MYOB: The Wholesale Sector Must Change Its Role

The facts prove that the service provider manager needs a lot of help to understand his business. It is the wholesale sector that is closest to him, so you are the one that must shoulder this responsibility.

To get your head around this message, I’d like you to do a little homework first. Start by going to www.autoserviceworld.com, click on “Shop Education,” then click on the April SSGM management article, “Can we ever get it back?” This article contains statistical analysis of business conditions in Ontario shops during the second half of 2002. Read this article fully.

Some other facts shown in our survey, not mentioned in that article, clearly confirm the problems the independent sector is having.

Financial Accounting

Some 60% of independent shops have their accountant prepare a financial statement only once a year for their business. This tells us they are relying on their own in-house accounting system, if they have one, to tell them how they are doing. The fact is that more than 90% of the shops I speak with who have an internal accounting system say they take off a monthly statement on their business, yet they do not take, or include, a monthly inventory, or balance sheet. How does one make management decisions when one does not know where the money is?

Consider encouraging your customers to have their accountant produce at least a full quarterly statement on their business in order to see the facts.

Internet Connection

Some 95% of shop owners have access to the Internet and 71% of these have access both at their home and at their shop. The independent sector is connected. The wholesale sector of the industry is not taking advantage of this technology to clearly communicate to their customer base on business and industry issues. As a suggestion, get connected yourself with high-speed Internet access. Set up your business e-mail address, then consider setting up a customer database to send out a monthly newsletter to communicate clearly on issues affecting our sector of the industry. If problems and their solutions are repeated over and over, perhaps the message will finally sink in.

Labour Rates and Door Rates

Labour rates were well discussed in the SSGM article; however, what was not mentioned was that the average licensed technician was being paid $20.66 for every hour worked. Some 91% of independent shops pay hourly versus flat rate. The minimum labour rate multiple this year is 4.2. Therefore the minimum labour rate for an independent shop for maintenance work should be $86.77. Make the comparison of the independent shop labour rates in your area as compared to their local GM labour rates. There is no way there should be a $15 to $30 gap in rates. The independent sector needs more technical training than a typical dealership, as its technicians work on all makes and models of vehicles; they also need more specialized equipment as a result. Show me where it is written in the automotive aftermarket industry business management manual that an independent shop can’t charge more than a dealership.

Accounts Receivable

The average shop in our survey was carrying an accounts receivable balance of $15,025 and a line of credit balance of $15,574. Some 35% of the receivables balance is commercial accounts, leaving 65% of their balance to private accounts, known as consumer credit. The average shop does not charge interest on its receivables, yet they pay interest at the bank for their line of credit.

Why would any business person allow an individual consumer to charge at the business who cannot get a credit card? Since most shops discount their labour and parts to make a commercial sale, and the average commercial account pays in 50 days, what is the true profit made on this sale, factoring in the discount, the bookkeeping time to maintain A/R ledgers and prepare monthly statements, the bank interest cost, and the cost of time the money is out of the business system?

Accounts receivable are an issue that our industry must talk over. It is the number-two issue as to why a jobber is not paid in full each month.

The number one reason is not charging the right labour rate for the work performed, so they are always trying to make up for this shortfall by beating up their jobber for higher parts margins.

Average Labour Billing

As discussed in the SSGM article, the average shop is billing out 1.44 labour hours per work order. When compared to the manufacturer recommendations on how a vehicle should be maintained, this number should be more like 2.0 to 2.5. Counsel every shop owner on how to use the shop’s maintenance guide system, comparing it to vehicle history, to guide the shop’s customer properly on the maintenance of the vehicle. When the average shop hours billed per work order increases, so do parts sales. This is a win-win scenario.

Customer Follow-Up

Only 53% of shop owners have a customer follow-up procedure, which in essence means they are contacting their customer after the work has been performed to ensure satisfaction is maintained. This number must grow. Another interesting fact is that 65% of shop owners do not have a customer service reminder system. They hope the customer remembers, or the weather brings them back.

It has been proven time and time again over the past five years that when a shop takes the time to install a customer vehicle management process, the valleys in business are not as deep, and the peaks of business are not as out of control.

Consider making this picture clear to your customer base. Their success will become your success.

Business Management Skills

In excess of 78% of our survey participants have grade 12 or less as their last year of formal education. From there they went on to the trade schools to become licensed technicians. Where in high school did anyone learn how to run an automotive shop as a business?

The fact is, they didn’t. It is the wholesale sector of the industry, that is the closest to the shop level, that must ensure this knowledge is readily available to shop owners and managers.

Running a jobber and automotive maintenance shop business today is tougher than it has ever been before. Based on the trends we are seeing, it will not be getting any easier.

It will take much more net income to grow both businesses over the next five years–net income that must be re-invested back into both businesses, by working smarter, not just harder.

What are you prepared to do to make a difference? E-mail me c/o aross@jobbernews.com.

Robert (Bob) Greenwood is president and CEO of E. K. Williams & Co. (Ontario) Ltd. and Automotive Aftermarket E-Learning Centre Ltd. Bob has more than 27 years of business management experience within the automotive industry, counseling individual shops in Ontario, and has developed business management courses for the independent maintenance and service sector proven to enhance the shops’ profitability and grow the business. Bob has also worked with wholesale jobbers on how to do a better job for the service provider by providing valuable insight as to the real challenges faced by the retailer today.

E. K. Williams & Co. (Ontario) Ltd. offices specialize in the independent sector of the automotive industry, preparing analytical operating statements, personal and corporate tax return completion, business management consultation and employee development. Automotive Aftermarket E-Learning Centre Ltd. is devoted to developing automotive shop business management skills through the e-learning environment of the Internet at www.aaec.ca.

Bob can be reached by e-mail at greenwood@ekw.ca or greenwood@aaec.ca.