TORONTO—Independent tire dealers and other automotive repair shop owners typically have too many customers, according to Bob Greenwood, president and CEO of E.K. Williams & Co., a Toronto-based management and consulting organization. Mr. Greenwood, a seminar speaker at the Tire Dealers Association of Canada convention in Toronto, told dealers there are two basic types of people who patronize their service bays:
1) Customers looking for the lowest price.
2) Clients, who have such a trusting relationship with the shop they drop off their keys without question, knowing their cars will be serviced properly and fairly.
"We need more clients; we all have too many customers," said Mr. Greenwood, whose topic was relationship building.
Whether tire dealers realize it or not, they're in the "relationship business," he told the Jan. 27 gathering. Dealers need to develop lasting relationships with desirable customers, employees, suppliers and others important to their business, such as bankers.
Mr. Greenwood predicted that the next decade will be "substantially more profitable" than the last 20 years—but only for those who are willing to change with the times.
The industry has many issues needing to be resolved, and this creates too much stress for owners and employees alike, he said.
Many shop owners feel threatened by the changes taking place around them, Mr. Greenwood said. For example, "they find it exceptionally difficult to keep up with technology," which is changing at "an incredible rate."
Shop technicians, likewise, are telling the owner: "Well boss, you're paying me $18.50-$19 an hour and now you want me to go to some training session at night and still be fresh and crisp in the morning...."
Mr. Greenwood said automotive service is practically the only field he knows of that requires business owners and employees to take training on their own time just to hold down a job. "Name any other industry in the world that operates this way," he challenged.
Meanwhile, the complexity of today's vehicles and the need for sophisticated automotive diagnosis is increasing the stress for shop owners and technicians, Mr. Greenwood said.
Owners wonder how to charge for the time technicians spend in such diagnostic work. Many find they have as much as four labor hours invested in diagnosis for every hour they're billing out. "That's got to change; it's not acceptable," he said.
The difficulty of servicing and replacing parts in many of today's complex vehicles is yet another cause of stress. Clearly, those who design many of today's vehicles have never had to work on them, he said.
These are time factors that not only affect the profitability of the typical automotive service business, he said, but also jeopardize the company's relationship with its customers and staff.
Then there's the difficulty most shop owners have getting bank financing to operate and expand their businesses, Mr. Greenwood said.
Often, bank officials refuse to loan money to auto service providers because they don't think shop owners know how to read a balance sheet or understand how such things as cash flow and gross profit mix affect their bottom line.
We, as an industry, "don't have a relationship with the bank," he said. "And that's affecting our borrowing power and the profitability of our shops, because we need proper financing."
Many shop owners try to compensate by leasing rather than borrowing money to buy new equipment. But leasing further increases their operating costs, Mr. Greenwood said.
Hiring and keeping good help also is a universal problem. "There's a huge shortage of competent people in our industry. And if we're not going to pay them right and have a proper relationship with our staff, we won't retain good people," he said.
The industry as a whole suffers from a lack of self-esteem, Mr. Greenwood said. "We don't think of ourselves as professional people. And that's why we don't earn a professional income."
Meanwhile, there is the added stress of keeping an adequate inventory in an era of increasing part numbers, Mr. Greenwood said. "Do most of your parts come from one supplier?" he asked dealers. "Most successful shops have that relationship. They're not sitting at the phone for 15 minutes or more shopping around to save five bucks on a part."
And there's also plenty of stress involved in keeping track of and collecting accounts receivable, Mr. Greenwood said. "We're probably one of the only industries that perceives that it has to run a business with accounts receivable," he told dealers. With the various ways of handling cash and financing purchases available today, "accounts receivable should not be there."
Labor rates are also a universal headache, he said. Statistically, "your mechanical labor rate has to come in at 3.75 times your top technician's wage." Therefore, the labor of an $18.50-per-hour technician should be billed out at close to $69 per hour.
It's also worthwhile to establish tiered rates to account for the increased skill and knowledge required for diagnostic work. Such work usually requires an additional investment in specialized equipment and training, he said.
Establishing positive relationships with client customers and others requires the owner to interact with those individuals and not be in the back shop working on cars, Mr. Greenwood said.
Dealers need to ask themselves: Do I basically want to be a technician, or do I want to be a business owner? "If you make that decision, it will be one of the best you'll ever make," he told dealers.
Mr. Greenwood said he believes repair shop owners are every bit as intelligent as white-collar office workers. But many lack the formal training needed to make their businesses flourish.
He said his firm's surveys in Ontario over the last four years suggest three out of four shop owners have a 12th-grade education or less.
Moreover, at no time during high school did anyone teach these owners about balance sheets, gross profit mix, how sales mix drives net income or how to hire and manage staff members. "We haven't had any training in this industry. That's why it's an issue," Mr. Greenwood said.
"In our surveys," he said, "the No. 1 issue in Ontario today is the shortage of technicians. The No. 2 issue is: `How do I manage growth in my business?'"