Start Your Engines – Automotive Industry Profile©
The auto aftermarket sector covers all franchise operations that maintain a car after purchase, such as oil changes and lubes; transmission rebuilds and replacements, general car maintenance, glass replacement, as well as painting and detailing.
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Overview and Trends
During the recession of 2008 to 2011, the automotive manufacturing sector took a big hit with significantly reduced new car sales leading many to predict the end of the entire auto manufacturing industry. While this prediction never came to pass, there was another segment of the industry, the automotive aftermarket, which performed very well all through the economic downturn. The reason is fairly clear: during economic hardship, most people are not going to purchase a new car but will make repairs to the one they currently own.
This aftermarket sector is expected to continue to experience healthy growth right through the year 2020. The average ownership of a car is currently about 11 years and climbing steadily. Add to this the fact that there are a growing number of cars on the road (1 car for every American over 16 years of age) and it easy to see that the automotive aftercare market represents an attractive franchise opportunity.
Gone are the days when automatic transmission was considered high-tech! Today's automobiles are increasingly complex machines with the introduction of electric and hybrid models with sophisticated computer systems which require routine, as well as emergency maintenance. The automotive aftermarket provides these services which become essential when people hold on to their cars for longer periods.
Let's Talk Numbers
As per the Autocare Association, the United States auto aftermarket will generate revenue of about $273 billion in 2017–an increase of about $35 billion over the past four years. The revenue from the repair/replacement market for vehicles under 5 years of age is $20.7 billion but the revenue increases to $77.3 billion for cars 8 years and older. This places the sector at between 1.5% and 2 % of the US Gross Domestic Product. It is estimated that about 4.5 million people work in the industry and robust growth is expected through 2020.1
Automotive Industry Trends - Car Ownership
In 2015, there were 257.9 million passenger cars registered in the United States, an increase of 5.3 million (2.3 % over 2014). As the number of cars on the road continues to grow, the average age of registered vehicles continues to increase with an average of age of 11.5 years.
The age is expected to increase to 11.7 years by the end of 2017 and by 2020 cars 12 years and older will increase by 15% and 75 million cars will be 16 years and older. 2
What's In It for Me? Aftermarket Franchisee Opportunities
The automotive aftermarket industry is one of the largest franchise segments within the United States. The noted trends in car ownership translate into many opportunities for aftermarket services. As per, Open Bay Over Drive, a leading resource for current car news and trends, there are over 100 franchise concepts within this industry and over 31,000 franchise owners across the country, employing nearly 195,000 people with robust employment growth expected in this industry through 2020.
You can find an automotive franchise that may work for you by searching Franchise Opportunities' Automotive Franchises category.
Let's Break it Down3
Market share per industry segment:
- General car repair, including routine maintenance: 85.6%
- Transmission rebuilds and repair: 6.7%
- Additional repairs (breaks, lights, etc.) 5.70%
- Exhaust repair/replacement: 2%
Breakdown of services based on total dollars spent on total purchasing dollars are listed below.
- Crash Parts – 31%
- Paint – 21%
- Refinishing Materials – 15%
- Repair Materials – 8%
- Mechanical Parts – 8%
- Tools – 7%
- Capital Equipment – 6%
- Other – 4%
- Household members = 75% of industry revenue
- Customers age 45+ = 35% of industry revenue
- Customers age 35 to-44 = 14 % of revenue
- Commercial and business customers = 22%
- Government customers = 3% of revenue
Federal and State Regulations Governing Aftermarket Sector
Prior to purchasing an automobile franchise it's important that you understand federal, state and municipal regulations in your area so you can be in full compliance and avoid any fines or suspension of service.
While car parts are manufactured by auto manufacturers, it's useful for aftermarket franchise owners to understand that most car parts are regulated by the by the National Traffic Safety Administration (NHTSA) based on safety requirements. Generally, the regulations cover equipment that is mandated to be installed on every new vehicle produced. An aftermarket part can be directly regulated (e.g. air bags, lights, tires and brakes) or indirectly regulated, such as a new part installed as an accessory or add-on but which will not take the car out of compliance (e.g. GPS). In all cases, the NHTSA can regulate any part that poses or may pose a safety issue.
Wrapping Up: Important Considerations:
- Electric and hybrid cars are introducing new revenue streams to the market so that service and parts replacement shops will need to expand to meet demand. Only those aftermarket shops that remain current with industry trends will continue to remain competitive in the aftermarket sector. The increased sophistication of these systems requires technicians who have undergone specialized and costly training. However, there is currently a shortage of this talent pool resulting in the need to offer higher pay rates than in the past.
- Advances in technology have enabled service shops to introduce increased efficiencies in their processes. For example, auto-generated reminders of oil change or state vehicle inspections have provided opportunities for increased revenue.
- The advances in technology are enabling new cars to run for longer periods of time resulting in less need for service and consequent less spending in the aftermarket sector. Some auto manufacturers recommend longer time periods between routine maintenance, such as oil changes or brake repairs. However, there will likely continue to be a subset of the customer base (mostly those age 45+) who will continue to pursue regular auto care to better ensure the longevity of their vehicle.
- It's important to perform adequate market research so that you become familiar with local competition, their services and customer base of your territory. This research will help you decide how best to position your auto franchise to be competitive.
General Franchising Considerations
Franchise Advantages 6
There are many attractions to owning an automotive franchise which we list below:
- You will be buying into a proven concept that already has brand recognition and customer loyalty which reduces the risks typically associated with a new business are greatly decreased;
- Your franchisor will work with you to define an attractive territory offering a good customer base.
- Costs are a known entity to potential lenders making it easier to obtain funding than if you were to apply for a bank loan on behalf of a private start-up;
- You receive training and on-going support from franchise organization staff who will assist with site selection, marketing and recruitment. You can also seek help from experienced franchisees who have been through the steps you are now taking and can provide an insider's perspective. This may be particularly valuable in the automotive industry given the significant changes in technology, equipment and regulations.
- The franchise system has already been tested and improved via the experiences of those franchisees who were early adopters of the concept;
- The franchise is able to bring buying power by leveraging its size to negotiate costs.
While there are benefits to franchise ownership, there are a few important caveats that are important to consider to help you decide if ownership is the right opportunity for you and your family.
- Initial start-up costs within the automotive franchise industry can be higher than $200K, not including real estate and equipment. Add to this the on-going royalty and marketing fees that all franchises require;
- Loss of independence and creativity as most franchisees are required to adhere to business practices and processes, right down to uniforms and office supplies! Note that this has advantages too, it's just a matter of whether you are willing to adhere to established procedures.
Drivers of Success
Now that we have taken a 360 degree view of franchise ownership there are several keys to success that can turn even those negative points into a positive!
- Customer service is probably the most important aspect of building a successful auto franchise business. Be sure to hire only those with a customer-centric approach, willing to give 100% to ensuring a positive experience. This is particularly important in the automotive industry as it is highly customer focused.
- First rate, highly skilled technicians are also a critical success factor. As noted, there is a shortage of skilled technicians so, to attract the best employees, offer competitive pay but also a work environment that fosters employee recognition and reward.
- Perform thorough due diligence of the Franchisor before making any purchasing decision. Speak with at least three franchisees who have been with the system varying amounts of time, from a new franchisee to those with several years' experience. Each person will provide invaluable insight based on their experience and help you determine if that particular franchise is right for you.
- Your personality style is a significant factor with regard to ownership. A franchise is not for those who seek to manage their business wholly independent of outside direction. The main attraction is that it represents a proven concept with fully developed systems and procedures in place that all franchisees are expected to follow.
Industry Snapshot*:Minimum Cash Required: $ 20,000
Average Cash Required: $ 80,385
*Based on currently active listings at FranchiseOpportunities.com
- U.S. Aftermarket to Grow at an Annual Rate (CAGR) of 3.5 Percent Through 2017 http://www.autocare.org/BlogDetail.aspx?id=1409&blogid=86&gmssopc=1
- Challenges and Trends in the Future of the Automotive Aftermarket (January 2016)https://www.openbay.com/blog/challenges-trends-in-the-future-of-the-automotive-aftermarket/
- 29 Auto Industry Statistics and Trends, October 2016. http://brandongaille.com/29-auto-repair-industry-statistics-and-trends/
- Auto Regulations: Federal Regulation of Aftermarket Parts (2015)https://www.sema.org/federal-regulation-aftermarket-parts
- Automotive Industry Analysis 2016; Cost and Trends https://www.franchisehelp.com/industry-reports/automotive-franchise-industry-report/
- 6 Should I Buy An Automotive Franchise Or Open My Own Shop? 7 Things to Consider http://www.bizben.com/blog/posts/should-i-buy-an-automotive-franchise-or-open-my-own-shop-7-things-to-consider-0516.php