2004 Underhood Service
Repair Market Industry Profile

By Ed Sunkin

Welcome to the 2004 Underhood Service Repair Market Industry Profile, our in-depth report of the independent automotive repair market.

Our profile below highlights many elements that are a part of doing business in today’s repair shops. The information presented is a good indicator to make short-term predictions about these independent automotive repair shops. It’s also a fair yardstick to see how your business measures up to other independent repair shops.

Unless otherwise cited, the responses, charts and data is from Babcox Research, which executed a mail survey to a random sample of 4,000 subscribers to Underhood Service magazine. It should be noted that responses came from shops in small cities with a population of 15,000 to 99,999 (32%) followed by township or rural area with a population of less than 15,000 (32%), medium city with a population of 100,000 to 499,999 (22%) and finally big city with a population of more than 500,000 (14%).

You may be surprised how your business compares to the responses by repair shops across the country that contributed information provided in this article.

For example, profit margins for parts increased from 36.8% in 2002 to 41.8% in 2004, while profits from labor decreased over the same time. Average profit margin for labor reported for 2002 was 65%, and today that average is 55.8%.

Shop Owner Demographics
While the automotive aftermarket employs a vast array of people from a variety of backgrounds, here is a profile of the typical U.S. service dealer.

According to our survey, the typical U.S. Shop Owner...

We found that each week, the typical shop owner spends about 22% of his/her time repairing vehicles, 21% of the time working with customers, 21% managing the business, 18% of the time diagnosing vehicle problems and 11% of the time working with suppliers. The remaining 7% was listed as “other” on the survey. These percentages were very similar to 2002 results.

Talking Shop
Taking a look at repair facility demographics, the average general repair facility...

Shop Computers and the Internet
According to the 2003 Babcox Internet Report, 80% of the shop owners/managers who receive Underhood Service have access to the Internet (either at home and/or at the shop). The report shows that 58% of shops that receive Underhood Service are linked to the Internet.

Most shop owners/managers use the Internet at work for: Locating parts/equipment (60%); Researching tools/equipment (51%); Purchasing supplies for the shop (44%); Searching for training info (31%); Auto-related chat lines (17%); and Advertising for employees (4%).

For more information on Internet use in the shop, look for our feature “Repair Shop Internet Issues” and other related results from the Babcox Internet Survey Report in the August 2005 issue of Underhood Service.

Shop Availability
So how many automotive repair shops are out there? Well, that can change depending on whom you ask. But according to the U.S. Census Bureau’s (www.census.gov) latest totals, there are 164,360 automotive repair and maintenance shops in the U.S. employing 815,149 people. However, this number of shops includes a number of aftermarket segments. The breakdown in the number of shops/businesses is:

Parts and Labor
When looking at parts and labor responses, we found that 22% of our respondents had a total parts and labor sales volume of less than $100,000 in 2004. We speculate that some survey respondents are leery to provide accurate data to this question even though we keep this information confidential. The remaining “total parts and labor sales volume” figures were: $100,000 to $199,000 (20%), $200,000 to $299,000 (13%), $300,000 to $399,000 (10%) and $400,000 to $499,000 (7%). The percentage of shops with “total parts and labor sales” above a half-million dollars grew dramatically over 2002 responses. Figures for shops in these categories are: between $500,000 and $599,000 (8%), $600,000 and $699,000 (6%), $700,000 and $799,000 (4%) and $800,000 and more, (10%).

The average parts and labor sales volume for 2004 was $364,722.

Shops reported their average profit margin (the price they bill the customer minus the simple cost of sales) is 41.8% on parts and 55.8% of labor.

The outlook for independent repair shops appears to be positive. According to AAIA, the U.S. motor vehicle aftermarket expanded 3% in 2003 to $244.6 billion. A majority of that growth was the automotive segment (cars, light trucks) which included a 3.7% jump to 182.5 billion. (The heavy-duty segment grew by 1.5% to $62.1 billion.)

This growth is expected to continue, as the number of licensed drivers, registered vehicles and number of miles driven each year also increases. The aftermarket is forecasted to grow by 3.5% to $253.1 billion this year, and an additional 3.5% in 2005 to a total of $261.8 billion. (AAIA said these figures do not include warranty work.)

Diagnostic Charges
Currently, 92% of shops that responded to this survey charge a fee for diagnostic time. While 45% (38% in 2002) said this fee is different from their regular work time, 55% (62% in 2002) said it is not. Most shops (75%) said they charge diagnostic time by the hour, with the remaining 25% charging a flat rate. The average per-hour labor rate charge was $58.53.

Workforce and Earnings
Respondents to our survey reported that the average number of full-time employees at today’s shops is 3.7, up from 2.9 in 2002. About 46% of shops reported that they employ part-time staff (typically one or two people).

The average number of technicians per shop reported in 2004 was “3,” the same as the response given in 2002.

Not only was employee staffing up, but our respondents showed annual salaries grew for their most experienced staff.

What equipment do you own and which are you likely to purchase in the next year

What equipment do you own and which are you likely to purchase in the next year?

 

Type of Equipment

Currently Own

Plan to Purchase

4-Gas Analyzer

22%

4%

5-Gas Analyzer

16%

11%

A/C Leak Testing Equipment

76%

4%

Battery Charger

97%

0%

Business Computer

80%

8%

Refrigerant Recovery/Recycling Equipment (R-12)

58%

3%

Refrigerant Recovery/Recycling Equipment (R-134)

66%

5%

Dynamometer

13%

4%

Fuel System Service Equipment

75%

4%

Computerized Information System

63%

9%

Lab Scope

61%

6%

Lift

82%

10%

Machining Equipment

60%

7%

Parts Cleaning Equipment

84%

5%

Diagnostic Engine Analyzer

(Floor Unit)

33%

4%

Diagnostic Engine Analyzer

(Hand Held)

86%

2%

Power Air Tools

96%

4%

Scan Tools

92%

5%

Vacuum Testing Equipment

76%

2%

Waste Disposal Equipment

29%

6%

 

Our research showed that average annual earnings for managers considered “most experienced” grew to $41,946, up from the $40,925 average wage in 2002. Manager salaries for this year’s “least experienced” average also grew to $30,571 up from the $27,333 average of two years ago.

Average wages for the “most experienced” technician jumped significantly to $39,098, up from $35,113 in 2002. Yet annual salaries decreased for the “least experienced” technicians to $23,722, compared to $24,435 in 2002.

Hourly wages, according to the most recent statistics released (2002) from the U.S. Department of Labor (www.bls.gov), also increased over the past two years. The median hourly earnings of automotive service technicians including commissions grew by about a dollar to $14.71 in 2002, up from $13.70 in 2000. The middle 50% of technicians earned between $10.61 and $19.84 an hour. The lowest 10% earned less than $8.14 and the highest 10% earned more than $25.21 an hour.

The U.S. Department of Labor also reports that automotive service technicians and mechanics (from both independent and dealership businesses) held about 818,000 jobs in 2002 (down from 840,000 in 2000). This total includes those who work for retail and wholesale automotive dealers, independent repair shops or automotive service facilities at department, automotive or home supply stores. Others found employment at gasoline stations, taxi businesses, automotive leasing businesses and government locations.

The Automotive Service Association’s (ASA) research department, which recently developed a briefing paper presenting training, retention and recruiting concerns for the automotive industry, released a breakdown of the technicians currently employed.

According to ASA, this technician pool is comprised as follows:

ASA said it expects the number of automotive technicians to grow by 18% or 151,050 over the next 10 years. Though the association predicts gasoline service stations will continue to see a decrease in the number of technician positions through 2010, automotive repair shop positions are expected to increase from 26.6% to 29%. Dealership slots are predicted to drop from 25.9% to 24.7% during that period.

Getting Certified
As we saw earlier in this report that more shop owners are receiving higher education, we also find that the number of ASE-certified techs is increasing at the shop level. Three-fourths of all our shops surveyed said they had at least one case-certified technician, up from 65% from two years ago.

At present, ASE reports that there are about 400,000 professionals that hold current certifications (through May 2004). (Note: These are net totals, meaning individuals with multiple certifications are counted only once.) They work in every segment of the automotive service industry: car and truck dealerships, independent garages, fleets, service stations, franchises and more. Using the government’s statistic of 818,000 techs and mechanics in our industry combined with the nearly 400,000 ASE techs, you see that the industry is closing in on 50% certified techs and mechanics.

The ASE technician numbers for automotive-related categories include:

Automobile technicians: 299,047
Master automobile technicians: 93,954
Advanced engine performance techs: 49,858
Automobile service consultants: 10,654
Parts specialists: 36,544

Note: For a list of all ASE professional categories and certificate totals not typically associated with car and light truck underhood service (i.e. medium and heavy-duty truck, CNG, bus, collision, engine machinists, etc.,) visit www.asecert.org.

Branding
One of the more interesting results from our survey is that we found underhood shop owners and technicians are brand conscious and brand loyal. More than half of the time (“frequently” 46% plus “always” 17%) a shop will specify a brand name when ordering a part.

Another 28% said “sometimes” they specify a brand. This data explains that shop owners and technicians are discriminating customers when it comes to the products and parts that they use to service vehicles.

Only 1% of the shops say they “never” request a brand. Although this may seem unfavorable if you are a business trying hard to market your product to a shop owner, survey results showed us that when they do not specify a brand name, it is because they (89% of respondents) already know what brand the supplier will provide.

When asked if a jobber distributor does not have the brand you specified, shop owners responded that they call another jobber (72%). Other responses included, “ask the jobber to order it” (38%), “accept a brand recommended by the supplier” (32%), “specify another brand” (17%) and “other” (6%).

Whereas shop owners and technicians are very critical when choosing brands, our survey shows that their customers rarely specify a brand name when their vehicle comes in for service. Only 4% of the respondents said customers “frequently” request a brand name when ordering a part.

Purchasing Influences
We also surveyed shop owners on what influences their parts buying decisions. Asked to scale the importance of 12 purchasing decisions, the respondents voiced that “quality” (fit and performance) and “availability” were the top two influences. The remaining influences for buying parts, in order of most important, to somewhat important were: “fast delivery,” “price,” “ease of returns,” “brand name,” “full-line coverage,” “lifetime warranty,” “technical training,” “tech hotline,” “catalogs” and “promotions.”

Niche Market Possibilities
Speaking to industry experts and shop owners, we find that the general belief is that this is a very vibrant industry and one that can be profitable for independent automotive shops. Since there are more and more licensed drivers driving more miles in more vehicles than ever, these consumers are in a critical position to drive the aftermarket away from the residual effects of recent economic downturns in the U.S. economy.

Because the health of the U.S. economy directly impacts the automotive aftermarket, the long-term future of our industry is often hard to predict. During economic growth, consumer demand increases for durable and non-durable products, especially aftermarket goods. However, in recessionary times, consumers may delay vehicle purchases and postpone routine maintenance for existing vehicles, which causes a falling demand for aftermarket products and services.

One way for shops to stay successful and profitable is to seek out niche market possibilities.

The Roper Poll survey of adults across all demographics found that 59% are skeptical of dealer service on their car stereos. Also, men (63%) are more reluctant than women (55%), and 18- to 24-year-olds (77%) are the most pessimistic group when it comes to visiting a car dealer for repairs or upgrades.

“Consumers are telling us they don’t want their car dealer to be their only option for audio, video, phones and other electronic enhancements. But auto manufacturers’ design features make it increasingly difficult - and in some cases impossible - for a retailer to access a vehicle’s system to work on electronics,” says MERA President Harvey Wright. “This is a concern because it produces a de facto monopoly on upgrades and in many cases costs consumers more than if they had other options.”

MERA’s survey confirms that cost issues are a major motivator behind repair decisions. Two out of three (67%) Americans surveyed said they believe a car dealer charges more for repairs and upgrades than outside retailers.

The consumer perception is that dealer services are at least twice as costly, according to the survey. The perception is not far off, according to MERA, which estimates that a dealer charges an average of $670 for labor and parts on a typical car stereo installation. The same parts and labor by an aftermarket retailer cost an average of $385.