Are you prepared for the massive shifts coming to the auto repair industry? This question isn’t just a hook; it’s a call to action for shop owners to get ahead of the curve. In a recent session with Michael Smith, Chief Strategy Officer at the Institute. He provided crucial insights into the future of the auto repair industry and how shop owners can adapt and thrive.Â
Here are the key takeaways from his engaging discussion.
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Understanding external forces
The pressure from outside
Smith started by emphasizing the outside forces pressing in on the industry—third-party interests, like private equity firms. And new competitors such as tech companies, are increasingly eyeing the automotive sector. These entities are passive observers and active players aiming to reshape the landscape.
Changes in customer expectations
Customers today expect more than just repairs; they want a seamless, digital experience. McKinsey’s research highlights ten key changes in customer expectations. They include:
- Importance of big data analytics.
- The rise of professionally managed fleets.
- The shift towards a new service mindset.
Internal industry shifts
Smith made it clear that the old business models are no longer viable. Traditional ways of running an auto repair shop are being replaced by more integrated, technology-driven approaches. This shift is particularly challenging for long-time shop owners who might feel out of their depth.
Technological advancements influence customer expectations and reshape the industry’s very fabric. From the increasing importance of software in vehicles to the rise of autonomous cars, technology is a double-edged sword, bringing both challenges and opportunities.
Opportunities and threats for shop owners
Consolidation and competition
The industry is consolidating, and this trend is accelerating. Large players are buying up smaller shops. And new competitors are entering the market. This can be an opportunity for shop owners who are prepared to adapt. However, it also poses significant threats to those who resist change.
The role of private equity
Private equity firms see the auto repair industry as a profitable investment. Smith shared his experience with a private equity deal that resulted in the creation of one of the largest automotive aftermarket consolidators. While these investments can bring growth opportunities, they also come with risks. Shop owners need to be cautious and well-informed before entering into such deals.
Embracing change
The key to thriving in this changing landscape is to embrace change rather than resist it. This involves adopting new technologies. Understanding evolving customer needs and being open to new business models.
Despite the focus on technology, Smith emphasized the importance of human-centric strategies. Building a championship team and focusing on human-driven growth is crucial for long-term success.
Navigating the shifting landscape
Alternative drive trains
In the rapidly evolving automotive industry, the future is being shaped by two significant trends: alternative drive trains and shared mobility. The shift towards electric vehicles (EVs) has been widely discussed. However, there are growing concerns about its feasibility. Michael notes, “If California plugged in all the cars that they wanted to have electric and they changed the whole thing over to the grid, the grid would collapse. We all know that.” This reality casts doubt on whether electricity will dominate the future of transportation.
Automakers are struggling with this uncertainty. Companies like Toyota have expressed skepticism. While others like General Motors initially committed wholeheartedly to electric vehicles. Michael adds, “The OEMs are struggling with this. Do we? Don’t we? What commitment do we make?”
Shared mobility
Shared mobility is another trend gaining attention. Making a phone call to call a car has gained popularity, with companies like Uber leading the way. Michael shares his experience: “I find it fascinating every time I jump in an Uber, and I start talking to the driver. They’re driving, and their driving pays for who we’re trying to develop an autonomous driving bubble at the bottom.”
The automotive industry refers to these trends under the CASA (Connected, Autonomous, Shared, and Electric). OEMs (Original Equipment Manufacturers) are navigating these disruptive forces while trying to maintain control over their markets. The challenge is significant, and the industry is in strategic flux.
The four future states
OEMs are considering four future states to navigate this uncertain landscape. Michael explains, “There are four future states that the OEMs are considering. Please know we are the tail on the dog, that when they make a major shift, it will happen to us too in a fairly short time.”
- Worst case scenario: OEMs supply third-party corporate mobility fleets with minimal control over the transportation system.
- Collaborative model: OEMs collaborate with other agents, maintaining some degree of control.
- Low control, low disruption: CASA is not highly disruptive, and OEMs have little control.
- Desired future state: Achieving an omni-channel retail network with significant control over their operations, including partnerships with tech giants like Google.
Changing consumer preferences
The traditional dealer model is facing a downward trend. Michael notes, “The kids today don’t want to sit in a showroom and argue with the finance department. They want the car delivered to the front of their house.” Consequently, dealers are consolidating, and the focus on service departments has increased.
The role of service departments
The service departments play a crucial role in maintaining customer relationships. That leads to new car purchases and keeps the used car market vibrant. Michael explains, “The service department is designed to keep their customers around long enough. The three-year age of the car the customer bought gets to the point where they start making recommendations in the service department that they should go and consider replacing the vehicle.”
This model ensures a continuous cycle of buying, servicing, and repurchasing vehicles, which helps sustain the overall business.
The opportunity and challenge for automotive service companies
The broader economic landscape includes a significant number of baby boomer-owned businesses. Many of which are in the automotive service industry. Michael provides some statistics. “80 to 85 percent of these privately held companies of the 4 million have not been run in such a way that there’s any value in them to buy.” This situation could lead to a massive number of businesses closing. And this may affect the market significantly.
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For those in the automotive service industry, this means a potential loss of competition. But it’s also an opportunity to capture new customers and market share. Michael stresses the urgency: “If you drive around your neighborhood and you look, and you see your competitors closing their doors and locking up, this is the indication that it’s begun.”
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The trend toward consolidation
The automotive service industry is heading towards consolidation, like other sectors like the beverage industry. Larger players are acquiring smaller businesses to increase their market share and customer base. Michael illustrates this with an example: “If you look up at Stellantis on the top right side, second bullet down out of the Netherlands, they’re gobbling up brands.”
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Adopting new strategies is crucial for privately held automotive service companies. Michael outlines the new options: “You can sell to one of these rollup firms. You can become a roll-up firm and get your private equity partner. Or you can join with other players to scale quicker into a single project.”
Nurturing customer relationships
Michael acknowledged the diverse customer base and stressed the importance of nurturing loyal, brand-committed customers. He highlighted the significance of aligning business values with customer expectations and fostering lasting relationships built on trust and shared values. Michael also discussed the strategic importance of community engagement and urged businesses to align their offerings with community needs. He emphasized building loyal brand ambassadors through meaningful connections and shared values.
Human centricity and leadership
“Human centricity is a great competitive advantage.”
Highlighting the power of a human-centric organizational culture, Michael emphasized the role of leadership in attracting and retaining top talent. He advocated for mastery-driven growth. Where individual and team development aligns with organizational success.
Strategic breakthroughs
“You need to outthink the people that you’re competing with.”
Michael challenged attendees to embrace strategic innovation and position themselves as leaders rather than followers of market trends. He emphasized the importance of visionary leadership in navigating industry complexities and helping drive sustainable growth.
Visionary planning for long-term success
“We always begin with the end in mind… what’s the legacy that I want to leave behind?”
In closing, Michael encouraged long-term visioning and succession planning. He challenged industry professionals to envision their legacy. And strategically plan for future growth and sustainability.
Conclusion
The auto repair industry is at a crossroads. Shop owners have a unique opportunity to shape their future. To ensure your business not only survives but thrives in the coming years, understand external pressures, adapt to internal changes, and leverage opportunities strategically.
So, are you ready to take the wheel and drive your auto repair shop into the future? Watch the full session here to make your journey rewarding ahead.Â
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