Plenty of room for independent growth in the Atlantic Region
Just the Facts:
The average shop participating in the Atlantic Region survey had 3.9 hoists and 2.6 technicians. The average technician was producing $8,855 each in labour per month bringing the shops total gross profit percentage to an average of 53.9%. The average maintenance door rate was $62.50 and diagnostic rate was at $81.50 as at June 30, 2009. The average number of billed hours per invoice came in at 1.2.
73% of all parts purchased were from the Aftermarket arena, while 18% came from the Domestic Original Equipment Dealer and 9% from the Import OE Dealer. Shop supplier loyalty amounted to 69% of the Aftermarket purchases.
The average shop had $32,297 in Accounts Receivable as at June 30, of which 65% were commercial accounts who were paying their bills, on average, in 59 days. On the other hand, the average shop was financing the business including these receivables with an average bank debt (other than mortgages) of $52,333.
So where is the Opportunity?
The most shocking number to come out of the survey was the averaged billed hours per invoice of 1.2. This area of Canada is “activity based”. Too many shops are looking for volume and car count and keeping busy. The shop does not have the processes in place to conduct “transactional management” which is truly completing one transaction at a time completely. Instead, with the shop owner spending 24% of his working day in the bays operating a break down and repair business, the shop is “banging them in and banging them out” as fast as they can.
At 1.2 hours per transaction the consumer is NOT being professionally served because when preventative maintenance is studied as to how the manufacturer recommends the vehicle be looked after to maximize the consumer’s investment, the average billed hours per invoice work out to 2.5. There is a lot of new understanding on internal procedures and measurement that are required in order to reap the profitability rewards that are in front of the average shop. Labour rates are always a sore point with many shop owners. They use the door rate as a selling tool “to get a job.”
This attitude must change. The Atlantic Canada region must learn and completely understand the door rate of the shop reflects the competency of the shop. Competency is everything today. Based on what the Atlantic Region technicians are being paid, the survey tells us that the very basic maintenance door rate should be a minimum of $80.14 and the minimum diagnostic should be $103.57.
For basic maintenance work based on current productivity in this region, it would mean an additional $21.17 for the consumer per average transaction. (80.14 - $ 62.50 = $17.64 X 1.2 hours per invoice = $21.17) If the shop can not deliver that amount in “Value” to the consumer, then the time is right for that shop owner to get out of this business. If the shop did charge the right dollar for their knowledge, it would mean an extra $5,821.18 per MONTH in net income or $69,854.16 per YEAR to the shop based on the average number of invoices being currently written by shops in this region each month.
If the shop ever got the processes straightened out to do it correctly and achieved 2.5 hours per transaction as an average, the shop would realize an additional $6,305.75 over current averages per MONTH or an additional $75,669 per year. Now I can hear the groans of ya, ya, ya, ya. Slow down and do the math of your own operation. The math does not lie. Why would Management not want to understand how this can be achieved? The fact is 60% of the work going through the bays does not create $1 in net profit under the current processes being used. This is working too hard, certainly not smart.
Supplier relationships MUST be enhanced. When a shop spends so much time on the phone trying to save $5 or $10 on a part, the efficiencies of the operation just dive. Management is focused on the wrong priority. The owner would be better off setting up a win, win relationship with a chosen supplier who gets it for first call always which in turn frees up the time to work on internal processes to ensure the client is professionally looked after and productivity objectives are achieved.
The money for the Independent sector is in the knowledge division of the shop not the commodity division. Professional supplier relationships will allow for competitive pricing on commodities and full value support behind the scenes to assist the shop to be successful.
The final point to be made is the need to control credit within the operation. Too many shops have too much out on the books. Shop owners have never done a net profitability study of each account. I think if they did, the so called credit game would change real fast which over the course of a year would bring the business back into a more liquid position.
It is exceptionally difficult to make net income from commercial accounts and still have a great retail shop who knows “how” to look after the consumer. Retail consumer business and commercial account business can become a clash in the overall operating success of any shop when they are under the same roof. Management must know how to work in both worlds to ensure the shop is not just working hard keeping busy exchanging $1 for $1.
Our semi-annual survey reveals a lot each time regarding what is going on within the Canadian Aftermarket, but for the Atlantic Region, a clear focus and implementation of disciplined processes must be addressed to measure and increase billed hours per invoice. This is the critical number one topic that every shop owner should address for the balance of this year. The money it means to the business is incredible and will be well worth the effort to explore and fully understand how it is achieved.
About the Author: Mr. Robert (Bob) Greenwood AAM (Accredited Automotive Manager) is President and C.E.O. of Automotive Aftermarket E-Learning Centre (AAEC), a technology company focused on sustainable Business Management Resources and Development for the Independent Sector of the aftermarket industry utilizing the internet environment. Bob can be reached at 1-800-267-5497 or e-mail him here.
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