Joe Marconi

ICE Vehicles Will Long Dominate Aftermarket "The media teems with reports of surging Electric Vehicle (EV) sales and how EVs will soon replace Internal Combustion Engine (ICE) Vehicles. However, an examination of EV sales reveals a different picture and underscores the unlikelihood that EVs will displace ICE vehicles in the aftermarket any time soon." "The U.S. vehicle population has a much larger segment of older cars and light trucks than any other country with a VIO (vehicles in operation) of comparable size. Accordingly, it will take many years (even decades) for EVs to have a significant impact on ICE aftermarket sales in the U.S." EV Sales in the U.S. The U.S. pace of new Electric Vehicle sales is lagging behind many other major countries. Sales of all types of EVs in the U.S. topped 780 thousand in 2022, less than 6% of the 13.8 million total new vehicle market, which suffered its weakest performance in over ten years. After peaking at 361 thousand in 2018, EV sales in the U.S. shifted into reverse, falling to 318 million by 2020. In 2021, EV sales rallied to 546 thousand and reached a record-high level last year. Differentiating EVs Not all EVs are the same. The different EV powerplant configurations vary in their potential for disrupting the aftermarket. There are three types of Electric Vehicles: Hybrid Electric Vehicles (HEV), Plug-In Hybrid Electric Vehicles (PHEV), and Battery Electric Vehicles (BEV). HEVs and PHEVs are dual-powered, using an Internal Combustion Engine and Electric Motor, which work in cooperation. According, HEV and PHEV Electric Vehicles have a large portion of their miles powered by fossil fuel. Focus on BEVs In measuring the disruptive impact of Electric Vehicles on the aftermarket, it is best to focus on Battery Electric Vehicles (BEVs), separating them from the other types of Electric Vehicles (HEVs and PHEVs), which significantly rely on gas engines. Annual BEV Volume The EV light vehicle market in the U.S. differs from total EV sales when BEVs are separated. From 2018 through 2022, all Electric Vehicles sales topped 2.3 million. BEVs represented 1.7 million EV sales from 2018 through 2022, just over 76% of the total. Accordingly, BEVs generated only 2.2% of new car and light truck volume in the U.S. during these five years. BEV Small VIO Impact Battery Electric Vehicles represent an even smaller portion of cars and light trucks on U.S. roads. Between 2018 and 2021, BEVs climbed from about 0.3% to just over 0.6% of the nation’s VIO. Record-high BEV sales in 2022 did not push their VIO share past 0.8%, only about one-third of their 2022 new vehicle market share. Aftermarket Vehicles Lang Marketing has developed the concept of Aftermarket Vehicles: cars and light trucks at least four years old. These vehicles generate over 95% of total aftermarket product volume, not including Tires and Accessories. In 2022, BEVs represented less than 0.3% of Aftermarket Vehicles in the U.S. This underscores the significant time lag between the new sales share of EVs and their aftermarket impact. BEV Aftermarket Impact So far, Battery Electric Vehicles have replaced only a minuscule number of ICE vehicles at least four years old. Lang Marketing estimates that BEVs eliminated only about 0.3% of ICE aftermarket volume last year. Aftermarket Sales of BEVs BEVs do not share many operating components with ICE cars and light trucks. Nevertheless, BEVs still require aftermarket products, primarily Tires, Accessories, Batteries, and Electrical Components. BEV Impact on Aftermarket by 2030 Lang Marketing estimates that less than 5% of ICE vehicle product volume (not including Tires and certain Accessories) will be eliminated by BEVs during 2030 compared to what it would have been without BEVs on the road. ICE vehicles will record substantial aftermarket growth between 2022 and 2030. In fact, the annual rate of ICE aftermarket product growth between 2022 and 2030 will greatly outpace the “loss” of ICE volume due to BEVs during these eight years. Six Major Takeaways 1. New Electric Vehicle sales in the U.S. lag behind EV volume in foreign countries. 2. To accurately measure the aftermarket impact of Electric Vehicles in the U.S., it is necessary to focus on Battery Electric Vehicles (BEV), the only EVs without an Internal Combustion Engine. 3. The impact of EVs on the new car and light truck market in the U.S. is different when BEV vehicles are separated from total Electric Vehicle sales. Over the last five years, BEVs accounted for only 2.2% of the entire new car and light truck volume in the U.S. 4. BEVs climbed from 0.3% of total cars and light trucks on U.S. roads in 2018 to about 0.8% by 2022. So far, Battery Electric Vehicles have replaced only a minuscule share of ICE vehicles at least four years old (Aftermarket Vehicles). 5. Aftermarket Vehicles (cars and light trucks at least four years old) generate over 95% of total aftermarket product volume, other than Tires and Accessories. In 2022, BEVs represented less than 0.3% of Aftermarket Vehicles in the U.S. 6. Lang Marketing estimates that ICE product volume (not including Tires and certain Accessories) will be reduced by less than 5% during 2030 compared to what it would have been without BEVs on the road. The annual rate of ICE vehicle product growth between 2022 and 2030 will greatly outpace the “loss” of ICE volume caused by BEVs during these eight years.

You bring up a good point, it may depend on the business model. I guess for high volume shops, this may be more of an issue. But, as you point out, any help would be appreciated and also help overall workflow.

Is there are advantage for the service advisor starting the multipoint process, if at all possible? For example, the service advisor is writing up the car and performs a walk around, takes a few photos of the exterior, take a look a the tires, looks for damage, maybe an obvious torn wiper, etc.? Would this speed up the process and build value? Again, this may be hard to do for some shops. Thoughts and comments?

I was talking to a shop owner at the Elite Fly with the Eagles course this past week, and said that he feels that his service advisors do too much, and sales are suffering. Between answering phones, scheduling customers, checking in customers, building estimates, finding the parts, car delivery, on and on, it's a whirlwind of tasks. I tend to agree. I know is may be hard to do, but how can we get the help the advisor needs, or redefine the position?

Let's face it, no one or no entity will help us with the Tech shortage. The truth is, this is not new. This shortage has been created largely from decades of steering young people to college, and not the trades. I believe we need to get involved with apprenticeship programs. Below is an article in Motor Magazine. Your thoughts? Comments?

You bring up a lot of great points. I am sure we have all seen situations where the issues of low production can be traced back to a poor process that originates at the intial write up.

Great points! The key thing is to dig deeper when issues with production arise. Experienced techs are efficient; they have control over that. However, writing the job correctly and other factors play into low production. As we have all learned, productivity and efficiency are not the same.

Typically, when productivity suffers, the shop owner or manager directs their attention to the technicians. Are they doing all they can do to maintain high billable hours? Are they as efficient as they can be? Is there time being wasted throughout the technician’s day? All these reasons factor into production problems, but before we point fingers at the technicians, let’s consider a few other factors. Are estimates being written properly? Are labor testing and inspections being billed out correctly? Are you charging enough for testing and inspecting, especially for highly specialized electrical, on-board computer issues, and other complex drivability work? Is there a clear workflow process everyone follows that details every step from the write-up to vehicle delivery? Do you track comebacks, and is that affecting production? Is the shop layout not conducive to high production? For example, is it unorganized, where shop tools, technical information, and equipment are not easily accessible to every technician? Are you charging the correct labor rate and allowing for variables such as rust, vehicle age, and the fact that most labor guides are wrong? Also, is there effective communication between the tech and the service advisor to ensure that extra labor time is accounted for and billed to the customer? These are a few of the top reasons for low productivity problems. There are others, but the main point is to look at the entire operation. Productivity is a team effort. Blaming the techs or other staff members does not get to the root cause in most cases. Maintaining adequate production levels is the responsibility of management to create the processes that will lead to high production while holding everyone accountable.

You can't pick up a newspaper or watch the news on TV without reading or watching something about the state of the economy. No matter how this was caused, or whether we are in a recession now, or it is coming, will the state of the economy affect the Auto Repair business? Are we recession-proof as so many say we are? Or should we prepare ourselves for tough times ahead?

Yes, Mitchell is not cloud-based, and while the system does do an auto backup, Mitchell reps have told me also to do a daily back up too. This is a headache, plus for multi-store owners, Mitchell does not work. Trust me on this, I had multi locations. I do believe most all other programs are cloud-based now.

When you say "on-premise system" are you referring to a non-cloud based system?

All business systems have access to labor and parts guides. I can't speak to the cost for each system, sorry. But, it is not significant when you think about its value. Please bear in mind that a labor guide is just a guide. And sometimes they are way off. Also, the parts guide gives OE prices. With this said, it will be important to understand YOUR DESIRED labor and part margins. One step at a time; don't get overwhelmed. Put first things first, shop around, get demos and make a decision. And don't worry about a wrong or right decision. No business system is perfect and will do all you want it to do.

Great advise!

Let me add something. I used Quick Books along with Mitchell. Quick Books is a full accounting program and works really well for most small businesses. And most systems can export the data to Quick Books, such as labor sales, part sales, inventory, and sublet sales. Quick Books will allow you to pay your expenses and together with the information from your business system; you can generate reports such as Profit Loss, Balance Sheet, and cash flow statements. Among other reports. The reason why you need a Business System for other reasons: Looking up labor times, parts, tech time, the use of can jobs, managing estimates, scheduling, and so many other tasks that Quick Books does not do. My opinion. Choose a business system (look at previous posts for companies) and also use Quick Books for the accounting side of your business.

You are 1000000% correct! I was really referring to my age. Those cars broke down a lot back then, and we did capitalize on it.

Many shop owners have increased their labor rates in the past year or so. That is great news. Now, what's your next move? Anyone who knows me knows that, in my opinion, in general, we have been too cheap for too long. But, determining your labor rate is not the only consideration to attaining a profitable business. What about productivity, efficiency, keeping expenses in line, gross profit, and net profit? What are you doing to ensure you are meeting the financial needs of your business and also paying your employees the money they desire?

There are many programs out there, and some are better than others, depending on the size of your business and the type of work you do. From what I hear around the industry, a few of the top names are Tekmetric, Shop Ware, Protractor, Micthell1 (only to be used with Bolt On Technology), Auto Leap, and Shop Boss. There are others, but I would say these what I hear are the most popular. I used Mitchell, but there are a lot of drawbacks. Now that I coach, from my perspective, many clients are happy with Tekmetric, Protractor, Auto Leap, and for smaller shops, Shop Boss. Let's see what other ASO members say about this. By the way, any company you are interested in will do a demo.

Anxiously waiting, thank you.

Wow, fascinating how those images were generated, and thanks for your take on the future. And sad to admit I worked on those cars! Years back! Question, do you think the auto repair business is as "recession-proof" as people claim it is?

I sold my company and the land a little over a year ago. Made out good with the sale of two locations and property. However, one of the things I did (on the advice of my financial advisor) was to also fund a retirement plan over the past 25 years. Your question is valid and right on target, but you need advice from a CPA accountant and your financial advisor. For me, while the sale was good, I had to pay capital gains tax, but it wasn't that bad since the property was redeveloped in 2008, and I still had a lot of depreciation that helped reduce my tax liability. Another thing to consider is how your money will be invested. I moved my investments to more slow growth over the years as I got older and added the proceeds from the sale to this portfolio. You don't make large gains in a good market with slower growth investments, but when it turns bad, you don't lose as much. The point is that you need to sit down, do your budget for after you retire, and then determine how much your money will last with different scenarios. A good financial advisor can help with this. Only after that can you determine if the dividends will be enough. Sorry for not giving a direct answer, but I want to be honest from what I have learned.

Qualified techs are in demand and demand high pay. Cant blame them. As shop owners, it is crucial that we know our numbers and adjust for the higher payrolls. And all shops need to do this. The days of undercutting your labor rate must end. Let's face it, in general we have been too cheap for too long.

What are your predictions for 2023? Will it be that we will face an economic downturn? Will EVs increase market share? Will the tech shortage get worse or better?

Having lived through many evolutionary steps in the auto industry, I have faith the auto aftermarket will always find a way to succeed. EVs will bring big changes, but not anything that we cannot overcome. Great information.

Thanks for the update. And, thankfully you found out soon enough.

I have to admit, this topic is a little different from the usual topics posted, which are from the perspective of the business owner. However, it is an interesting post! There might be a great opportunity here, but there are a few red flags too. And you need to move cautiously. Mostly to protect yourself. You did a good job at outlining the details, but something tells me there is more to this story. From my perspective, as a business owner, to reach out to someone that I don't know and offer them a deal like this, would be extreme. I would want to build a solid relationship that takes time to develop. And there are a lot of steps in between to make an offer like this. Trust me, I have been there with people that I knew, that I "thought" were good candidates to run my company and someday buy it, but it did not work out. I don't know you, but I would bet that based on what you said in the post, you are a qualified person who has the experience, talent, and skill level to run an auto business. I would suggest that you seek advice from a business attorney, an accountant, and a business consultant knowledgeable in the franchise model and independent model. Also do a lot of research on this person, his business, and anything else relative. This is a big deal in your life, and if it leads to ownership someday, you need to do all you can and perform your due diligence to protect yourself. I don't want to sound negative, in fact, I wish you the best of luck and hope this is the opportunity of a lifetime. Just move slowly. Please keep the conversation going, and hopefully, we can all help you.