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Business Opportunities Abound In the Automotive Industry
By Michael J. McDermott

From rental and leasing agencies to products, services and repairs, the automotive industry has long been one of the most fruitful sources of business opportunities. Aspiring entrepreneurs in the market to launch a business of their own would do well to give the auto-related listings in this publication a close look.

The motor vehicle aftermarket industry remains one of the largest employers in the United States, contributing 2.5% of the nation's gross domestic product, according to the Car Care Council (CCC), a consumer outreach and marketing group created by the Automotive Aftermarket Industry Association (AAIA).

The automotive aftermarket is a vast and diversified industry, generating some $248 billion in annual sales, according to the AAIA. Despite the industry's large size, car care businesses continue to grow at a faster rate than the overall economy, and forward-looking indicators suggest there is plenty of room for additional growth in the future.

A key driver of that growth is the massive amount of vehicle maintenance that goes unperformed each year, about $60 billion worth. Another is the increasing number of miles driven by an ever-growing vehicle population.

Even taking the existing untapped market potential into account, the automotive aftermarket continues to grow at a rate of about 5 percent a year. It all adds up to tremendous opportunities for new businesses in the automotive aftermarket, and many of the best ones are available in business-opportunity formats.

Some segments of the automotive industry where business opportunities play a leading role include transmission repair, body repair and painting, tune-ups, quick oil change, tires, brakes, exhaust systems, appearance care, and parts and accessories

The motor vehicle aftermarket industry is one of the largest employers in the U.S.

The overall motor vehicle aftermarket consists of five broad segments:

  • Automotive segment, which includes companies that provide replacement parts and accessories as well as maintenance and repair services for passenger cars and light trucks-pick-up trucks, minivans and sport utility vehicles (SUVs).

  • Heavy duty segment, made up of distributors and manufacturers providing parts and service for commercial, industrial and agricultural vehicles.

  • Paint and body equipment segment, encompassing companies that provide vehicle refinishing products and services.

  • Tools and equipment segment, consisting of firms that supply the tools and equipment needed to repair and maintain motor vehicles.

  • Trim segment, which covers companies that manufacture, distribute or install interior and exterior fabrics, associated hardware and products for the repair of cars, trucks, boats and aircraft.

    • The first segment is by far the largest, accounting for almost $180 billion in annual sales. The automotive aftermarket includes do-it-yourself (D-I-Y) parts and accessories, which generated $29.1 billion in sales in 2001; D-I-Y lubricants and chemicals, $6.23 billion; service and repair, $122.9 billion; and tires, $20.6 billion.

    Among the other broad segments of the U.S. motor vehicle aftermarket in 2001, heavy duty accounted for $60.9 billion in sales; paint and body equipment for $2.8 billion; tools and equipment for $7.4 billion; and trim for $5.3 billion.

    SURGE IN RECONDITIONING

    One type of automotive business opportunity whose popularity has been growing by leaps and bounds is automobile reconditioning. This business includes a variety of services that are in high demand by today's car owners, such as paint-less dent repair, interior repair, windshield repair, paint chip repair and auto detailing.

    As with any new business or venture, entrepreneurs considering an auto reconditioning business opportunity should take a number of steps before committing to a deal. Start by weighing all your options, paying particular attention to any statistical and profit-related information that may be available. Make sure the venture makes economic sense before proceeding.

    When calculating what it will cost to start your new business, be careful not to overlook anything. Some of the costs will be specific to the business opportunity you are considering-in the case of an auto reconditioning business, things like tools, training and certifications. Other costs, such as administrative overhead, are common to all types of businesses.

    Some $60 billion worth of vehicle maintenance goes unperformed each year.

    Prepare a business plan that covers all aspects of your operation. It should include sales and marketing, accounting and budgeting, administration and organization, growth, and both long- and short-term goals. Free or very-low-cost help in preparing a business plan is available from such sources as the U.S. Small Business Administration, local economic development agencies and many community colleges.

    Make sure to include a thorough survey of your potential competition as part of your business plan. That will help you develop an effective pricing plan for your market. Your pricing plan should offer customers as many options as possible, allowing them to choose from a variety of reconditioning services and pay only for those they need. Offering discounts for multiple-service customers can help increase the amount of your average sales transaction.

    Among the things to consider when choosing a specific business opportunity provider in the auto reconditioning field are:

  • What is the company's reputation in the industry?

  • What kind of training does it offer?

  • How good are its training facilities?

  • How good are its faculty and staff members?

  • What kind of certification does it offer?

  • Is financial aid an option?

  • How big are the class sizes?

    • While an auto reconditioning business is different from a traditional auto body repair shop, there are some strong similarities between the two types of venture. As such, it may be enlightening to take a look at the statistical portrait of the average American body shop owner, as compiled by Body Shop Business magazine.

    FAMILY BUSINESS

    More than two-thirds of shop owners run a family business, with the first generation of owners responsible for managing 60.9 percent of shops, second generation for 29.7 percent, third generation for 6.3 percent and fourth (or higher) generation for 3.1 percent. About a quarter of shop owners have their spouses working side-by-side with them.

    Only about 5 percent of body repair shop owners currently are female, but that's up from 1 percent just a few years ago. A third of owners graduated from college, almost 55 percent attended college, and 92 percent are high-school graduates. About 40 percent of owners attended a vocational or technical school, and almost 7 percent have earned postgraduate degrees at the masters level or higher.

    Today's automotive aftermarket is an increasingly complex and competitive business that is undergoing profound change. Rapid industry consolidation over the past decade has left fewer market players. At the same time, advances in manufacturing have resulted in higher-quality parts for new vehicles, which means that cars break down less often and have longer service intervals.

    At the same time, automotive business opportunities are benefiting from several positive trends. Two important ones are the increasingly attractive value equation behind automotive repair services and robust growth in the light truck segment of the aftermarket.

    Automotive maintenance and repair represents the best value in the service sector.

    Compared with other services, auto repair is a real bargain, according to the CCC. Over the past decade, the cost of hospital services has risen more than 100%, and the cost of financial services has jumped 90%. Automotive maintenance and repair costs, in contrast, have risen just 44.5%, making auto repair the darling of the service industry, CCC says.

    Automotive parts represent an even greater value equation for consumers, having risen in price just 4.2% over the past 10 years, according to the percentage changes tracked in the Consumer Price Index from 1990 to 2001. That has helped to keep the D-I-Y market vibrant. Almost half of all U.S. households include at least one automotive D-I-Y enthusiast.

    "Whether it's an oil change, replacing brakes or new belts and hoses, that periodic repair bill is a drop in the bucket compared to monthly payments on a new car," says Rich White, spokesman for the CCC. "The bottom line is that a properly maintained vehicle is safer, more dependable, cleaner and more valuable."

    "Many consumers today are trying to increase the return on investment they reap from automobile ownership by keeping their cars through what the automotive industry calls the "Cinderella era," White says. "It's that period of time after the loan is paid off when your car is still in great shape and needs only modest repairs."

    Sales in the light truck aftermarket have almost doubled over the past 10 years.

    Figures from Runzheimer International, a management consulting firm that measures travel and living costs, confirm the CCC's claims. Recent figures from a Runzheimer study show that trading in a vehicle every eight years instead of every four years can save more than $2,480 a year after the loan is paid off. That figure includes repairs, maintenance, license, registration, taxes and insurance.

    The good news for existing and prospective business opportunity owners in the light truck segment of the automotive aftermarket is that it has almost doubled over the past 10 years. Sales in the light truck aftermarket have climbed from less than $39 billion a year in 1993 to more than $74 billion a year in 2002, according to "The U.S. Light Truck Aftermarket: The Impact of Growing Pickup, SUV and Minivan Sales," a new report from AAIA.

    According to the study, sales in the light truck aftermarket experienced a 7.4% increase from 2001 to 2002, growing from $69 billion to $74.1 billion. The study forecasts the size of the 2003 light truck aftermarket as $79.9 billion, an estimated 7.8% increase over 2002.The study estimates the size of the light truck aftermarket based on several factors, including business receipts, vehicle sales, automotive product prices, vehicle registrations and component maintenance and repair replacement rates. With the number of car buyers who choose a pickup, minivan or SUV over a conventional automobile continuing to grow, the outlook for this segment of the automotive aftermarket is quite upbeat.

    Like most industries, the automotive aftermarket faces some challenges. One is the increasing technological sophistication of today's cars and trucks and the resources needed to repair and maintain them.

    UNFAIR ADVANTAGE?

    Because so much of the technology is computer-based, industry groups argue that car manufacturers, which control access to the diagnostic codes for that computer technology, enjoy an unfair competitive advantage over independent repair shops. Two aftermarket industry organizations are fighting to change that.

    The AAIA is teaming up with the Automotive Warehouse Distributors Association (AWDA) to support passage of legislation called the Motor Vehicle Owners' Right To Repair Act.

    "AAIA and AWDA believe that it is critical that independents have cost-effective access to this information, and both associations are concerned that the proprietary method used by the dealer might not be affordable or workable for the small businesses in the service industry," says Aaron Lowe, vice president for the Automotive Parts and Service Alliance, the lobbying group formed by AAIA and AWDA.

    Another challenge facing the automotive aftermarket industry is the difficulty of finding, hiring and retaining qualified employees. The challenge exists in finding both skilled workers such as mechanics and technicians and unskilled workers such as store clerks and oil changers.

    Currently, the auto industry is looking for 60,000 automotive technicians nationwide, according to the National Automobile Dealers Association. Business-opportunity, franchised and independent repair shops have to compete with new car dealers for the same pool of qualified workers.

    Auto reconditioning is one of the fastest-growing automotive business opportunities.

    The situation is similar in other segments of the automotive aftermarket business. Auto parts stores, for example, must compete with other types of retailers for store clerks, cashiers and drivers.

    One offshoot of the labor situation is that wages are rising for workers in the automotive aftermarket industry. The average hourly wage for non-supervisory employees in all sectors of the industry increased between 2000 and 2001, with the largest increases being seen for workers in auto parts supply stores and automotive repair shops.