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Bankers In the Know: Why You Need to Book an Appointment with an Auto Mechanic

Posted March 16, 2015 by Susan Bell

Your check engine light just came on. You backed into your neighbor's mailbox. There's a strange squealing noise every time you start your car. Any of these scenarios ever happened to you? And your response? You, like millions of Americans each year, probably called an auto repair shop.

A financial diagnostic banks should consider:

  • Many auto repair shops have been around for years and have consistent cash flow. Think: Real estate and equipment financing; online banking; investment opportunities
  • Financing for investments in equipment, prime real estate, and training to keep up with ever-changing vehicle technology may be a pressing issue. Think: Term loans; equipment financing
  • Cash management to ensure timely payment from customers and insurance companies can present challenges. Think: Merchant services; ACH services

Here are a few of the top banking solutions used in this industry and the percent of shops utilizing the product (based on Barlow Research Associates, Inc., data):

  • Point-of-sale credit card processing: 55%
  • Business debit card or business check card: 52%
  • Business credit card issued in the company's name (Visa, MasterCard, Amex, etc.): 44%
  • Business savings or money market account: 41%
  • Credit lines secured by receivables, inventory, property or other assets: 41%

With over 150,000 independent auto repair shops in the U.S., there is a lot of opportunity to win banking business in this industry. The typical shop operates seven bays, earning $500,000 each year and averaging over 120 repairs per month; over 17,000 have a million dollars or more in revenue.Auto repair shop revenue chart

Are the wheels turning yet?

With this knowledge in your toolbox, it may be worthwhile for you and your bank to kick the tires of the auto repair industry.

How do you meet with an auto repair shop?

1) Understand the business issues shop owners care about.

This will allow you to connect with them and figure out how your bank can help them succeed. A few of the challenges that may be top-of-mind for the owner of an auto repair shop:

  • High reliance on technology: Most modern automobiles are basically computers-on-wheels and require special equipment to diagnose necessary repairs.
  • Declining collision sector: Once highly-profitable, the collision and auto body repair sector has declined as vehicles have become safer and accidents have decreased.
  • Negative industry image: Auto mechanics constantly deal with the perception that they over-charge and unnecessarily up-sell.
  • Competition from dealerships: With new car sales declining, dealers are increasing their effort to repair and service vehicles of all types.

However, auto repair shops may be winning the war versus dealerships, according to a Consumer Reports survey released in February 2015. According to the poll, independent repair shops outscored dealerships' service departments in overall customer satisfaction, price, quality, courteousness of staff, and timeliness of repair work.

2) Ask good questions.

Pertinent questions show industry understanding and keep the conversation flowing. Here are five salient questions for bankers to ask when calling on an auto repair shop:

  • How do you effectively compete with local dealerships for repair work?
    Dealerships typically make more money from repairs than from new car sales, so they are eager to get repair business.
  • What metrics do you track to manage your business?
    Key metrics tracked may include average repair bill, repairs per month, repairs per mechanic, and billable time per mechanic. Collision repair shops also measure cycle time – the elapsed time to complete a repair.
  • Do you work with a finance company to extend terms to customers who have higher repair bills?
    Some repair facilities, particularly larger chains, partner with banks or finance corporations to extend credit terms to customers.
  • Do you have any plans to expand to additional locations? If so, how do you plan to finance these new shops?
    Small, two- or three-bay shops can cost less than $50,000 to launch, while larger repair shops can reach upwards of $500,000.
  • Do you participate in any direct repair programs?
    Auto repair shops take in customer repairs or work primarily with an insurance provider’s “Direct Repair Program” (DRP). DRP-affiliated shops receive direct referrals from an insurance company.

Of note, in a recent CNN.com investigative article, the direct repair program concept was under fire. Some insurance companies require, or at least encourage, repair shops to use less-expensive refurbished parts, some of which are in less-than-desirable condition.

Matt Parker of Parker Auto Body shop in Monroe, Louisiana, said, "The insurance company wants us to put this stuff on their cars. If we refuse to use the [refurbished] part, then they label us as a shop not willing to go along with their program, and then they try to steer our business away from us. This is refurbished junk is what it is."

3) Know the top trends impacting the auto repair industry.

Show the shop owner that you are attuned to the changes going on within the industry, such as:

  • Consumers taking control: Skeptical customers are using online sites to compare prices and share reviews about mechanics.
  • Battle for parts with dealers: Ten percent of computer diagnostic repairs are treated as proprietary by the car manufacturer and are only available for repair at dealerships.
  • Alternative fuel vehicles: The increase in hybrid cars and alternative fuel vehicles presents both a challenge and an opportunity to the industry.
  • Buying power of women: Two-thirds of auto repair shop customers are women, and 90% of female drivers are involved in the vehicle repair decision-making process.

Want to have this kind of in-depth analysis of more than 200 other industries?

All of the information found in this post came directly from the Vertical IQ Industry Profile on Auto Repair Shops. You should consider taking Vertical IQ for a test drive. Contact us for more information or to schedule a demo.

 

Tags: auto mechanics, auto repair, banker, Bankers in the Know, Industry research

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