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| Automotive.. |
Stuck in Neutral
Auto aftermarket gets mixed signals
This is an odd time in the auto aftermarket industry: Customer counts are increasing as consumers are attempting to keep their old—”paid-for”—cars running longer—and new car dealerships, once popular places for auto repairs, continue to close.
Yet sales for many companies remain hit-or-miss. While people are spending more time at auto repair shops, they’re frequently putting off costly repairs in hopes that they’ll be better off waiting. They’re also putting off discretionary spending on things like car stereos or window tinting. Still many experts believe significant sales growth could be around the corner.
Midas, the chain of brake-repair shops, is a perfect example. The chain
saw the number of cars visiting its shops in the second quarter rise by
11 percent, according to its SEC filings. Yet total comparable shop
sales declined 3.5 percent—a decline that the company attributes to
consumers delaying more expensive repairs. Average ticket price
decreased 12 percent, the company reports. The trend is viewed as
positive by company executives, however, because the increasing
customer counts may translate into higher sales down the road.
 Franchisors cross their fingers that slower new car sales will mean more money pouring into the auto aftermarket. |
Maaco auto body shops has seen a similar trend among its customers. David Lapps, the chain’s president, said that while more customers are coming in, they are spending $75 to $80 less than last year. “They’re not spending on higher-end items,” Lapps said.
The aftermarket industry as a whole is enduring a sales slump, according to the Auto Aftermarket Industry Association (AAIA). The industry has grown every year since 1997, according to the industry group, but that growth slowed in 2008 to a paltry 0.2 percent—when industry sales totaled about $281 billion. That growth is expected to decline this year by 1.3 percent, to $277 billion.
The trend may not continue. The steep drop in new-car purchases in recent years is leaving U.S. consumers with aging cars—two-thirds of autos on the road are off-warranty and 40 percent are older than 10 years. Aging cars need more repairs and recommended maintenance. Delayed repairs only make matters worse.
AAIA is predicting many of those repairs will be made in 2010, once the economy improves. Its forecast is 4.5-percent sales growth for the aftermarket industry, which would be the largest since 2002. Some businesses say they’ve already seen that sales growth.
“Signs are positive,” said Alan Feldman, CEO of the 2,700-unit Midas. “I’ve been saying that we’re not around the corner yet, but I believe we can see it.”
Charles Bonfiglio, owner of two Meineke franchises in Florida, said his stores were down 10 percent last year—declines he attributed to a reduction in maintenance. One shop is down similarly this year, but another has seen some growth. He believes both will grow soon as maintenance delays come to roost.
“If you think about it, it’s really simple,” he said. “When there’s a delay on maintenance, the following year there are a lot of repairs. In 2008, maintenance went down, and that’s where my 10 percent went. This year, repairs went up. They did less maintenance, now their alternator is going bad. Their transmission is burning out. Those repairs are rising.”
Express Oil Change, the Alabama-based chain of quick lube and repair shops, has seen a lengthy string of same-store sales increases that haven’t stopped with the economy, though they did slow some last year, said Ricky Brooks, the company’s CEO.
 Ricky Brooks is CEO of Express Oil Change, which dedicates half its space to auto repairs. |
This year, same-store sales have been getting progressively larger—in July, sales were up 10 percent, Brooks said. Express is a quick-lube chain that has half of the bays in each store dedicated for more lengthy and costly auto repairs. The strategy behind Brooks’ franchise is to combine a quick-service oil change shop with one that will do a wide range of auto repairs—effectively using oil changes to capture more lucrative service customers. “Whoever controls the oil change controls the consumer,” he said.
Brooks believes the increase in business at his franchise is a sign of an improving economy. “Consumers are beginning to loosen up a bit,” Brooks said. His company should benefit from one other phenomenon that should have a major impact on the auto aftermarket industry: The widespread closure of auto dealers and their service departments.
“The number of cars per bay is going to get substantially higher into 2011-2012,” Brooks said, noting that more than 7,000 dealerships are expected to close by 2012. “That bodes well for business.”
Gaining on the competition
Dealerships’ repair shops make up nearly 30 percent of the auto-aftermarket industry, and their sales this year are expected to drop 4.2 percent, according to the AAIA. Express, not surprisingly, is hardly the only company that sees an opportunity in dealer closures. In June, Illinois-based Midas took out a full-page ad in the USA Today courting former auto dealership customers to consider its shops for maintenance. The company is also courting former dealers as potential franchisees.
Maaco’s parent company, Driven Brands—which also owns Meineke and Econo Lube, among others—is targeting many of these closed dealerships for potential expansion. The company is working with soon-to-be-ex dealers about potentially becoming multi-branded Driven franchisees, with Meineke, Maaco and Econo Lube in the same location.
The dealership may even be able to keep a used-car lot. “They need something,” Lapps said. “They need concepts. They have good real estate, good locations. They’re no longer part of that brand. They’re looking for synergistic businesses.” Lapps suggested other auto repair companies target dealers with conversion programs. For instance, Driven Brands could get competition from a company called Wheego—which sells a slow-moving, plug-in electric vehicle and is targeting former Chrysler and GM dealers.
Still, the struggling dealerships also have taken away business from certain aftermarket companies, notably Maaco. The chain has a substantial auto fleet business with car dealers, auto rental chains, the U.S. Postal Service, large corporations and municipalities, among others. For instance, when DHL got into the overnight delivery service a few years ago, it painted all its trucks yellow.
When DHL got out of the business more recently, it repainted those trucks to their original color. Yet many companies with fleets are downsizing or reducing their bodywork to cut costs. Car rental businesses used to hold cars for nine months before taking them off rental. Now it waits 24 months. “Our wholesale business is down significantly,” Lapps said. “Fleets are not putting money into cars anymore.” It’s a substantial part of business—more than $112 million this year, in both local and national accounts.
Lapps doesn’t expect business to be down for long. And in the meantime, his company is working to expand its customer base. Maaco, Lapps said, is known for repainting old cars. Yet the franchise in recent years has aggressively courted consumers who need damage repair. It’s also promoting its ability to do the work cheaply directly to insurance companies.
Like Maaco, the window tinting and auto accessory franchise Tint World has seen a loss in business from car dealerships—which represent 30 percent of its business. The 13-unit chain, which first started franchising in 2007, has seen a loss in sales in recent months as consumers bought fewer big-ticket items like car stereos and electronics.
Rather than buy new, some consumers are improving their old cars through detailing or window tinting, which offsets some of that lost business. The closure of independents helps bring in some business.
“We’re chucking right along,” Bonfiglio said. “But we don’t have the big, killer sales as we did last year and the year before.”
