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Road to Green: The Future IS Promising

Road to Green: The Future IS Promising

Posted By: Robert (Bob) Greenwood, AMAM.

The future for the Independent Heavy Duty sector looks very promising, and will prove to be an exceptionally profitable period over the next 5 to 7 years compared to the last 10 years BUT only for the HD shop owners who truly understand their client base, their business, and the HD industry.

The supply / demand economic equation will be clearly understood by most HD shop owners as the supply of competent technicians has dried up, but the demand is forever increasing throughout the industry, which will force wage levels to rise quite dramatically over the next two to three years. Already we have seen in various areas that competent technicians are receiving $28 to $45 per hour with a $1,000 signing bonus, proving this shortage is not confined to one area of North America. These levels of wage rates can add to the “brain-drain” situation that is affecting North America in every industry.

Finding competent technicians is certainly one issue, but what will happen to our industry and the independent heavy duty shop itself, under this financial scenario?

In the long run, this is excellent for our industry, as competent technicians finally become recognized by the industry, that they are working in a “profession” rather than a “trade” and that technicians are highly skilled individuals deserving of a professional income. In the short run, it could cause absolute financial ruin as most shop owners are not aware of all the detailed numbers of their business and how they contribute to the net income of the business, or, properly versed on how to pass on the right labor costs to their clients. They are running their business based mainly on “price”, trying to tell everyone they are the best, and at the same time, the cheapest. They have failed to educate their clients about the level of expertise that is now required to maintain today’s HD vehicles and trailers, and that competent expertise does have a price tag to go along with it. It is also about HD shop efficiencies which is an on-going learning curve the HD sector must learn as “efficiency” affects your true cost per billed hour.

Shop owners must change how they measure their labor revenue component.   Rather than measure by one labor revenue department, labor should be broken down into a minimum of three categories, namely, a maintenance/mechanical labor department, a diagnostic labor department and a re-flash labor department. Each labor department has different skill level of technicians. The maintenance mechanical labor door rate should be set at a minimum of 4.5 times the top mechanical technicians hourly wage, (i.e. $23 X 4.5 = $103.50) or 85% of your true cost per billed hour, the diagnostic labor rate should be set at a minimum of 5.35 times the diagnostic technicians wage, (i.e. $29 X 5.35 = $155.15 per hour) or 115% of your true cost per billed hour and the re-flash rate at 6.0 times the technicians hourly wage, (i.e $32 X 6.0 = $192.00) or 125% of your true cost per billed hour. These additional rates are known as tier rates. The higher multiplier rate factor is necessary not only to cover high tech equipment purchase costs, and their faster replacement costs, but also on-going software upgrades of said equipment, on-going high end HD training, subscription fees and also Management and Service Advisor time that must be spent with the client. Management’s and Service Advisor time is consumed by educating the client as to the diagnostic process to take place, as well as keeping the client informed, and ensuring client confidence in the shop is maintained during and after the process. Until the client

HD vehicle mix of the shop is measured and understood; (“If you can’t measure it, you can’t manage it”) an interim guideline of a minimum of 25% of the labor hours billed through the bays should be going out at the diagnostic rate.

When shop management understands who they are selling to, how to implement the new strategy and measure, document and sell these tier rates with client satisfaction, the contribution to gross profit of the shop can be tremendous. When gross profit is enhanced, net profit is enhanced. Management expertise now drives future growth of the heavy duty business and the future bottom line of the business.

Are you up-to-date in your Management expertise to embrace the new profit potential available in our heavy duty industry?