Up To Standards
- Author: Mike Weinberg, Contributing Editor
There is an old Chinese blessing that says, “May you live in interesting times.” As far as the auto-repair and automobile-manufacturing industries are concerned, these are very interesting times. The balance of this year and the next few years will bring about some profound changes in these interdependent industries.
As a person whose career depends on these markets, you must take a hard look at what the future will bring and how you will adapt, react and position yourself for success. It is no longer enough to be an excellent technician with great diagnostic skills unless you think and plan out a number of possible future scenarios with which to handle this rapidly changing marketplace.
The market we are in is unprecedented in many ways. Interest rates are at an all-time low. There is too much capacity in the manufacturing and repair sides of the auto industry. By that I mean there are too many companies building and selling cars for the number of buyers in the market. There are too many companies manufacturing and distributing parts to the repair industry. There are too many repair shops for the number of vehicles that will be serviced by a usually unwilling public. Compare it with a pond of a given size with hundreds of people fishing in it for the limited number of fish that can survive in a pond of this size.
When the dust settles on this market, there will be many business cases that will be used in business schools to teach the new crop of students. Let’s examine some of the scenarios that are unfolding daily and affecting our industry in a major way.
Low interest rates and overcapacity by the carmakers create a market in which they must pile on the incentives to get the public to buy. 0% down and 0% financing make new-car purchases more attractive than spending high dollars for transmission repairs, and I am sure everyone in our industry has lost potential work to a new-car purchase. Leases with artificially high residual rates have a huge number of people driving new cars at very competitive rates. Add the trend toward much longer warranties and you have a huge percentage of vehicles that will never see the inside of one of our shops.
To further complicate matters, the dealerships are now major competitors for the work we perform. Through reman programs, the dealerships are very competitive on price and offer very long warranties on automatic-transmission repairs. General-repair shops that used to bring you work or refer customers to you are taking advantage of the various reman programs available and are keeping this work for themselves. Insurance companies and extended-warranty companies try to cut their costs by demanding price and quality concessions from the repair shops.
As always, a percentage of work is lost to the availability of used units and parts from the salvage yard. The Internet offers your customer many avenues to find rebuilt or new units at prices you may not be able to compete with. I have seen transmissions being sold on EBay. How do you deal with a customer who challenges your price with that of an Internet-offered rebuilt unit of unknown quality? I know that this sounds like someone who is bringing their steak and potatoes to the restaurant and asking to have them cooked, but it happens every day.
On the flip side, how does a car dealer make a good return on investment? The same Internet problems occur, with any customer having access to what the car costs the dealer and being able to negotiate away the dealer’s profits. Cheap money makes it impossible for the dealer to make much on financing, and longer warranties preclude selling extended warranties in many instances. If a customer leases a car for three or four years with 15,000 miles a year on the lease and the car is under original factory warranty for 5 years/70,000 miles, there is not much point in buying extra warranty coverage.
There is a real possibility that in the not-too-distant future, dealerships themselves may become a thing of the past. If the factories change their programs and buy back selected dealerships to use as standalone repair facilities, they could offer cars for sale on the Internet and at shopping malls. Costco already is selling new cars, and this area is definitely under consideration by the manufacturers.
In the never-ending search for profit, the manufacturers are putting tremendous pressure on their suppliers to stop sales to the aftermarket (us). Traditionally, the companies that supply assemblies and parts to the carmaker will have an aftermarket-sales division that will sell those same parts through a network of distributors directly to the repair industry. The automaker sees this as competition with itself and its dealer body, while the supplier sees it as an opportunity to sell at better margins than permitted by the manufacturer.
As we speak, there is a lot of pressure on to end aftermarket sales by a number of companies. This position is very short sighted for several reasons. The dealer body does not want to make the investment in slow-moving inventory. This will create a logjam of repairs that will affect the brand name negatively and cause a decrease in sales.
Another factor is the wildcard of offshore capacity. There is virtually no part that cannot be reproduced by offshore manufacturers if the demand is there. Unlike in the days of old, offshore parts have closed the quality-control gap and provide excellent quality. If the carmakers control the OE vendors and forbid aftermarket sales, they will simply have to deal with offshore product and surrender brand image and quality to the offshore parts that will find their way into the system.
Where do we go from here? We have just discussed some of the problems we face in the marketplace, and if you couple that with the ever-increasing cost of doing business, your first priority should be careful planning and development of a survival strategy. The reality of the situation is that there are too many transmission shops for the market we are in, and whether you survive and prosper or become past tense is up to you. Look at the following checklist and see how it applies to you. Be ruthless in your self-appraisal, or you are just kidding yourself and wasting time.
- Technical competence – Are you up to date with the latest technology and diagnostics? This is the one area for which there will never be a replacement: excellence in expertise. With the cost of labor and comebacks you cannot stay in business long unless your skills are dead on.
- Trend analysis – I would hope that you have the ability to analyze the trends in your business over time. Carefully analyze your past 5 years of business and see what trends emerge, because this will indicate where you should commit your resources. Which products are increasing in demand and which are declining? Is your advertising working, and what return do you get on your investment? Are there demands for goods and services you are not providing, and is there a proper profit margin on those that you do provide? Where do your customers come from, and are the demographics changing? Identification of areas that you are not servicing provide a road map to change your marketing.
- Resource allocation – A fancy name for getting the most from your assets. Your labor force is an asset that can produce only a given amount of quality work in a given period of time. Are you making the most profit from the billable hours available? Example: Are you building certain units that you could buy from an outside supplier at or below your cost of remanufacture? If you buy certain units at prices at or below that of your in-house cost, does that leave your crew free to build the units that are too expensive to buy? The trend has always been to be a hero and build everything in house. The smart money doesn’t waste time and money on anything the shop can buy at comparable rates. The added benefit to this is no warranty liability.
- Marketing – Is your facility presentable, and do you create a professional image in all your customer dealings? Are women comfortable in your shop? You get only one shot at making a good impression, and today’s customer is very sophisticated and demanding. Clean, neat and professional is a religion for the successful. Investigate the services that you offer and compare them with those of the competition. Look for niche markets that others are not into and learn to market those services. Differentials, driveshafts, transfer cases, sticks, performance and race units, reprogramming computers for performance, and RV work can all add very profitable sales to your business. Why fish in the same pond that everyone else is if you can identify markets that, although limited in numbers, bring in twice as much money as what everyone else is doing? People always have money to spend on toys, and you can learn to perform those types of profitable repairs.
- Finance – How many jobs do you lose because the customer cannot afford to make the purchase? Team up with one of the finance services available, such as GE Same as Cash, where you get the customer a credit-card-like finance plan to pay for the repair with no recourse to your shop.
- Apprentice program – Everyone has the same problem in finding good help. Shops are raiding each other for qualified people, and the costs of labor are spiraling out of control. Consider creating an apprentice program in which you take an entry-level person and train them to be a valuable shop asset. There is always the risk that they will learn from you and then leave, but if we don’t break the cycle there will never be an end to the labor shortage.
- Extended warranty – Look at offering a self-funded extended warranty that can offer added income and be competitive with the outside world. ATRA published a paper on putting together such a program and explained how to park the money for income and protection against warranty failures. If you can get the numbers correct, this could be your retirement.
We have only scratched the surface of innovative methods to set your business apart from the herd. In this market you must be proactive. If you are standing still, you are going backward. Once you get into analyzing your market, you will find many ways to cut costs and add services that are really profitable, way beyond what is listed here. The journey starts with the first step, and those who wait will regret it.