Survey Says: It's the Economy, stupid

Have we heard or seen that line enough this election season already?

Many of us are already putting final plans for 2008 in motion, and are looking ahead to 2009. With a Presidential election less than 30 days away, I'm certainly not in any position to predict the future of our economy, our automotive industry, or the election turnout itself. But the truth is, I just can't help myself. Besides, there are indicators and discussions of which we should all take note as we prepare our businesses for 2009.

From the DOT: American Driving Reaches Eighth Month of Steady Decline
Data released by the U.S. Department of Transportation shows that, since last November, Americans have driven 53.2 billion miles less than they did over the same period a year earlier – topping the 1970s’ total decline of 49.3 billion miles. ...Americans drove 4.7 percent less, or 12.2 billion miles fewer, in June 2008 than June 2007. The decline is most evident in rural travel, which has fallen by 4 percent – compared to the 1.2 percent decline in urban miles traveled – since the trend began last November. The decline in miles driven is similar to the two oil crisis of the '70s. (Data Source: August 13, 2008,
Calculated Risk: Finance & Economics.)
When Americans drive fewer miles on their vehicles, consumables (tires, parts, etc.) and preventative maintenance (oil changes, filter changes, etc.) tend to be required less. As certain services are being performed less, mechanics are faced with two certainties:
they will have to find other jobs to pick up the slack within their employment - for instance, a shop will try to perform more oil changes or PM checks, when people begin to reduce their scheduled maintenance because they're not hitting the mileage points
or they reduce time on current job (because the business is not coming to their door) and find other jobs to pick up the slack.
Historically, during a period of recession, the mobile tool jobbers business will pick up, as more technicians perform "shadetree mechanics", working on weekends outside their shop to supplement their income.

However, mobile jobbers business is reported as relatively soft in the U.S. through the second quarter (Snap-on US sales down 4.1%, Danaher down 4% in their tool segment, Stanley's revenues within North American automotive repair tools continue to be adversely impacted by the U.S. economy. Segment profit as a percent of sales declined versus the prior year driven by inflation, unfavorable product mix and strategic investments in emerging markets and Stanley Fulfillment System initiatives, according to annual reports) and into September (anecdotally). The same can be said for many other tool and equipment companies this year. Many faced a soft 1st quarter, saw a slight rally in the 2nd quarter, expected flat to a slight increase in the 3rd quarter, but instead had more dismal sales. Equipment sales are really lagging, primarily due to the credit crunch. Right now, I am not hearing much positive commentary from the field about the 4th quarter or into 2009.

There are talks of cutbacks and layoffs, and some customers have already begun to lay people off or reduce hours. Warehouse distributors are not taking advantage of quarterly rebates, because their warehouses are already full and they can't afford to risk cash-flow for inventory that may or may not move in 30-90 days. Mobile distributors are having a tough time getting new dealers set-up because they can't get financing for their new businesses. That being said, everyone is starting to get more creative in how they approach the market and as they look for new markets.

When technicians aren't working as much, they're not replacing older tools, nor are they interested in investing in new tools when they have to make a choice between groceries, gas, or tools. Especially, now that the first several waves of price increases on tools and equipment have hit the streets. There are some tools and equipment being sold today for 10% to 30% more than they would have cost a technician a year ago, simply because of the rising costs of raw materials that manufacturers have seen over the past 18 months. They've finally been able to pass some of their costs along to the distributor and ultimately the consumer.

So - no quick answers, no clear direction. However, here are my predictions for the final months of 2008 and early 2009:

1 - We will have a Presidential election and a man will win.
2 - The "Wall Street/Main Street Bailout" will pass.
3 - Credit will remain tight as the government sets tighter standards - thus continuing to make it difficult for some businesses to grow. In theory, this will weed out the weaker businesses, and ultimately the stronger, better-run companies will thrive.
4 - Most indicators for the automotive industry will continue to decline (miles driven, tires replaced, new cars manufactured/sold) for the next 6 months at a minimum.
5 - In an effort to keep people fully employed, our government will continue to run a deficit, because the private sector will not invest enough to increase production and reverse the recession. Additionally, we will see an increase in subsidies (this may help the automotive sector if the subsidies are available to the domestic Big 3).
6 - The price of oil, and subsequently gasoline, will continue to play a big part in the public's sense of well-being and trust in the government.
7 - no matter what any politician says between now and the election - taxes will go up.

Technician Shortage, Need for Training

This is a letter we received earlier this month from Dexter Baum, second generation owner of Baum Tools. He is responding to Larry Carley's article about the alleged technician shortage in the U.S. You can read Larry's article in the June issue of TechShop magazine.

July 16, 2008

Hi Larry,

I just finished reading your June article “What Technician Shortage”. Just thought I’d throw my two cents in.

I agree with you Larry. There are plenty of technicians in the US to go around. You make an excellent point with the Stats on how many techs are working on cars vs. how many are properly trained. This is evidenced every day in our own (in-house) sales and tech departments here at Baum Tools. Since all we sell are special hand and diagnostic tools for the repair of European cars we make contact with technicians everyday. That’s the nature of it. If we don’t talk to the tech regarding his specific application, we are likely to send him the wrong tool. As an example: We may have four different pullers for the same bushing on a BMW. Depends on model and year to determine which one you need. Our guys need to know that. We have the same factory information the dealer has and talk to dealer and independent techs constantly regarding new issues and it’s still a challenge with all our resources. We spend tens of thousands every year just buying the latest factory special hand tools, diagnostic tools and subscribing to factory information just to keep up.

We are on the phone all day long with techs needing a special tool. Sometimes, 20 or so calls are from tool distributors with a tech in his ear. Since we talk to techs all day our phones are manned by expert ex-technicians who generally know more about the use of the tools than the guy buying them. When you talk about training needed for auto repair technicians, we know from experience that some of these techs are in way over their head with a car. Sometimes the calls we take make me glad none of my family vehicles are within a hundred miles of the guy’s shop. It’s remarkable how many guys are in trouble trying to repair sixty thousand dollar cars. Most of our calls are from pretty smart guys. In defense of the technicians in trouble on our phones, which can sometimes be quite a few in one day’s time, most want to know more about these vehicles but can’t get the high-level training they need because it’s just not offered outside the dealer network. The independent shops need high-level training nearly constantly. When you talk about the need for training I think it’s a good idea to mention that every few years systems can completely change for most manufacturers. There becomes a need for more training. The systems have become so complex that a good automotive technician also needs to be a bit of a computer technician. As you and others have written before, much of automotive repair is becoming a complex puzzle of computer diagnostic troubleshooting. Maybe that will lure some of the tech geeks into this business.

I know you’re right about the aging master technician working longer. I’m 57 and I’ve been selling tools to many of these guys since I was in my twenties. I know many 65 and 70 year olds still turning wrenches. Some with serious health challenges, some a bit luckier. Many of the smarter veteran shop owners we know have surrounded themselves with a few good techs and kept them by sharing the wealth. I think that’s essential for an aging shop owner. You’ve got to keep the level of pay high, raise prices a bit and give the best service you can. Everybody’s read about adding extra services to keep good customers. Added value is very important. That’s why we got into the tech help business. Too many older technicians frightened of new systems
As far as health care goes. Something needs to be done. When the real bulk of us hit medicare’s front door in five to ten years the building will fall. Maybe one of those young computer techs you spoke of in your June article will come up with something.
Thanks for the great insight you share each month.

Best regards,

Dexter Baum
Baum Tools Unltd. Inc.

I spoke with Mr. Baum this morning to thank him for his comments. He made some clear observations about the state of part of our industry. I think it's a serious call to action that is required here.
We need more tool and equipment manufacturers to step up and provide education and training on their products. We need more independent repair shops to step up and provide education and training on new tools and equipment. It's an investment in the future of our industry.

A View from Rush Truck in Nashville, TN

http://www.youtube.com/watch?v=EJVrCDHVWmI


I recently attended the 2nd annual Rush Truck Technicians Rodeo, where their top technicians competed against each other for cash prizes and other incentives. Here are some brief commments some of their top technicians gave me, regarding the opportunities available to young people who want to come into our business.

Technician Customer Friend Professional

I read a lot of business-to-business magazines, and I recently came across an article describing technicians and their approaches to a business transaction. It was basically a description of how tool dealers sell to technicians and it ran through the Mr. This and Mr. That description. And it got me thinking about our business. We all know people who scrutinize a bill before they pay it (My father-in-law had it down to a science when we would go to restaurants. He would actually bring out his abacus and do the math for the 15% tip while we all shrank in our seats...)
But my question is this - do we really want to categorize our customers into smarmy categories based on how they pay? I don't think so. Instead, let's recognize the professional technician for who he is -

1 - generally he or she is a professional who has had some life experience and some formal technical education that led him to this spot as our customer (more than 90% of pro techs are men, so I'll just use the "he" here..)
2 - sometimes they have a bachelors or masters degree
3 - he makes his living using his mind first, and his hands second
4 - he buys a lot of tools over the lifetime of his career
5 - he is typically a family person - if not married yet, he will be.
6 - he truly enjoys what he does for a living
7 - he can be a generalist AND a specialist
8 - if he is just starting out, there is a good chance he will be in this business more than 20 years
9 - many technicians move on/up to own their own business
10 - many techs bring their family members into the business

Now, how do you label a technician who embodies some or all of these points? The only thing I can call him is a customer for life who deserves my respect. Perhaps over the lifetime of our relationship, I could also call him or her, friend.

What's Your Motto?

I recently wrote an article in TechShop magazine, describing my version of the Universal Independent Shop Owner and Professional Technician Motto: "I will do my best to be honest and fair, friendly and helpful, considerate and caring, responsible for what I say and do, and to respect myself and others, user resources wiesely, make the world a better place, and be a support to every technician I meet."

Here is a response from one of our readers:

Beth,
Just a quick note to say I enjoyed your point of view page in the
June's Techshop . I have been in the Automotive business for some 30
years and when I first started working at my friends fathers gas station
he use to have a sign posted on the door in the office of the "Mechanics
Creed". I was wondering if you could help me find the original. I have
found one but it is a edited version of the Aviation mechanics creed.
The one we had posted also spoke of keeping the Service station repair
shop, rest rooms, and uniforms neat and clean. First impressions matter
in every industry.
Best Regards,
Mike Natoli

If any of you have ever seen this Mechanics Creed, or have a copy of it, would you please post it to this blog? We'd like to forward it to Mike, and include it in the next issue of TechShop.

Thanks for your support!