Auto Franchises Making a Come Back
Despite lackluster performance over the past few years automotive service franchises will be making a comeback. Over the past three years franchises in the automotive service sector haven’t fared well. Out of 37 franchises we reviewed, 20 showed a decline in locations from the previous year, while 5 had flat growth and 12 increased. The total decline in locations for the 20 franchisors totaled 264. In spite of the poor performance over the last 2 years, automotive franchises should return to positive growth and increased locations. The reasons for the negative growth and a return to positive growth are based upon a number of factors.
According to Ratchet+Wrench magazine annual revenues for the automotive maintenance and repair industry has steadily declined over the past five years at an annual rate of 2 percent with a further dip expected in 2013. The decline in revenues is attributed to a weak U.S. economy. Industry experts believe that declines in income caused many consumers to delay repairs and services with some opting for self-repairs by purchasing parts from auto retailers. Over the next five years, industry revenue is expected to pick up again, along with the economy and the economic factors that stifled industry growth.
Some additional reasons for the decline in growth are provided by the SBDC National Information Clearinghouse:
- Advances in auto manufacturing technology are having major impact on the auto repair business:
- Hybrid designs (and other new systems) require additional training for mechanics; sometimes these changes can give auto dealers an advantage, if their teams are trained on a more regular cycle than the local auto repair shop.
- New designs also can require new diagnostic tools that can be expensive for auto repair shops to acquire.
- New designs can require less frequent traditional repairs (like tune-ups) that are a source of recurring revenue for independent auto repair shops.
Elite Automotive repair and service magazine reported that: "New car sales have lagged in recent years and although sales are better; it may never attain the sales of pre-recession era. This means that as the economy recovers and consumer confidence improves, there will be a flood of cars that will need repairs and maintenance as these cars reach post factory warranty age. The average age of the typical car in the country will remain over ten years and achieving 200,000 miles and beyond will become the norm, all great news for the aftermarket shops."
A study from the Freedonia Group analyzed the $86.2 billion US automotive repair and maintenance service industry:
- The US automotive repair and maintenance services market will grow four percent annually.
- Mechanical services will remain the largest segment while electronics will grow the fastest.
- New light vehicle dealers will continue as the dominant service provider while quick lubes, tire stores and repair chains will lead gains.
An Auto Repair market research report from IBIS World states in part: “The slower general economic conditions had led many consumers to repair their own cars. However, the “needs-based nature of the industry,” a recovering economy that is helping grow personal income and reduce the unemployment rate is expected to produce average annual revenue growth of 1.2% over the next 5 years, with auto mechanics industry revenue reaching $54.7 billion by 2017.”
Despite the various factors that have contributed to poor performance in the automotive service industry, experts familiar with this segment believe positive growth will return. This is good news for franchisors and franchisees in the automotive service industry.