Franchise Tools . . . Go with a franchise or remain independent? Shops juggle demand as industry shifts gears
By Jon Barry
A lot of the automotive sector has been in flux over the past few years as new technologies, new buying habits and changes in demographics have led to a shift in gears for much of the industry.
The auto repair industry is no different. The old days of the mom and pop shops are in decline, and in their place is a wave of repair shop consolidation under branded franchises sweeping across the nation. But just because the old small mom and pops are closing down doesn’t mean that the independent is dead by any means. For many, the decisions whether or not to go with a branded franchise repair shop or go it alone and be an independent is a difficult decision. There are costs and benefits to both models. For this article we sat down for a chat with Andy, who is closing in on 30 years’ industry experience. Andy started in the industry right out of high school in 1989.
Andy is based out of New Brunswick and provides replacement parts to various repair shops including both independents and franchises. Andy is perfectly placed at a crossroads that’s seen lots of movement from both independent repair shops and franchises. We chatted about the developments in the industry and how technicians and managers should be approaching the repair shop industry in the coming future. Andy is quick to caution that there is no absolute answer to the question of whether to go with a franchise or to go it alone. Both models have their own individual benefits and both models can end up in a badly-run shop if the managers aren’t up on the developments within the industry and their business. Much of the decision will be up to the individual technician or manager, their level of experience, and their geographic circumstances.
The largest hurdle to cross for new shops is just getting your business off the ground. One of the most difficult aspects of the independent shop is just figuring out how to set it up. The legal, zoning permits, financing, interviewing and hiring, sourcing of parts and marketing are big challenges for an independent. For experienced business owners, this is just the price of doing business. But if you make the decision to go with a franchise the process is fairly different according to Andy: “I think everything would be cookie cutter. It’s cut-and-paste. Here it is. Here’s what you need and let’s go do it. We have people for that. I know some of the larger franchises, they handle the HR; they handle the payroll. It depends how deep a technician wants to go.” Andy argues that this structure makes a franchise a good strategy for young skilled technicians looking to open up their own shop versus going it alone out the gate without any support. “We see technicians who leave dealerships to open their own shops and struggle with the business side and eventually close the doors unfortunately.”
Andy continues: “With the franchise model, if you can get it out of your mind that you need to pay a marketing fee or franchise fee and start up, bang, you are in if you are a good technician and follow the program. If you drink the Kool-aid you should be successful.” But just going with a franchise doesn’t guarantee a well-run shop. “There’s good franchisees and poor franchisees. The only saving grace for those guys is they may have a good banner with national recognition. I’ve been into some poorly managed franchise shops and I’ve been into some really well managed independent shops who are up to date and up to speed. They go for continual training. These are high-end, well-managed and structured independent shops”
Another issue surrounding the old mom and pop shops is the fast moving pace of automotive technology and all the modern gadgets and gizmos that go along with serving a modern smart vehicle. Back in the day the mechanic would largely work on the mechanical engineering of the car, but that has changed dramatically over the past 30 years. Now repair shop workers are technicians because as their name implies, they are dealing with a wealth of different technology and knowledge.
“Vehicles are more complex now than ever,” Andy explains, “You can’t just bang metal. You really have to [do] onboard diagnostics. We are looking at autonomous vehicles….If you get into a car there’s backup cameras and sensors and things like that.” “The technical aspect is unbelievable even to bleed brakes.” Andy provides an example: “Let’s take an old Dodge Journey 2010. You need a scan tool to clean the brakes.” “…I ran into a customer who owns a Dodge Journey and he has a shop and he’s an old school guy and he doesn’t own a scan tool. Well he couldn’t even fix his own car.” Andy ended up helping the customer out and connecting him with resources to learn how to use the diagnostic tool. But for many of the veteran technicians, cashing out to a new franchise or independent and retiring is a becoming more attractive than the constant race to stay current on technology.
It’s not just keeping up with the fancy tech that’s difficult for an aging repair shop. The knowledge of how to use the new gear actively and effectively is just as important. “There’s a fair investment as well with these mom and pop shops in tooling and equipment to be able to keep up with today’s modern vehicles,” says Andy. The questions of staying current are: “Are they investing in themselves for training? Or are they investing in tools? Are they charging properly?” Being attached to a nationally branded franchise cuts out a lot of that work.
Franchisees can rely on their connected networks and corporate offices that can provide swift and easy technology for new products before the product rolls into the shop. Attachment to a branded franchise can also help a shop access training and educational infrastructure for training opportunities provided by the franchises and its networks. Many franchises also host national training and networking events for technicians and managers to connect with each other and share their knowledge and success stories to help improve each other’s business. “I think with a lot of the franchisees there are a lot of online resources.
There is probably quarterly meetings with the franchisees. As far as training for the technicians… some of the (franchise) guys have like a national trainer that will come in quarterly and they will talk about start-stop technology or gasoline direct injection is a new technology so how to repair these types of vehicles…” But this training is not only available to franchisees says Andy: “And with your independents they are buying from a jobber which is part of a national buying group. Everybody has their own training. There’s a training company out of Manitoba called Injectronics or Lindertech.” It’s not about being an independent or franchise, it’s about thinking about the future: “There’s training going on in the industry all the time. It’s a matter of who’s engaged in their business and wants to keep up”
It’s the question of charging enough to customers to pay for all these services and upkeep that causes a lot of the headaches for smaller independents just starting out: “This is where a lot of the mom and pop independent shops fail because they don’t really understand how to charge or the profitability of productivity. Whereas these national franchises, there is a matrix and you plug it in and there it goes...”. Andy says. “[The Independents] have to diagnose the problem.” “With the independent and mom and pop shops, they don’t like to charge for diagnostics”. But, Andy argues that “You have to have a strategy to repair the vehicle and you need to charge for that shop time.” “Let’s face it, an electronic diagnostic tool is at minimum a couple thousand dollars so there’s an investment. And then he’s got to invest in software, updates every year and things like that. And the guy has plugged in and hasn’t charged for it!” Andy continues “There’s a lot of leakage when it comes to managing your shop and billable hours and things like that.” “It’s the neighbourhood shop and Johnny’s a good guy and we are gonna go to Johnny but we are also going to put him out of business because he isn’t charging us anything!” At the big name franchises Andy says “that’s all billable hours” that makes pricing and charges straightforward. But of course, this type of software is not only locked to franchises. The seasoned independents have their own pricing models well figured out and don’t fall into the same traps as young independents. Many of the “modern independent shops also use shop management software programs ” for pricing says Andy. This structure could help a new independent learn how to charge and manage their business, whether it’s an independent or a franchise.
There is also the issue of the decline of maintenance needs as vehicles are made more efficient: “LED, it’s a game changer with lighting. You go from a sealed beam incandescent bulb to a halogen bulb and now it’s LED with 100 thousand life hours. We’re not replacing things as often.” Andy argues that shops can make improvements by focusing on preventative maintenance “It is preventative maintenance. You’ve got to get guys in a couple times a year.”
But new tech can also help franchisees and independents get the cars into the shop on a more regular basis for that preventative maintenance. Much of the new tech entering the repair market is also attached to the new and fancy “Internet of Things”. The Internet of Things is a connected environment of all kinds of hardware and software that can communicate through the connected internet. In the new high tech repair shop model connected to The Internet of Things, a customer’s smart car will notice it is time for an oil change, then the car will send a service request to a local dealer through the connected cars internet or smartphone. The vehicle can then sync with both your own calendar and the calendar of the repair shop to schedule a time for a visit that works best for you. This is done with almost no interaction from the staff or the customer Telematics. Andy explains, “We look at Telematics... for predictive maintenance. So I could plug something into my onboard diagnostics transponder and it will tell the shop or the dealer when my vehicle is going to need repair.” The software can then make all of the appointments and scheduling on its own. This saves the customer the hassle of keeping track of their maintenance and having to call and arrange a convenient time. It also frees up shop staff to work on other tasks to increase productivity rather than making follow up calls.
In the days of self- driving cars, you won’t even have to take it to the shop. But you have to have all the fancy new tech already in the office to be able to connect to these connected customers. “Franchisees are going to pay for this kind of software….but the independent guy…the sharp ones will.” In relation to all the new fancy tech, Andy says there are many independents that are “cutting edge technicians” that are up to speed with even the largest franchises.
And it’s not just easier access to training and technology that a less experienced technician can benefit from with a franchise. There is also the added benefit of being attached to franchise’s global supply line. “Lets take an OKTIRE or a Speedy or something like that. Tires are a huge part of their business. Being part of these franchises, they have access directly to the manufacturer of tires.
Whereas an independent you may not have, or if you do your buying conditions may not be as favorable” “If you are part of a franchise, your buying conditions may be better. There’s some volume rebates that are predetermined and pre-negotiated.” When you are just starting out, access to these supply lines and distributors is a big help. But more seasoned business owners in the industry may prefer to build up their own personal relationships with distributors rather than adhere to the corporate run relationships.
There are also marketing benefits for less experienced technicians to attach themselves to a national brand without having to develop their own marketing strategy according to Andy: “There’s a value proposition there too and a comfort level. A regional or national presence. For Joe Whoever “Oh I feel warm and fuzzy going into an OK Tire, I’ve seen them on the television as opposed to an independent shop” Even though the independent shop “may have a loyal customer base, when it comes to attracting new clients it might be a bit more difficult for them.” But many of the seasoned independent pros may prefer to develop their own branding and marketing that reflects their individual company and market rather than rely on decisions from a distant corporate office.
While there are benefits to both franchise and independent models, much of the decision is up to the individual technician or manager, their level of experience, and their geographic circumstances. Franchises can be easier for newer technicians but too rigid for experienced businessmen. “We have lots of really high technically skilled independent repair shops that are good business people as well. And it’s just like the franchisees.” Andy thinks the franchisees are kind of like comfort food: “Ok I see a Speedy sign, great, they are across the country, I am going to feel warm and fuzzy cause I had a good experience in BC and I am bound to have a good experience in Atlantic Canada.” “It’s like McDonald’s or Burger King”.
Just because you know what to expect from a fast food chain doesn’t mean you can’t have a great burger at a mom and pop restaurant. Andy continues: “I think it all goes back to clear communication and trust and getting these guys in for preventative maintenance. Whether you’re at the dealership, a franchise or an independent shop.”
Macro Movements
Like most of the automotive industry, there are large macro economic trends that are driving a lot of these new developments. One of the biggest shifts happening in the industry is the shift towards the consolidation of repair shops under branded franchise chains. This topic was front-and-center at last year’s International Autobody Congress and Exposition according to Canadian Business. The traditional repair shop model was largely filled by mom and pop shops that operated independent of each other.
These were often family-run businesses, but the younger millennial generation is less car passionate and not that interested about the industry. Andy agrees: “A big deal in our industry at all levels is succession. There’s a huge generation gap and there’s a lot of blue sky when it comes to an independent shop trying to sell their business.” “Their children don’t want to become technicians or whatever the case is.”
As those baby boomers begin to age, they are looking to sell off the business for some decent cash to retire. And those old shops are being brought up in record numbers by big branded franchised repair shops at a rapid pace. “We are seeing it on the body shop side, there’s huge . . . consolidation with Fix Auto… There will be consolidation in all regions at some point. How fast it will happen, I don’t know. But technology changes so quick and these guys at the end of their careers, if they are not keeping up they are out anyways. “Consolidation at the automotive service provider level is inevitable for the aftermarket to survive. I think at some point in Atlantic Canada you are going to see it too. We have an awful lot of shop owners early-to-mid 60’s with no exit strategy. Somebody has to consolidate these shops.”
These franchises are not only building off their own success, they are also backed by venture capital from big financial institutions.
Canadian Business points to the similar trend of the late 1980s and 1990s where large branded hardware stores like Home Hardware and eventually Home Depot, created national and international hardware and construction brands by buying up and refurbishing older mom and pop stores.