If you run a garage, is it truly profitable? Some 80% of garages are not realising their rightful profit potential, because they lack the confidence to justify the correct prices for the work they carry out.
This was one of the messages contained in a presentation by automotive aftersales expert Andy Savva on the Original Equipment Suppliers Aftermarket Association (OESAA) stand at the recent Automechanika Birmingham exhibition. Andy now runs an aftermarket business consulting firm, after a successful career as an independent garage operator. During this time, he developed businesses that included some of the most respected independent workshops in the UK, with a reputation for high quality workmanship and exceptional customer service. He now advises independents on how to improve different aspects of their business and has been shocked and surprised by what he has found in the industry.
Andy believes that some 80% of garages are just ticking over, selling labour at unsustainable rates and not making the profit necessary to secure their business through future investment. The problem he believes is mainly down to a lack of confidence when it comes to justifying their prices.
He says, “All too few garages have a business model or plan. For example, most have settled on an average labour rate for their area. When you ask them why they charge this amount the usual answer is ‘because it is the going rate’, something that takes no account of all the many other factors that need to come into play.”
The labour rate is fundamental to the profitability of a garage, but most garages come up with a relatively arbitrary figure, meaning that the vast majority of operators are failing to consider running costs and other overheads and never consider other vital factors such as the cost of training, information research and critical investment in new equipment. Plucking a labour rate out of thin air, just because a competitor is charging it, is also something that inevitably leads to a race to the bottom on price.
As Andy points out, independent garages have come a long way from dirty back alley businesses and are now highly professional operations dealing with incredibly complex technology and often safety issues that can literally be a matter of life and death. As such, front of house staff need to be trained to be able to justify charging a reasonable rate for a high quality job, something which in his broad experience, customers are prepared to pay for if it is explained to them properly.
He says, “At some of the service prices being advertised, it is absolutely impossible to do the job right. Corners have to be cut and this means ultimately there will be zero customer satisfaction.” This is something that is vital in Ireland, where a sound garage business is so often built on repeat customers, reputation and recommendation.
Andy believes that the future for many progressive independents will be to become increasingly specialist in particular marques or types of repair. This will entail significant investment in training and equipment, something that can only happen if a business is making a reasonable return. He also stresses that when it comes to quality, the use of Original Equipment (OE) parts as supplied by the OESAA member brands is the only true guarantee. He says, “If you are doing a job to the highest standard you can, it is vital to fit the best possible parts. In my opinion, knowing a product is OE, is the only true benchmark when it comes to quality.”
Andy concluded that independent garages have a choice when it comes to their future. They can give into the fear factor and charge prices that are not sustainable in the long term, or do the job right and not be embarrassed to make a profit. If an independent garage wants to have a bright future it must offer good service, to compete with franchised dealers, invest in training and equipment and use the right components. This makes having the confidence to charge a fair price for a job probably the most important skill a garage operator can learn.