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Pricing Myth: Independent Repair Shops Need to be Cheaper than New Car Dealerships

Joe Marconi


I was taught a valuable lesson in pricing back in the 1980s by a fellow shop owner. Tom (not his real name) owned a five-bay independent auto repair shop. We met in a training class and became instant friends. The discussion of labor rates and pricing came up often, and his opinion was spot on.  He would tell me, “Joe, we will never get paid what we deserve until we put a higher value on what we do.”

This leads me to the reason for this blog: The mindset that auto repair shops should price themselves lower than new car dealerships, is a myth. Tom would emphasize, “Look at your expenses, your payroll, the benefits you give to your customers, and don’t forget your payroll and company profit. Then, do the math and set your prices.” What influenced me was not only his forward-thinking but the fact that he would call the local dealers, to make sure his labor rate was ABOVE theirs!

Positioning your prices lower than the dealer just because you are an independent auto repair shop is selling yourself short. Your labor rate and prices should be determined by you, factoring in your overhead operating expenses, payroll, financial goals, the amount of net profit you desire, and the value you provide to your customers.

Another thing: don’t be everything to everyone. Understand your key profile customers and build your marketing plan around them. Cater to those who are loyal to you.

Here’s the bottom line with pricing: sell value, not parts and labor. When the value increases, the price fades as an issue. 

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Independent repair shops don't have the luxury of having multiple profit centers subsidize shop overhead that new car dealers do.  Here are just 4 other profit streams that have nothing to do with repair or maintenance:

  • New car sales
  • Used car sales
  • Paint & Body shop
  • Detailing

To me, it's simply bad business to be cheaper than the dealer.  We had 13 car dealerships about a mile away from our shop. Southtowne Auto Mall   We were either the same price, or higher for transmission repair, but we gave a longer warranty which added value.  If we were less than the dealer, we could never remain profitable.  I think about it this way: We weren't higher than the dealer; but instead, the dealer was cheaper than us for the reasons above.

We ended up towing a lot of vehicles out of the dealerships along with customers dropping the vehicle off for repair.  The numerous new car dealerships near us were the source of a lot of the work we did.  Don't be afraid of dealerships; embrace them because they are a great source of new jobs coming into the shop.

Lastly, here's the Southtowne Auto Mall's "claim to fame" they would advertise...

Southtowne Auto Mall.JPG

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