EURO REPORT: PART TWO
Although your business may be located in Golden, Mo., or Santa Rose, Calif., you share a kinship with tire and service repair shops all around the world. These tire dealers contend with many of the same problems you have to address -- as well as others you hopefully will never have to face.
I had an opportunity to visit tire dealers and repair shops in the south of France, and it was enlightening.
France is a beautiful country that at one time ruled the entire European continent, as well as the seas. The Provence area, which I visited, is known for its beauty, the wine industry and interesting villages where people still go to work on bicycles.
Farms there are small, and while the land passes from father to children, many farms are becoming smaller as each generation passes away. This has hurt agricultural production, as most of the work is done by hand or with small tractors and light motorized equipment. Because of this, harvests are small and so is income from farming.
When it comes to cars, 87% are diesel. (Gasoline vehicles are mostly high-end touring and sports cars.) The small diesels feature computerized injection systems with common rail technology, particulate traps and some highly functional sound proofing in the engine block itself. They are very quiet and spew out nothing black from the tailpipe.
French tire dealers and repair shops fixing these vehicles face most of the same obstacles to profitability that American dealers face. But there are many things that cause them additional formidable challenges.
I visited four different tire retailers in the Provence area, and together they presented a unique window into the French tire industry.
H.P.A. Peugeot is a new car dealership that participates in a factory-backed “Rapide” (or “Quick”) service operation. Although attached to the dealership, the operation is run as an independent business unit.
The Rapide service operation’s labor pricing is competitive with independent repair shops, instead of being the auto dealerships’ regular service shop rate. Its services are limited to tires, batteries, oil changes, lubes, suspension and alignment work and government inspections.
Other auto brands also are finding tires and service a successful side business for their operations. They include Renault, BMW, Mercedes, Toyota and Audi.
As in America, these Rapide service shops are profit centers for the car dealer. They also get people looking at new vehicles while they wait.
The labor rate adjustment in Rapide operations is what makes them competitive, and if a vehicle needs more involved services, its owner gets a price quote and a visit from the auto dealership’s service manager.
Stephane Boitard holds that position for H.P.A. Peugeot, and he gave us a short interview through an interpreter. This is a beautiful dealership and its Rapide service area is also first rate. The dealership is about four years old and is doing well in new and used car sales. It also has a busy warranty/service shop inside the dealership in addition to the Peugeot Rapide operation.
The quick service shop is a plus for the retail customers as well as the dealership. It can change oil, tires, batteries and other things faster, at a lower cost, than doing it inside the auto dealership’s other service bays, leaving the factory-trained people working on more important, time-consuming jobs. (Once again, that adjusted labor rate is the key.)
Auto Technic Srriannais
The next dealer is at the opposite end of the repair shop business.
At Auto Technic Srriannais, Denis Adam has built a reputation for fair pricing and excellent workmanship. His shop enjoys a waiting list of business coming in for repairs and services. He also has a body shop with a first-class spray booth. This service adds to his total revenue, and helps keep Adam and his one employee busy.
Adam’s shop is similar to many small, rural shops throughout the United States run by a husband and wife, two brothers or some other kind of familial combination. Although it is not super-organized, it’s clean and functional.
Adam and his wife, Claudine, work every day in the business, but she isn’t an employee. Why does Claudine work for free? If she took a paycheck all of the employee taxes and benefits would add to the overhead significantly, as well as put the company into another tax classification. They would make less overall income if she were an employee. This was just one of the strange things Adam told us about the labor laws in France.
French law says employees can only work 35 hours a week and they must be given four weeks paid vacation every year. And vacation time goes up from there.
Workers compensation is far more expensive than in the states, and you must provide health insurance. On top of all this, there is a tax levied for each employee.
Getting rid of a bad employee also is quite difficult. Unless you catch him or her stealing, abusing other employees or being rude to customers on a regular basis, you are stuck unless you can work out a severance agreement with the employee that buys you out of these problems.
When I asked about his inventory and sourcing, Adam delivered some startling information that is uniquely French.
Every company in France is subject to a 19.2% inventory tax each quarter. That might not amount to much for a small shop that turns inventory quickly and keeps minimum stock on hand, but it is a killer for manufacturers. Because of this, Groupe Michelin and every other tire producer in France ship their entire inventories to Germany as the tires roll out of their factories. (It is the same for all manufacturers, regardless of the product.)
Germany has allowed the establishment of a great number of warehouses on its border with France, and they are profitable operations that employ hundreds of German workers. When Michelin needs to ship tires to a dealer in France, it orders them from Germany and they get delivered back into France.
Adam also gave us an interesting story that typifies the labor system in France. Recently he ordered two tires from a German distributor and another two from a French distributor. Same day, same time.
The tires from Germany were delivered overnight and the customer left happy with his new tires. The two tires from the French distributor took four days to arrive.
Frustrated by this, Adam started asking questions and finally talked to the owner of the wholesale distributor.
The problem was that the employee who took his order took the next two days off from work; it took another day for him to find and process the order from Adam once he returned.
The French distributor does not have a computer system, so the order was not inputted as it was taken. Therefore, while the employee was off two days, nothing happened. Nobody acted on the order on his desk. Adam asked the owner what would have happened if the worker had taken off two weeks. You know the answer already.
Another reason why it is so hard to make a profit in a shop that is mostly dedicated to mechanical repair, compared to a dealer selling just tires and accessories, is the difference between a new car dealer’s labor charge and an independent shop. The gap is quite large; too large according to Adam.
The price at a car dealer is 75 euros per hour, while an independent shop charges 35 euros per hour. That converts to $100 an hour for the auto dealer shops and $46 for the independent repair shops.
This difference is larger than the same two segments in the U.S. For example, in the New York area, auto dealerships are charging $90 to $100 an hour, while independents are charging around $75.
Add up the differences between labor laws and the difference between labor rates and you can see why it is hard for the independent shop to be profitable in France. That is why there are fewer and fewer independent repair and tire shops every year in France.
Who are the big gainers?
The chain stores are the winners. They not only sell tires and fast services, but also carry accessories and some DIY parts and tools. Big chains are taking over in most urban environments. The chains have good services, and everything they do is in and out of the shop in about three hours.
Getting the Green Light
I visited “Feu Vert” (Green Light in English), a growing and profitable chain store operation, according to the customers and competitors with whom I talked.
I was welcomed by Vieronique (she offered her first name only), the manager of the store. She would not allow photos taken inside the store (outside was OK), but I was able to go through it and get a feel for the overall type of retail store it is. (No interview was granted, either.)
A good comparison to this store would be a Pep Boys-Manny, Moe & Jack outlet. Feu Vert does not stress DIY sales because the owners want to install everything they sell. The employees are a bit pushy about this, but will back off if the customer shows negative vibes.
Its positioning is working. People save money, the service is good and the employees are mostly personable.
Making a point-S
The last tire dealership I visited was “point-S,” another chain store more like an American tire dealer than a Pep Boys. Its main line is Michelin, but it also offers secondary lines such as Kleber and a couple of Asian lines. All products, from plus-size tires and wheels to accessories, are installed.
Rene Riviere answers to the title responsible technician (foreman), and was the man in charge during my visit. The shop was clean and bright, but the sales area was a narrow sliver of space outside the wall protecting customers from getting dirty or injured in the shop. It was less than eight feet wide, but always packed.
Riviere informed us that his company headquarters handles all press issues, so he wouldn’t comment much. But I was allowed to take pictures. The four bays are constantly filled, and as one vehicle pulls out the next pulls in.
In the short time I was there, techs installed and balanced tires for four cars and had two more on the rack. They also started an alignment and were changing struts on another. This shop is like the better retail stores in the U.S. -- well run and profitable with set pricing.
What is the bottom line from my visit to these French tire and service dealers? Simple. I found dealers just like we have in the U.S. They are just as dedicated as you are to delivering value and service with a friendly smile.
The next time you meet a tire dealer from France at a tire trade function, remember that he’s probably already walked a mile in your shoes.
Electronic diagnostic tools in France: You want them? Then cough up $60,000
Monopolies, international or domestic, are frowned upon for the most part by governments. They do not meet the criteria for doing business fairly in an open economy. In the automotive business, our demand for access to information needed in diagnosing the myriad of software programs used in the automotive world has delivered OBD II.
Although OBD II also is required in Europe, its dealers have a much harder time getting access to the technology than American dealers do.
In France, the American, European and Asian auto manufacturers do not deliver open access to trouble codes and electronic diagnostic procedures. Instead they keep it exclusively for their dealers.
OK, there is a law on the books in France that any automotive garage can order a complete set of “factory” electronic diagnostic tools if they demand it. The price is in the $60,000 range, and you had better not be basing your business success on getting it. The wait could be longer than the years you have left.
Because of this issue, independent repair shops are forced to take their customers’ cars to auto dealerships for electronic diagnosis. If the auto dealers don’t get it right the first time, the tire dealers get to return and pay again. And just like the turnstiles at Yankee Stadium, they just keep going around and around.
Most auto dealers work with independent repair shops because they realize they do not have the staff or facilities to handle every customer who buys their brand of auto in their marketing zone. They have developed a wholesale price for independent repair shops that is close to being fair. At least it is less than they charge their own retail customers.
In the United States and Canada, many aftermarket associations and independent repair facilities are trying to get easier access to the technology by supporting the Motor Vehicle Owners' Right to Repair Act.
John Newman is a freelance writer based in New York.