News from the Aftermarket Wire

R.L. Polk & Co. recently released the results of its market study, titled, "The Changing U.S. Auto Industry - the Impact of Declining New Vehicles Sales on the Aftermarket Business"

In today's AMN, we reported, "As the economic crisis continues and consumers shy away from purchasing vehicles, drivers will hold onto their vehicles longer. In fact, the average length of ownership of both new and used vehicles has increased from 37.2 months in 2002 to 46.3 months in 2008, an 24% increase.

While this increase in average length of vehicle ownership is not good for automakers and dealerships that sell new vehicles, it's positive news for many segments of the automotive aftermarket. Many segments will benefit from increases in the number of older vehicles on the road, especially those in the 11+ age group. As partial proof, stocks for aftermarket repair chains O'Reilly automotive, Advance Auto Parts, and AutoZone have shown strong results so far in 2009.

Polk recently studied U.S. consumers on vehicle purchase plans. 64% of consumers said they were "very or extremely likely" to keep their current vehicle longer than they normally would due to current economic conditions. Additionally, 81% of the 713 interviewed vehicle owners in this same study also said they planned to take better care of their vehicle to keep it running longer, which could translate to additional aftermarket revenue.

As the number of older vehicles on the road climbs and consumers focus more on vehicle maintenance, the aftermarket must be ready to meet the increased need for parts and service, which has implications for inventory management planning. Also, as consumers continue to look for ways to cut costs, retailers targeting DIYers and, to a lesser extent, independent aftermerket repair facilities could stand to gain additional share of market."

After reading this, here's my first thought - does this mean the retailers will expand their DIY section of automotive? For instance, right now Target carries primarily appearance chemicals, wiper blades, car accessories, and fuzzy-dice-type stuff. I haven't been in a K-Mart, TSC or WalMart for years to see their automotive section - so I'm not sure what they carry.

But if this information is true, isn't now a good time to go back to the retailers and sell them the tools and equipment that DIYers will need to perform more of their own work? In addition to the pickup you should start seeing in your traditional markets, this unique situation in the aftermarket provides an incredible opportunity for some tool or equipment manufacturers to branch out into new markets.

You can read the entire 28-page report by going to www.aftermarketnews.com.

Random Recession Thoughts on Our Biz

These are just a few observations I made after discussing business conditions with several industry experts last month. These are the result of their in-depth discussions with more than 500 shop owners:

Are we in a Profitability Crisis? By "we" I mean, are independent repair shops in short-term and possibly long-term trouble? Well, let's look at the facts. Every year, it appears there are more and more shops just struggling to stay afloat. Most shops are in business 25 - 27 years. These shops might like to get bigger and more profitable and generate more business, but they struggle to stay alive. They are working harder and making less. Think about it - broken cars are disappearing. Vehicle reliability continues to grow, as everything lasts longer and works better.

Here are the challenges we see for the Independent Shop Owner:

Profitable maintenance work is going to the most aggressive marketers. Many shop owners are working on cars more and more, in an effort to control costs and profits. What is happening instead is they are not focusing on growing their business. Too many shops have little or no equity and operate on a hand-to-mouth basis. Speaking with a major supplier of diagnosis and repair information for the shop, they said the NUMBER ONE reason they lose customers is: That customer goes out of business.

Review the list below. Do any of these challenges apply to you?

• Low or uncontrolled margins, due to a lack of focus on profitable business, or perhaps focusing on the wrong part of your business
• Getting out of the habit of selling scheduled or preventive maintenance - we call this "upselling". Are you doing it enough?
• Ineffective, mis-directed or non-existent marketing
• Poor customer follow-up
• Low customer visit frequency
• Inneffective access to customer/vehicle and their repair hisotry
• Multi-shop customers - these are the customers who go to a repair shop for repairs, but to their dealership for maintenance or a tire shop for tires. (this is your opportunity to get them to your shop with a Maintenance Schedule of your own, based on the manufacturer's guidelines)
• Bargain shopper customer
• Poor customer retention
• A future challenge - getting and keeping qualified professional technicians, service writers and counter people

Don't let this happen to you. Manage your business.

With the price of gas continuing to rise, vehicle owners are looking for ways to get better fuel economy and make their vehicles last longer. This is the right time for you to look for opportunities to increase your scheduled maintenance business. Work to make the "repair event" (a breakdown or loss) less of a factor in your shop. Maintenance work can be profitable. It should not be left to the car dealerships.

Understand that sometimes your opportunity for growth is coming from a highly competitive segment. Increasingly we are seeing dealers and the large chains marketing and promoting their services to YOUR customer. Quick lubes and tire chains, previously single-market type of outlets, are now looking to expand their business into mechanical service.

New technologies are being built on top of the old technologies that you are familiar with, leading to pyramid systems. Transmission and drivetrain, chassis (active damper system), restraint (dual state/dual threshold front airbags), comfort (air filtration), brakes and crash avoidance are just some of the areas in transition. Keep up with the changes.

In short, in order to be profitable and continue to grow you must find the tools that will help you improve your business and your performance. Then purchase them and put them to work. Join a professional network to learn best practices from your competitors and peers. Stay current with changing technologies. Make sure you and your staff have access to the latest vehicle information. You will be glad you did.

Britney or Recession?

Two words I've heard too often in the past few weeks.

In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. In the United States, GDP is officially tracked by the Commerce Department's Bureau of Economic Analysis. An alternative, less accepted definition of recession is a downward trend in the rate of actual GDP growth as promoted by the business-cycle dating committee of the National Bureau of Economic Research.[1] That private organization defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession may involve simultaneous declines in measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression. A devastating breakdown of an economy (essentially, a severe depression, or a hyperinflation, depending on the circumstances) is called economic collapse. Newspaper columnist Sidney J. Harris distinguished terms this way: "a recession is when your neighbor loses his job; a depression is when you lose your job."
Market-oriented economies are characterized by economic cycles, but actual recessions (declines in economic activity) do not always result. There is much debate as to whether government intervention smoothes the cycle (see Keynesianism), exaggerates it (see Real business cycle theory), or even creates it (see monetarism).

I think it's time we also debated the effect the media plays in our economy - if enough people hear, read, or blog about it, does it make it true?

Believe it or not, most economists say we've seen a recession in the U.S. every 6 - 8 years. Some businesses (like housing) or regions (like Michigan and NE Ohio) are already in a recession, based on the definition above.

So, what types of business will survive a recession, and what types hold up pretty well during a recession? Two things we know for sure - death and taxes. Therefore, the funeral home guys and the tax accountants are pretty safe during a recession. Safe to say that doctors and insurance people do ok as well.

Carmakers and car dealers often have a tough time during a recession, because when times get tough, people tend to put off buying a new car, it's just too scary to make that longer-term decision. But how about your business? Are you recession-proof or recession-resistant?

Here are some strategies to think about as we consider the effects of a recession nationwide:

1 - It is more important now than ever to keep a close eye on your competitors' pricing. As money becomes tight and consumer spending contracts, some businesses will cut prices as demand dries up. You need to be aware of what is going on in your marketplace, and react (or act) appropriately.

2 - Watch your debt load and cash flow. Even though the Fed reduced "an" interest rate this week, it may not necessarily make it any easier for a business owner to borrow more money to get through a downturn. Review costs and eliminate waste. (Good advice anytime, but during a recession this can mean the difference between staying in business or closing the doors.)

3 - Talk to your customers. Find out if they plan to reduce their regular maintenance, or if they are putting off major purchase and respond accordingly. If your regular customers plan to cut back on repairs, you need to widen the net you cast and develop new customers and new markets to make up for the lost income, or you will need to make changes to cope with the loss.

Surviving a recession as a business requires strategies that you probably use all year round. It's just more important now to keep them top of mind and in effect.

Opportunities Abound for the Independent Repair Shop

October is Car Care Aware month. You may have noticed information about Be Car Care Aware on your local network. The Care Care Council recently announced the results of last year's vehicle check-up events during Car Care Aware Fairs across the country in April and October 2006. What do you know? People just aren't taking care of their cars like they should. The CCC revealed that nearly nine out of 10 vehicles need service or parts, underscoring the huge untapped DIY and DIFM sales opportunities for the automotive aftermarket. The unsatisfactory condition of vehicles also reinforces the continued need for consumer education about the benefits of regular vehicle care, maintenance and repair.

An analysis of nearly 1,000 vehicle inspection forms, submitted from event coordinators in 16 states, show that 88 percent of the vehicles checked during National Car Care Month in April and Fall Car Care Month in October needed parts replacement, service or fluids. The top problem areas were motor oil, Windshield wipers, air filters, belts and hoses and lights. Any time a customer brings their car into your place for service, you should ALWAYS ASK, "May I check your oil, wipers, filters, belts, hoses and lights? Or at a minimum, have a place to check them on your work order, so you can discuss their condition with the vehicle owner.

“Vehicle check-up events are typically the focus of Car Care Aware Fairs sponsored by repair shops, parts stores, distributors in cooperation with local vocational schools, media, civic groups and others,” said Rich White, executive director, Car Care Council. “While these events are free to consumers and serve as community-relations builders, most aftermarket businesses who participate experience an increase in sales and customers as a result.”

When checking lubricants and fluids, the three top failure rates were: low, overfull or dirty motor oil at 30 percent, inadequate washer fluid levels at 28 percent, and low, leaky or dirty coolant at 28 percent. Transmission, brake, power steering and clutch fluids were also checked and had failure rates of 26 percent and below.

Approximately 15 percent of vehicles had front windshield wiper failures and 9 percent needed service to rear wipers.

At least one belt was reported as unsatisfactory in 22 percent of the vehicles inspected and 14 percent required at least one new hose. New air filters were needed in 25 percent of the vehicles, while 8 percent needed new PVC filters. The “check engine” light was on in 8 percent of the vehicles.

Battery cables, clamps and terminals needed maintenance in 17 percent of the vehicles inspected, while 9 percent of the batteries were not properly held down. Eleven percent had either a green, dark or clear/yellow charge indicator light.

Improperly inflated tires were found on 20 percent of the cars and 11 percent had worn tread and were in need of replacement.

The leading failure rates for vehicle lights/vision were: license plate lights at 18 percent, brake lights at 10 percent and side markers at 8 percent.

The Car Care Council is the source of information for the “Be Car Care Aware” consumer education campaign promoting the benefits of regular vehicle care, maintenance and repair to consumers. For more information, visit www.carcare.org.

Car Care Council 7101 Wisconsin Ave. Suite 1300 Bethesda, MD
Tel: 301-654-6664 Fax: 301-654-3299
www.carcare.org