Saturday, August 8, 2009

This is a Boom for Auto Repair in the Bay Area Right Now!

While new car sales plummet throughout the nation, mechanical repair shops are flourishing at an amazing rate. People are keeping their vehicles because they can’t afford new ones, and it’s a gold-rush like boomtown-situation for shops right now.

Drivers are no longer able to put off repairs. When the recession hit late last summer, people delayed fixing their cars. But, now they have to make a major decision—do I fix my car or get a new or used one to replace it? For many, it’s an easy answer. They’re keeping their cars and taking care of overdue maintenance, which is good news for the automotive repair industry.

There are three levels of repair that all drivers should be aware of. First, there’s the “red zone”—these are essential “do or die” repairs that need to be performed immediately. Red zone repairs are a “fix it or park it” proposition. Then, you have what are known as “yellow zone” repairs—things that should be done within the next few months to avoid bigger problems down the road. And lastly, you have “green zone” repairs—those are the ones you can hold off for about 6-8 months. They’re not pressing, but you better address them at some point.

As these needed repairs stack up, drivers are flocking to shops throughout the country, and car counts at shops are growing. I talked to several shops this past week, and many of them told me that they’re doing more business than ever. It’s a great time for this segment of the industry and it should only get better!

Read the article that appeared in The Detroit News after the jump:

For decades, automotive repair has been seen as a grease-stained poor relation of the dollar-laden sales segment in the auto industry.
Not now.

As new-car sales have plunged along with consumer confidence, more people are spending to keep their current cars running. Auto service and repair arguably have become the lifeblood of the industry.

Dealership service/repair operations, independent auto shops and businesses that cater to do-it-yourself mechanics all are doing well. At most local dealerships, service/repair operations are now the primary money-makers.

"Our service and parts departments are among the most important, consistently profitable departments," said Rick Niello, president of the Sacramento, Calif.-based Niello Co., which operates 13 mostly high-end foreign dealerships in Northern California. "I would say service and parts probably account for 75 percent of our profitability. ... In past years, it was less than 50 percent."

Niello said the company's dealerships serviced about 100,000 cars in each of the past two years, five times what they were doing in 2001.

The Niello Collision Center, behind the company's Volkswagen dealership, is a 4,500-square-foot operation that works on cars of all brands. Niello said the small center does about $400,000 a month in body work. When the economy improves he wants to open a 40,000-square-foot facility nearby.

Mel Rapton Honda also leans heavily on service. The department has 54 state-of-the-art bays in a cavernous building. Katina Rapton, president and general manager, said service covers more than 85 percent of the dealership's expenses.

"The industry average is less than 50 percent, so that shows you how important it has become," she said.

Independent auto service shops also are reporting a steady stream of customers.
Richard Hale, owner of Walt's Auto Service in Citrus Heights, Calif., said "we're staying steady. I just ran the numbers, and we're almost exactly where we were in January and February of last year.

"If you can keep your business at 2007 and 2008 numbers in this economy, you're doing pretty well."

Hale said current customers are more willing to opt for comparatively expensive service, like an engine overhaul or replacement, "instead of going out and buying a new car. They just don't want to go out and spend $30,000 or $40,000 right now for a new car."

Even though customers are looking to extend the life of their cars, some also are gambling that nothing goes wrong. Hale and other local independent shop operators said some customers are putting off scheduled maintenance in order to stretch their dollars.
And another trend: More customers are paying in cash.

"Customers used to just throw it on their credit cards, but we're not seeing as much of that now," Hale said. "Putting it on the credit card is not the answer now."
For some, doing the work themselves is the best way to save money.

"An oil change might cost only $20 or $30 with some of the specials they have going now, but why spend that when you can change your own oil?" said Gregory Smart, a Sacramento construction worker who has two pickup trucks. "What I save on an oil change will buy my family groceries for almost a week. The other work I do myself will save me even more than that."

Walt King, a Carmichael, Calif. retiree, is another dedicated do-it-yourselfer.

"I'm trying to hang on to my two cars as long as they keep running, and both have more than 100,000 miles (on them)," King said. "I'm saving money by buying the parts and doing the work myself."

The do-it-yourself approach of Smart and King is reflected in the performance of Memphis-based AutoZone Inc.

While U.S. automakers have been rolling up massive losses and fighting to survive, AutoZone last week far exceeded Wall Street's expectations by reporting earnings of $115.9 million for its second quarter ended Feb. 14, up 9 percent from $106.7 million in the same period last year.
Bill Rhodes, AutoZone's chairman, president and chief executive, said the company is "benefiting from the general slowdown in the economy. We think a greater number of people may be focusing on maintaining their vehicles given today's economy."