How to Recession-Proof Your Business
Car Count, Price Consistency Will Be Critical
This MTD exclusive was provided by Dennis McCarron, author of MTD's monthly Business Insights column and a partner at Cardinal Brokers, one of the leading brokers in the tire and automotive industry (www.cardinalbrokers.com).
This column is not going to predict nor deny if the United States enters a recession this year or next. We can leave that up to the economists. What we can, as an industry, talk about is what to do if a recession becomes a reality.
The truth of the matter is that our industry is somewhat recession-resistant. People need to get to work and the American public loves their independent mode of transportation.
That being said, traditionally, Americans do not budget for things like car repair or gas. As wallets tighten, people will be forced to make on-the-spot decisions about how to spend what they have or how to use their credit wisely.
Historically, auto service items that are not immediately necessary will get clipped from shop tickets. Add-on sales like fuel system service and headlight restoration will be declined more frequently. Items that have longer use intervals — like cabin air filters and differential services — will get extended.
This does not mean you should stop bringing those items to the customer’s attention. In fact, it is highly important that customers stay informed of the condition of their vehicles and that they continue to make educated decisions. It is never OK to avoid making a valid recommendation.
The reality, though, is that average repair orders (AROs) will likely go down. With the free money that was coursing through the economy the last two years, service advisors were hearing “yes” a lot of time. Most Americans during this period saw their savings increase and credit debt go down. With inflation and a potential recession on the horizon, those savings have started to dwindle.
The name of the game in this potential scenario is car count, car count, car count. It will be imperative as repair orders dip south that the difference is made up in increased car count.
There are several factors that will help. One is that the average age of vehicles on the road today is at a historic high and the availability of replacement vehicles is historically low. Number two, unemployment is low. That means enough people are earning enough income to support fixing and maintaining their vehicles.
A potential threat to all of this is stagflation. Stagflation is a drop in economic growth combined with inflation and a sustained increase in unemployment. It is difficult for even economists to predict if stagflation will occur.
So how should your business prepare to focus on car count increases? First, you have to know your numbers. Gather the relevant last couple of years of reports on car count and average repair orders and monitor the current year’s performance versus the last few.
Second, start taking actions to allow more vehicles to flow through your bays. While each tire dealership will have a unique plan of attack, advertising will be high on the list. Let people know what services you provide and what hours of operation you offer. Make sure you are staffed as best as you can.
This doesn’t necessarily mean adding more people. Everyone reading this column knows the difficulty we all have had in finding talent. It does mean, however, that you should align your advertising with the services your existing staff can do efficiently and expertly. There’s no sense in hiring a second lead technician if you are only doing three engine diagnostics a week. There’s also no sense in advertising cheap oil changes if you don’t have enough general service or entry-level technicians on-hand.
Just as critically, avoid the temptation to drastically reduce your prices. We have made significant gains toward equal footing with other trades in the last few years and we shouldn’t shed those gains. If you must lower prices to gain new customers, pick one service and only one service to lower.
Keeping your current pricing allows you to compete with other trades for talent. It’s a long-haul fight, but one that is absolutely critical to sustained success.
With lowered AROs, we will see vehicles inside shops for shorter times, as less work is being performed. Efficiency is going to be critical. Much the same as restaurants focus on “flipping tables,” we too must focus on flipping bays. Measuring technician efficiency is important, but also measuring the time a vehicle is inside the bay and eliminating excessive downtime — such as extended waiting for parts times or unbilled diagnostic time — is also key.
There shouldn’t be a sense of panic in any dealership. There should be preparedness. If we do go into a recession, it is likely to hit other economic sectors harder than ours.
But we owe it to our customers and employees to be prepared and take the necessary steps to combat a problem that is largely out of our control. We can’t stop a potential recession, but we can prepare for it.