How Does a Recession Affect Independent Auto Repair Shops?
June 20, 2019
After ten years of economic growth, things may finally be starting to change. Some economic indicators are trending negative, and a recent survey of CFOs across the US found that half of them expect to be in a recession within a year.
For most industries, a recession is bad news. During a recession, people make less and spend less. That means fewer jobs and lower pay, which helps to feed a negative cycle. While there are very few industries that are recession-proof, there are some that are recession-resistant.
Is auto repair one of those industries?
The answer is yes – but that doesn’t mean that the industry isn’t affected. For every person who holds on to their vehicle longer (providing more revenue to the shops who maintain them) there’s another person who puts off a needed repair because they can’t afford it. For each dealership that closes, there’s another one that’s trying to boost service center revenue to offset reduced vehicle sales. For every customer that leaves for a cheaper shop, there’s another who can’t afford the dealership or franchise upcharge and might make your shop their new home.
In short, auto repair shops that survive best during the recession are those that understand how the customers and community are being affected, and adjust their services to help them meet their current challenges. This isn’t a wordy way of saying that you should lower your prices – if that’s necessary, it’s still only one component of an effective response.
Here are three things that happen during a recession, and what you can do to help address them.
- Consumers are less able to handle large purchases. When recessions hit, many consumers are forced to dip into savings to handle large expenses – if they have any savings at all. This is due to job losses and a reduction in hours worked for hourly workers. Consumers are also less likely to have large lines of credit available, because credit standards tighten during recessions. Selling maintenance plans and emphasizing warranties will help consumers have confidence that they’ll avoid an expense they can’t afford, and end up without a means of transportation.
- People hold on to cars longer. People don’t want to make large purchases during a recession, so they hold on to cars instead of trading them in. Remember “cash for clunkers”? It was a vehicle trade-in program funded by the government during the last recession. The program was intended to boost the economy by encouraging people to trade in their old vehicles, in part because dealers were badly hurting for sales.
People holding on to older vehicles is great news for independent shops, because those older vehicles will need maintenance to stay on the road. To really benefit from this, however, you’ll need to put time into customer education. Customers must believe that the trade-off between short-term maintenance and long-term reliability is real, or they may elect to delay maintenance, too.
If there’s wear on a part, make sure to show the customer what a worn part looks like and what a new part looks like. Provide customers with an honest explanation of what might reasonably happen if they don’t take a preventative step, and leave the choice to them – once they understand the consequences, they might reconsider their decision to wait.
- Consumers start to cut costs. It’s often during recessions that new business models overtake old ones. There are certainly plenty of threats out there that could lead to high-value repair shops being bankrupted by cheap shops. For instance, if a company like Amazon launched a price-based system where people could buy services like brake and tire replacements, it would quickly lead to a race-to-the-bottom mentality for shops racing to get that business. While customers might not appreciate the cut-rate quality of the parts and service they’d get in normal times, a product like this is primed to take off during a recession, where people are looking for easy ways to cut costs.
As your customers go down their bank statement looking for monthly transactions to cut, will your shop stand out as a cost-cutting opportunity? That may depend on whether they view your shop as a cost or a
Do your customers understand and appreciate all the value they get from having a home for their car that’s staffed by technicians they trust? Every time you present customers with information about their car that will help them make good decisions in the future, you’re reminding them of what they’re going to lose if they move to the cheapest fee-for-service alternative in town. Take advantage of the opportunities you get, because you’re not likely to be a part of the conversation when they decide whether price-shopping for cheaper shops is worth it when they’re in a financial pinch!
To learn how Repair Shop Websites can help boost your business, call us at 866-665-1605 or email us at Team_RSW@RepairShopWebsites.com.