good relationship with and really got to know. Account managers are “turned over” on a continuous basis. We don’t “know” them and they don’t “know” us.

Banks today consider collateral as the second picture in financing arrangements and now demand 50% equity in any “hard good” being financed. Today the first picture they study is business profitability, cash flow, and historical management expertise, in determining whether a shop is credit worthy.

We are dealing in a society that has a higher education level than any previous generation. Consumers today are not stupid, but merely uniformed. They demand value and attention, in their time frame. When you take the time to educate and counsel them, they become loyal as the shop’s credibility is substantially increased.

It used to be the busier the shop the more profitable the business, but with today’s vehicle technology, the requirement to look after the problem with proper diagnosis, and attention to consumer detail, no shop can afford to do it wrong the first time then try to do it right the second, or third time. The consumer no longer accepts incompetence. Period!

Volume shops miss tens of thousands of dollars of net income per year, and most don’t know it because they are too busy. They are focussed on sales, and not productivity. They average less than 1.8 hours of labour hours sold per maintenance invoice. Labour revenue billed is the knowledge level of the shop, (the ability to discover and resolve problems) not only in technical capabilities, but also in business acumen.

Shop owners must take the time to build relationships with their customer/client base to earn all their business and it can not be done effectively when the owner is working under the hoist, and looking after the paperwork, and dealing with sales people, and dealing with the staff, and dealing with on-going business matters. These shop owners never have “time”for “anything” that has to do with making their business work better. They are a tied and strapped to a chain gang. The chain gang is their business.

One, two and three bay shops are out of capacity today to hold all the necessary equipment, as well as create the pleasant physical environment demanded by the better consumer today, in order to be a full service shop. Many of these shops lack land for expansion capabilities. Cost of good commercial property has become expensive, and environmental contamination issues have made many properties, used in the past, financially unapproachable. These shops are not profitable enough to move their business forward.

The old business model created the reality that seemingly all levels of our industry, the Manufacturer, WD, Jobber, and the Service Provider level, worked with, acknowledged, and still readily accept today, namely, the old 80/20 rule; 20% of the customer/client base produce 80% of the net income for the company.

“We have reached the end of an era. We are now at the end of a way of doing business as the Independent sector.”

The one question within our industry that no one has ever asked, or tried to address is, “Should and what do we have to do to change that?”

Consider that no one acknowledges a shrinking market within the Independent sector of the aftermarket industry. Sure, numerically stats may show there are more physical outlets, however, there are fewer well run shops today that understand business acumen, consistently pay their bills in full each month, and fully understand and practice, proper business “partnerships”.

If there are fewer well managed, profitable shops, then that would imply the 20% of the 80/20 rule is dramatically smaller as well. It requires substantial net income to grow, and sustain, a good business today at the Jobber and shop level, therefore, without enough good Service Provider customer/clients for a Jobber to deal with, that would mean there are too many Jobbers in the marketplace today, and their bottom line has vanished. Without a bottom line, their days operating as a Jobber are numbered.

Without a growing number of professional, profitable Independent shops today, that would mean car dealerships will pick up current, and future, consumer market share as they commence to get focussed on addressing today’s realities and invest to retain tomorrow’s profits. If car dealerships strip the Independent of the best “knowledge” and “capabilities” the Independent requires today, that would imply the Independent will become known to only work on old model vehicles under an old model of doing business.

Carefully reflect … if the current business model remains the same, and no one takes the responsibility to do anything to disseminate the knowledge required, implement, demand the disciplines and standards designed to take back market share, then what would a typical manufacturer be left with within only 10 years from today; what will the WD be left with; what will the Jobber sector be left with; what will a typical Independent shop really look like, and what do you truly believe the “state” of the Independent sector will be in terms of comparing the measurement of the “economic contribution” it makes to our country today compared to what it will be contributing to our economy 10 years from now?

Go through every corner of the Independent shop business and do all the mathematical projections taking in everything, including, personnel in terms of quantity and quality requirements, equipment quantity and quality requirements, facility requirements, finance requirements and how the finances will have to work to the banks and shops satisfaction, inventory management req
uirements, and the current shop attitudes versus what is required in a viable business projection. Prove the math wrong. The current business model is broken!

We MUST get on with the pain of change. The “lip service” throughout our industry must cease and desist.

Shops will have to wean themselves from the Manufacturers, WD’s and Jobbers gravy that has been poured all over for just about anyone who wants to open up a shop or buy from them. The gravy train must be parked at the station for good.

Jobbers will have to learn how to be a business “partner” to selected shops; the shops that will be around in five and ten years from now. The other shops are horses that are dead … get off them because you are not going anywhere. If the horse doesn’t want to get up, you can’t make it. Jobbers must adapt to an industry that no longer tries to do everything for every jobber. You will have to learn how to earn to qualify. Supporting the WD flag you fly “fully” will be a great starting point. You can’t cherry pick any more. Focus on your individual shop customer/clients because when you are not focussed on them, you are not focussed on your business. Owners MUST get out of the office, or from behind the counter, and go and talk, face to face, with your customer/client base.

All Independent shop owners should be aware of these Jobber requirements as it will affect your Jobber relationship, Jobber value received and ultimately, your shop profitability. Fully support a jobber that is focussed on the value he/she brings to your business. Your bottom-line will be much happier for this decision.

WD’s must learn about the front line troops (Service Provider shops) and their real problems and the solutions required to raise the bar in order to move them forward. Without a substantial number of great shops under the WD flag, your company share value will have to fall eventually … acquisitions in Canada are limited … it is just a matter of time. Jobber relationships must be enhanced by listening to them closely as to their real needs, but confirm that their demands will enhance their business and profits with the Service Provider level. All-out interventionism is not only an expensive and inefficient strategy for a WD but it deters entrepreneurship. WD’s desperately need Jobber entrepreneurs.

Manufacturers must get away from any “hidden agendas” and work together to bring the Jobber and Independent Shop owner together. When you compete on quality and value, our entire industry wins. Manufacturers have a lot to lose if a new co-operative business model at the shop, Jobber, and WD level is not promoted and supported.

Every Independent shop can see how inter-tangled our industry is and how every level must re-learn how to conduct their affairs in a profitable manner. There is, and will be, resistance throughout our industry to a new business model, however, consider that it is perhaps time to give this industry a good dose of fresh air. Perhaps it is time the aftermarket industry opened the windows to get the stuffiness out so everyone can breathe better, and feel great once again. Remember; “We are the automotive aftermarket industry, we are all in this together”. If you have a better solution then please send it to me c/o janderton@ssgm.com

Robert (Bob) Greenwood is President and CEO of E. K. Williams & Co. (Ontario) Ltd. and Automotive Aftermarket E-Learning Centre Ltd. Bob has over 27 years of Business Management experience within the automotive industry, counseling individual shops in Ontario. E. K. Williams & Co. (Ontario) Ltd. offices specialize in the independent sector of the automotive industry, preparing analytical operating statements for Management purposes, personal and corporate tax return completion, Business Management consultation and Business Management and Employee Development Courses. Visit E. K. Williams & Co. on the Internet at www.ekw.ca and sign up for their FREE monthly management letter sent to you by E-mail. Automotive Aftermarket E-Learning Centre Ltd. is a company devoted to developing Automotive Shop Business Management skills through the E-Learning environment over the inter-net. Students learn at their own speed, and at a time, and place, that best suits their needs; available 7 days a week 24 hours a day. Visit Automotive Aftermarket E-Learning Centre Ltd. on the Internet at www.aaec.ca Bob can be reached at (613) 836-5130, 1-800-267-5497, FAX (613) 836-4637 or by E-mail; greenwood@ekw.ca or greenwood@aaec.ca