Aging cars, more miles boost profits
An uptick in registered vehicles, longer work commutes and lower gas prices continue to present more opportunities for automotive aftermarket franchises as they look to snag a piece of a $287 billion industry.
The Auto Care Association predicts the aftermarket segment will increase nearly $40 billion over the next four years to $327 billion in 2021.
The automotive aftermarket industry, which employs more than 4.6 million professionals and provides all types of products and services for cars, is one of the most powerful engines driving the nation’s economic prosperity, according to Jania Bailey, chief executive of consultancy FranNet.
Last year, U.S. car sales hit a record high as automakers sold more than 17 million cars and light trucks, making it one of the strongest years in auto history. The industry experienced seven straight years of positive year-over-year growth between 2010 and 2017, the longest string of annual increases since the 1920s.
Even as consumers snap up more new vehicles at record pace, the typical car on the road today is 11.7 years old, according to a recent IHS Automotive survey; at the same time, people are logging more miles—3.2 trillion—across the U.S.
“The demand for auto-related franchises remains strong. People know it’s a steady business model,” said Bailey.
The industry is at a crossroads of sorts, where opportunity, technology and growth merge to create a lucrative business model for prospective franchisees in the sector. And with more than 100 automotive franchise concepts in the U.S., people have choices.
“It’s a great time to look at automotive aftermarket franchises,” said Bailey. “It’s a stable, recession-resistant segment that attracts prospective business owners. It’s always been one of the strongest industries we work with.”
John Thys, director of internet marketing for Benicia, California-based 1-800 Radiator & AC, agrees. His company sells more than 700 types of radiators and other parts, including condensers, AC compressors, fuel pumps and exhaust-related products, wholesale and delivers them directly to mechanics within a couple of hours from the time an order is placed. The franchise has expanded from 33 units in 2004 to 215 across the U.S. today.
“As cars and trucks on the road today grow older, there is a huge need for the repair and replacement industry,” said Thys. “Especially for car owners who want vehicle services performed for them.”
Even though basic auto parts such as spark plugs, emission and cooling systems last well past 100,000 miles, the industry continues to flourish as motorists preserve their investment with periodic maintenance repairs and upkeep.
“People are keeping their vehicles longer and understand the importance of preventative maintenance and routine care to help preserve the lifetime value of their cars,” said Barbara Moran, CEO and co-founder of Midlothian, Illinois-based Moran Family of Brands.
“Car engines are computerized and complex machines that require a high level of expertise to fix and maintain,” continued Moran, who oversees three franchises: Mr. Transmission, which specializes in transmission and clutch repair; Alta Mere Automotive Outfitters, an aftermarket parts business; and Milex Complete Auto Care, a full-service auto repair store.
The average car has more than 20 computers to help it operate everything from the backup camera to the electronic-controlled transmission.
Automotive shops are learning to confront the changing dynamics of vehicle repair, including massive advancements like autonomous driving cars and collision avoidance technology.
For all its 21st century efficiency, high-tech features and cool gadgetry, the auto industry faces an age-old dilemma: recruiting skilled workers from a scarce pool of young people willing to fix cars.
Apart from the food industry, automotive franchises have more operations than any other sector, with more than 31,000 establishments employing more than 195,000 people.
Even so, Moran is concerned about the state of employment trends among young people. “When you look at the younger generation, a majority have chosen a career path based on a four-year university rather than a vocational path to the trades,” she said. “As the baby boomers continue to move into retirement, this decline will have an increased impact on our society.”
Moran warned that automotive franchises will feel the brunt of this shortage, and to combat that the company has developed two internship programs within its franchise system.
The Automotive Shop Internship is geared toward exposing high school students to the industry, while the Technician Internship program attracts people who have made the commitment of going to vocational school and want to increase their skills as well as prepare for their future.
Moran’s company also developed an outreach program that gives franchisees the chance to share their industry success stories and information about career opportunities, income range and how the trades can lead to business ownership with the local community, including teachers, guidance counselors and parents.
“The internship program is so important and hopefully it inspires the younger generation to look toward the trades such as the automotive aftermarket,” said Moran.
Focus on fleets
Charlotte-based Driven Brands, owner of Maaco, Meineke and Econo Lube, has pushed in recent years to grow its fleet business, said PJ Nee, director of franchise development.
Fleet work usually involves less administrative work for the auto repair shops, said Nee. But corporate owners need their cars back so they can keep working. “By focusing on multi-vehicle clients that bring in large numbers of cars with one owner, we’re able to deal with fewer customers and put more attention on the service we provide them,” said Nee.
The business-to-business strategy has paid off for the franchisor, which counts Enterprise Car Rental, UPS and Avis Car Rental among its customers. Driven Brands recently added FedEx, owner of one of the nation’s largest fleets.
He expects Maaco, which has more than 1,000 body shops participating in its fleet program, to do about $140 million in business next year. The company will open 42 new stores in 2017 and 35 in 2018.