Auto repair and maintenance is a $200 billion industry that grew 8% in the past year. This is due in part to the increase of the U.S. population, which means more vehicles on the road — close to 300 million — all of which need regular upkeep.
There are 175,000 auto repair shops with a total of 1 million employees. Most shops specialize in either mechanical repair or body work. Because of the high price for new vehicles, which many people can’t afford, the average age of vehicles on the road keeps increasing: now 14 years for passenger cars and 12 years for pick-ups, and that often equates to more repair jobs.
Bearing in mind these data points, bankers and other financial services providers may find a variety of opportunities within the auto repair shop industry, from payroll to inventory management to equipment financing. What’s more, by understanding the economic and geographic landscape in which a business is operating, you will be able to offer more tailored guidance to auto repair shop owners.
Here’s a closer look under the hood of this growing industry, including some of the top trends and factors contributing to common challenges and opportunities within the auto repair shop industry.
Vehicle complexity, leasing trend yields more auto repair jobs
Most people prefer to use an auto repair shop for even simple maintenance like tire changes or an oil change. The complexity of many of today’s cars, especially their electronics, also increases the likelihood that something will need repair and the need for a professional to do the job. Additionally, the growing popularity of leasing rather than buying a new car is an incentive for drivers to keep on a regular maintenance schedule.
Although new car dealers usually have their own maintenance and repair operations that provide a large portion of their profits — and require that their leased vehicles be serviced there — auto repair shops outnumber dealers 10 to one because non-dealer-owned shops’ prices are typically lower.
Equipment, accounting needs equals banking opportunities
While the auto repair shop industry remains labor-intensive, outfitting a shop also costs a lot of money because specialized tools are needed to manipulate and repair cars. Typical equipment includes lifts, ventilation systems, and expensive diagnostic systems that often need to be updated. Even though a shop may be small with a very local presence, it will usually need all of this equipment.
Payroll and other electronic systems to manage individual jobs, parts ordering, and accounts payable are also necessary even though the average shop employs fewer than 10 people. Bankers can provide some of these accounting systems and recommend the others.
The impact of local market trends
Different local circumstances mean opportunities for bankers who can recognize the differences. Similar to the demand for healthcare services, local demand for auto repair services can be driven by a growing number of vehicles or by a deterioration of the local automobile fleet.
This can be seen in our table (right), which shows the number of auto repair businesses in 15 markets, along with the two-year increase or decrease in the local population and the number of jobs in the auto repair industry.
Clearly, the high growth of the local population is a major driver of demand for auto repair services in Nashville, Miami, Austin, and Tampa. Auto repair is very labor intensive, so the number of jobs is an accurate measure of demand.
On the opposite end, slow population growth in New York, Chicago, Milwaukee, and Boston, has led to a drop in auto repair demand. Of course it may also be that in dense urban cities like New York, Chicago, and Boston, fewer people depend on a personal vehicle for transportation.
In outliers Baltimore and Pittsburgh, where the size of the population has stagnated, more repair on an aging fleet of vehicles is likely. Contrast that to Columbus, where demand for repairs is down despite a recent increase in population. In that geography, I’d rely on the jobs numbers to indicate the future direction of the auto repair industry.
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