AutoRepairShops

IndustrySnapshot

119NorthCommercialStreet,Suite195Bellingham,WA982254455 phone:(360)7334014fax:(360)7335092www.cevforbusiness.com

IndustrySegments Thefollowingchartbreaksdownthesegmentswithintheautorepairindustry. 1

IndustrySegments
5.70% 2.00% 6.70% GeneralAutomotive Repair AutomotiveTransmission Repair&Maintenance AllOtherRepairs AutomotiveExhaust Repair 85.60%

Generalautomotiverepair Thissegmenthasgrownasapercentageofoverallindustryrevenueinthepastfiveyears,and isexpectedtoincrease.Businessesthatmakeupthissegmentprovideallinclusiveservices. Theseservicesinclude:diagnostics,alternatorandstarterrebuilding,nostartanddrivability, fuelinjectioncleaning,timingbeltchange,tuneup,clutches,brakeservice,plusmanyother services.Itisreportedthateachyeartheaveragerepairshopreplacesbetween25to30 engines. Automotivetransmission Includedinthiscategoryis:hydraulic,electronic,andcomputersystems.Thissegmentis expectedtomaintainitscurrentpercentageofthemarketsegmentforthenextfiveyears. Automotiveexhaustrepair Thissegmentismadeupofmechanicswhospecializeintherepairandinstallationof automotiveexhaustsystems.Overthepastfiveyearsthissegmenthasbeencontractingasa resultofimprovedtechnologies.Noncorrosivestainlesssteelpartshaveextendedthelivesof partsinexhaustsystemsapproximately10yearsandthathasdecreasedtheneedforrepairs. Otherrepairs Otherrepairsinclude:tuneups,tireretreading,automotiveelectricalrepair,fuelsystem conversion,batteryandignitionrepair,andgeneratorandstarterrepair.Approximately17.2% ofotherrepairscomefromradiatorrepairs.
1

IBISWorld Pty Ltd., Auto Mechanics in the US. New York: IBISWorld. March 15, 2010. http://www.ibisworld.com

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IndustryData BodyShopBusinessMonthlyprovidesindustrydataonoperatingcostsforrepairshops. 2 The followingchartshowsannualgrossincomeandthepercentageofrepairshopowners reportingthatincome.

AnnualGrossSalesVolume
$1Millionormore $750,000to$1Million $350,000to$749,999 $250,000to$349,999 LessThan$249,999 0% 10% 10% 34% 20% 30% 40% 10% 20% 26%

Thechartbelowestimatesthebreakdownofpurchasedollarsforshops.Theaverageshop spends$2,500amonthonpaint.Ofallautomotiverepairshop,91%ownsometypeof computerizedestimatingsystem,50%ownacomputerizedmeasuringsystem,andowna35% ownacrossdraftspraybooth. 3

%ofPurchasingDollarsSpenton:
Paint 6% 7% 8% 15% 31% 8% 4% 21% CrashParts RefinishingMaterials RepairMaterials Tools CapitalEquipment MechanicalParts Other

Industry Statistics, BodyShop Business, http://www.bodyshopbusiness.com/IndustryStatistics.aspx (April 23, 2010).

3

Ibid

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AverageAnnualSalary
MetalTechnicians Painters Mechanics EntryLevelEmployees OfficeManagers SeniorEstimators $48,973 $51,720 $44,478 $28,342 $38,132 $56,365

ThetableabovebreaksdownaveragesalaryforautorepairshopsintheU.S.Sixtyfivepercent ofshopshaveatleastoneemployeewhohasbeenemployedwiththemformorethantwenty years.Belowisalistofsomeofthefringebenefitsofferedbysomeshops: 77%ofshopsoffermedicalcoverage 65%ofshopsofferuniforms 93%ofshopsofferpaidvacations 67%ofshopsofferpaidtrainingandeducation 28%ofshopsoffera401Kplan 13%ofshopsofferavisionplan 33%ofshopsofferpaidsickdays 16%ofshopsofferprofitsharing SuccessFactors 4 AchievingEconomiesofScale Businessesthataresuccessfulinachievingeconomiesofscales,especiallyindistributioncosts andadvertisingprovetobethemostsuccessful. WorkplaceSafety Successfulbusinessesfocusonmaintainingsafeworkingconditionsanditscorporateimage revolvesaroundsafetyandenvironmentconsciousness. StrongInventoryManagementSkills Strongbusinessesareabletocontrolstockonhandandinstallaccuratecostingsystems. EmploymentofSkilledAutomotiveTechnicians Itisimportanttohaveaccesstoaskilledworkforceasvehiclesarebecomingmore technologicallyadvancedandcomplicated.
4

IBISWorld Pty Ltd., Auto Mechanics in the US. New York: IBISWorld. March 15, 2010. http://www.ibisworld.com

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ProvideSuperiorafterSalesServiceandSupport Thissegmentcanbeextremelycompetitive,sosuperiorcustomerserviceisextremely important. ObtainMostRecentRepairandTechnologyInformation Togainrepeatcustomers,businessesneedtohaveaccesstorepairinformationfromthe originalequipmentmanufacturer. LocatedClosetoKeyMarkets Thesizeandlocationofthebusinessisessentialtoitssuccess.Thelocationwilldeterminethe potentialmarketsizeandindicatesaveragecustomersincome,vehiclecount,population,and competition. RisksandChallenges InsuranceDependence Insurancedirectrepairprogramscanmakeupnearlyallofashopsrevenue.Someshopsfeel forcedtoconformtoinsurancedemandsandsuggestionstoinstallcheaperaftermarketparts atcertainbillablerates,tomaintainthesaleslevelsandbusinesstheyareusedto. RepairInformationControlledbyCarMakers Onboarddiagnosticsystemscanhindertechniciansfrommakingappropriaterepairs. Techniciansarerequiredtohavespecialequipmentandinformationtorepaircertainpartsand problems.Insomecases,carmakersreleaseinformationfirsttotheirowncardealers. CarDealerCompetition Moderncarshavebecomemorecomplexrequiringtechnicallyproficientrepairshops.The partsdepartmentinmanydealershipshasbecomemoreprofitablethanthesalesdepartment. Ifcustomerserviceisperformedwellduringthewarrantyphase,thereisanincreasedchance thattheclientwillreturnforadditionalrepairandmaintenancewhenthewarrantyexpirers. TurnoverofPersonnel Thereisagreatdemandforexperiencestechnicians.Turnoverremainshighinmany companiesdespitetheincentivesmanybusinessesareusingtokeeptrainedstaffaround. SpecialHandlingRequirementforNewMaterials Nontraditionalmaterialusehasbecomeachallengeformanyrepairshops.Trainedstaff, specialtools,andinsomecasecertificationarerequiredfortherepairofvehiclesusingcertain material;likealuminum.

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Trends 5 DecreasingNumberofCarAccidents Withincreasedvehiclesafety,milderweatherandfewermilesdriven,thedemandforauto repairhasslowedandautoshopshavebeguntostruggle. EvolvingServiceOfferings Asvehiclespartsbecomemoredurable,shopsfocusonlightrepairandexpandservice offerings.Customerswhooncedidworkthemselvesareforcedtogotoashopbecauseofthe growingcomplexityinnewvehicles. GrowingNeedforCertification Insurancecompaniesarebeginningtorequirethecertificationofrepairshoptechnicians.The mostcommoncertificationcurrentlyisAutomotiveServiceExcellence(ASE). TrendsEvolvinginDriving Drivinghabitshavechangedforconsumersduetorecordhighgasprices.Aftermorethana decadeofgrowth,totaltrafficvolumedecreasedbetween2007and2008. AntiSteeringLegislation Somestateshaveconsideredpassinglawstopreventinsurancecompaniesfromsteering businesstolargeautorepairshops.Thiscausessmallerindependentbusinessestolose revenue.Insurancecompaniesrefusetopaymorethanprevailingrate,andmanyshopsbelieve theyareatfaultfordepressinglaborrateandpreventsmallshopsfrombeingprofitable. ConsumerDemographicsorExpenditures AccordingtotheHouseholdSpendingguide,thefollowingareconsumerdemographicsfor vehiclemaintenanceandrepairin2007: 6 Thoseages35to44aretentimesmorelikelytothantheaveragepersontospend moneyonvehiclemaintenanceandrepair.Annually,theaveragepersoninthis segmentspends$805ontheseservices. Thoseages45to54aretwentyeighttimesmorelikelytothantheaveragepersonto spendmoneyonvehiclemaintenanceandrepair.Annually,theaveragepersoninthis segmentspends$941ontheseservices. Thoseages55to64aretentimesmorelikelytothantheaveragepersontospend moneyonvehiclemaintenanceandrepair.Annually,theaveragepersoninthis segmentspends$885ontheseservices.

First Research, Inc. 2007, Automotive Repair Shops. Austin, TX: First Research. January 25, 2010. http://www.firstresearch.com. Our subscription to this service is possible through donations made by Metcalf Hodges and Wells Fargo Bank.
6

Household spending: who spends how much on what. 1997. Ithaca, N.Y.: New Strategist Publications.

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Marriedcouplesare36timesmorelikelythantheaveragepersontospendmoneyon vehiclemaintenanceandrepair.Annually,theaveragepersoninthissegmentspends $1,010ontheseservices. Asinglepersonis36timeslesslikelythantheaveragepersontospendmoneyon vehiclemaintenanceandrepair.Annually,theaveragepersoninthissegmentspends $621ontheseservices. FinancialInformation Thefinancialsofsmallandlargecompaniesareusedtoestablishindustryaveragesforseveral itemsontheincomestatement,balancesheetandfinancialratios.Smallcompaniesincluded thosewithsaleslessthan$729,228annually;atotalof267smallbusinessesweresurveyed. Companieswithsalesgreaterthan$729,228wereconsideredlargeautorepairshops.There wereatotalof1068largeautorepairshopfinancialscollected.Thebelowtableisbasedoff informationfromFirstResearchandcanbeusedasabenchmarkagainstthefinancialsofany autorepairshop. 7 CompanyBenchmarkInformation Small Company 100% 51.20% 4.10% 2.80%

IncomeStatement NetSales GrossProfit OperatingIncome NetProfitAfterTax

Aggregate 100% 48.10% 3.90% 2.30%

Small BalanceSheet Company Cash 9.40% AccountsReceivable 5.60% Inventory 9.00% TotalCurrentAssets 24.40% TotalFixedAssets 31.80% OtherNonCurrentAssets 43.80% TotalAssets 100% AccountsPayable 5.90% TotalCurrentLiabilities 39.50% TotalLongTermLiabilities 5.20% NetWorth 55.30%

Aggregate 8.40% 13% 13.30% 36.10% 23.40% 40.50% 100% 9.20% 36.70% 7.70% 55.50%

First Research, Inc. 2007, Automotive Repair Shops. Austin, TX: First Research. January 25, 2010. http://www.firstresearch.com. Our subscription to this service is possible through donations made by Metcalf Hodges and Wells Fargo Bank.

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FinancialRatios QuickRatio CurrentRatio CurrentLiabilitiestoNet Worth CurrentLiabilitiesto Inventory TotalLiabilitiestoNet Worth FixedAssetstoNetWorth CollectionPeriod InventoryTurnover AssetstoSales SalestoWorkingCapital AccountsPayabletoSales ReturnonSales ReturnonAssets ReturnonInvestment InterestCoverage Websites

Small Company 0.84 1.84 14.50% 152% 31.50% 19% 7.70% 21.30% 32% 4.50% 2% 3% 7% 34% 4.40%

Aggregate 0.89 1.76 42.0% 155.50% 69% 32% 15.10% 18.60% 29% 7.40% 3% 2% 6% 23% 6%

Thefollowingwebsitesaregreatresourcesforindustrytrends,statistics,news,networking connections,tradeshows,events,andarticles. AutomotiveServiceAssociation http://www.asashop.org/ AutomotiveBodyRepairNews http://abrn.searchautoparts.com/ ProfessionalToolandEquipmentNews http://www.pten.com/ BodyShopBusiness http://www.bodyshopbusiness.com/ BureauofTransportationStatistics http://www.bts.gov/

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