Every month we will offer detailed reports on economic trends in one industry.

This Month's Featured Industry: The Automotive Repair Industry

April 2006

The U.S. automotive repair industry, once dominated by small, independent service stations, is now comprised of four types of businesses: full-service gasoline stations, independent garages, automotive dealerships, and chain automotive centers. Automotive repair shops are part of the overall U.S. automotive aftermarket industry, which is currently valued at approximately $140 billion.

The industry is highly fragmented. The Automobile Service Association (ASA) reports an estimated 81,533 independent general mechanical repair businesses operate in the United States, employing approximately 339,170 people and repairing more than 231 million motor vehicles. 88 percent of independent mechanical repair businesses are family-owned.

First Research reports auto repair work is provided by 45,000 gas stations; 24,000 new car dealerships; and branches of chain stores such Sears and Kmart. Only ten companies, including Midas, Monro Muffler Brake, and Diamond Triumph Auto Glass, generate revenues over $100 million. Because many costs are fixed, an auto repair shop's profitability depends on volume.

The industry is very competitive. Over the past 10 years, the number of repair shops in the U.S. has been declining, mainly because of a decrease in the number of local service stations offering automotive repair. The key issues that affect the automotive repair industry, increased technological complexity and durability of vehicles, are changing the type of repairs on cars and frequency. Because today's cars are more technologically sophisticated, the type and frequency of service needed over the lifetime of a vehicle has changed. More advanced service providers have taken the place of many service stations that offer repair service. In addition, automobile manufacturers and their dealers are actively pursuing repair business.

Market research firm IBISWorld reports the "Automotive Mechanical and Electrical Repair and Maintenance" industry is mature and "generally growing at the same rate as the economy."   The ASA projects total sales for general mechanical repair facilities in 2005 was $36 billion; $49 billion if specialty repair facilities, oil change facilities and transmission shops are included. It is important to note that these figures do not include the $30 billion earned by approximately 21,640 auto dealerships with service facilities.

Establishments primarily engaged in general automotive repair are classified in Standard Industrial Classification (SIC) code 7538: General Automotive Repair Shops. According to Integra Information, annual revenues for those companies in SIC 7538 increased by an average annual rate of 3 percent between 2000 and 2002, but picked up significantly in 2003 and 2004 (see Table 1 ).  

Table 1:   Industry Revenues: SIC 7538 - General Auto Repair Shops

Source:   Integra Information .

Demand for auto repair services depends on the number of registered vehicles and how much the vehicles are driven. Americans love their cars, and despite the current oil crisis continue to increase the number of miles they drive each year. The number of motor vehicles registered each year fluctuates.   In 2001, 136,341,000 cars were registered in the U.S.; in 2004 the number of registrations was 135,077,000. Auto repair shops will benefit from the fact that the median age of vehicles in use is increasing; from 1990 to 2005, the median age of cars in use grew from 6.5 years to 9.0 years.

As with many industries, labor is an issue for the auto repair industry. The number of production technicians has decreased overall; the average age of technicians is increasing and average technician income is rising faster than inflation.   Not only is it harder to find qualified technicians, but shop owners are spending more on training, and in my areas, Spanish language training. Because of the increasing number of computerized components used in cards today, automotive service technicians' and mechanics' work has changed from mechanical repair to a high technology job requiring specialized knowledge and training.

According to the ASA, the most pressing demands shops are facing are diesel vehicle technical training, used air bag installation, diesel vehicle service and repair, emissions testing, and tire monitoring systems.   In terms of issues that impact the consumer and the industry, Aftermarket parts quality rank the highest, followed by A/C refrigerants, consumer image of automotive service, Antifreeze/coolants, and OSHA/EPA compliance.

Outlook

According to the ASA 2005 "How's Your Business?" survey, auto repair shop owners are positive about the near-term market; 71 percent of mechanical businesses polled expect annual sales for 2006 to increase. Integra Information forecasts average growth rates for collision repair shops will increase by 3.46 annually between 2005 and 2009 (see Table 2 ).

Table 2:   Industry Revenues: SIC 7538 - General Auto Repair Shops

Source:   Integra Information .

The U.S. Department of labor expects employment of automotive service technicians and mechanics will "increase as fast as the average" through the year 2014 because of the number of registered cars continues to be substantial. However, demand growth will be offset slightly by a slowing rate of population growth and the continuing rise in automobile quality and durability.

"General Automotive Repair Shops." Encyclopedia of American Industries . Online Edition. Gale, 2004. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.:Gale Group. 2006. http://galenet.galegroup.com/servlet/BCRC

Midas, Inc.   Form 10-K filed with the Securities and Exchange Commission. March 16, 2006.

"2005 'How's Your Business' Survey Results."   AutoInc. Online .   December 2005.   Internet:   http://www.asashop.org/autoinc/dec2005/businessmech.htm.

" Automotive Repair Shops Industry Profile Excerpt."     First Research.   2/27/2006.   Internet: http://tinyurl.com/ptvuf

Midas, Inc.   Form 10-K filed with the Securities and Exchange Commission. March 16, 2006.

"81111 - Automotive Mechanical and Electrical Repair and Maintenance."   Industry Snapshot.   IBISWorld, Inc.   Internet:   http://tinyurl.com/eu9kp.   Accessed April 20, 2006.

"2005 'How's Your Business' Survey Results."   AutoInc. Online .   December 2005.   Internet:   http://www.asashop.org/autoinc/dec2005/businessmech.htm.

"Industry Outlook Growth Report:   General Automotive Repair Shops: 7538."   Integra Information. March 28, 2006. .   Internet:   www.integrainfo.com.

U.S. Department of Transportation, Federal Highway Administration, Highway Statistics 2001 and 2004. Washington, DC: 2002, tables MV-1 and MV-9, available at http://www.fhwa.dot.gov/ohim/ohimstat.htm.

Midas, Inc.   Form 10-K filed with the Securities and Exchange Commission. March 16, 2006.

"Snapshot of the Industry."   I-Car Education Foundation. September 2, 2005   Internet:   www.i-car.com/html_pages/education_foundation/products_programs_services/snapshot.html

"2005 'How's Your Business' Survey Results."   AutoInc. Online .   December 2005.   Internet:   http://www.asashop.org/autoinc/dec2005/businessmech.htm.

White, Karin.   "What Makes Shops Profitable?" AutoInc. Online. . March 2006.   Accessed April 26, 2006.

"Industry Outlook Growth Report:   General Automotive Repair Shops: 7538."   Integra Information. March 28, 2006. .   Internet:   www.integrainfo.com.

" Automotive Service Technicians and Mechanics." Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook , 2006-07 Edition , Internet: www.bls.gov/oco/ocos181.htm .