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What works in business these days? The little thi...
Operate in high-performance mode with every poten...
Question: What’s Working? Answer: You
By Dave Sutton
Someone recently lamented to me that things aren’t really that good in the engine rebuilding business these days. Is this news to you? Of course it isn’t! We all know that there are many pressures on the industry that affect our jobs everyday.
Statistics show that people are keeping their cars longer.
This was traditionally good for the engine and parts business. But it is not news that engines last longer and need fewer repairs. We are also hearing of a sagging economy and consumers who are keeping a tight hold of their pocketbooks. This will have an effect on the performance and restoration markets, as many things will compete for these discretionary dollars.
While I don’t know if the stock engine rebuilding industry will ever be half as strong as it was not too many years ago, I still see strong possibilities in agriculture, marine, restoration and performance engine building. My focus is and has been on the parts sales aspects of these markets. If you have been a reader of Engine Builder for the last year and a half, you may have caught one of my four previous articles.
I had an idea for my first article where I shared five sales techniques I had learned from some successful engine and parts sales companies. The goal is to sell parts competitively against mail order and Internet sales companies. I’m a firm believer that the sky is not falling, and that the installer/builder should be the supplier of these parts.
This month’s column is a sort of test of that theory. I thought it was time to go back to the shops and find out, “What is working?” I know that many readers will think, “Good thing you didn’t ask me.” Well, I did ask many of you, but few were prepared to answer. Due to time and geographic restraints, I started with wholesale distributors and asked them who some of their successful shops were. Who can I ask about what is working? The list was much smaller than I had hoped. So, here are a few of the responses.
“Set your own price structure and keep to it,” says Scott Schurbon, Schurbon Engine Service, Maquoketa, IA. “Don’t get caught up in what you spend. Stay in touch with the real world and don’t worry about someone else’s loss-leaders.”
Schurbon says “I put a little doubt in their brain if they are talking about buying online. I promote my products but don’t slam theirs. Then I shop hard, but try not to buy from too many vendors. You end up with too many freight bills.”
Because people tend to look at the big number, Schurbon uses a sliding scale for a minimum markup. If the product costs him $1 to $5, he’ll double his price. If it is $5-$10, he’ll mark up a little less. After $200, he’ll max out at something around 15%, but says he can usually get more than that on engine kits.
When asked about customers supplying their own parts, Chuck Willard, Willard Auto Machine, Omaha, NE was emphatic: “Absolutely not! We won’t build an engine with someone else’s parts. If they show up here with a block and a set of pistons, we’ll do the labor. But the price goes up 20%. If they call on the phone and ask about labor prices, we ask what they are doing for parts. We explain the two tier price structure and tell them how they will not only get a better labor price, but we will certainly treat them right on their engine parts.”
“If they show up with a box of parts from the Internet, we immediately go through it and show them what they need to return. We’ll try to get them to return the whole thing. We try to show them how buying the wrong parts will not only cost them money in returns and shipping, it will cost us time while we have to wait for the right parts to get here. Stopping and starting on a job wastes too much time.”
Chad Golen, Golen’s Engine Service, Hudson, NH points out that he has no “parts guy.” He doesn’t sell individual parts. Just about everything he sells is assembled, and most are run on the dyno. His customers appreciate the technical support his shop provides. He will do just labor if someone wants, but he gets paid for what he does. He does not throw in anything extra, like he might do if he was selling parts. He looks at every job to make sure he will get what he needs at the bottom line.
Golen won’t argue with a customer who wants to buy his own parts but he won’t hesitate to explain why half of their purchase usually has to be returned. With some items, there is just not enough profit to get into a fight over. But again, he gets paid for everything he has to do to accommodate that person’s choice of parts.
The market is definitely changing, according to William “Billy” Mathis of Performance Engines by “Billy the Kid,” Torrington, CT. “Car counts are down at the race tracks. We are moving towards more muscle car or street performance engines. We shop around and try to provide a good price, but still maintain some profit. We work with the suppliers to get on their best parts price programs. Most of what we build is special. The customer can’t just go to a magazine or Web site to find those parts.”
Here are some good ideas from Jim Reid Sr., Reid’s Automotive, Whitman, MA. “Pay attention. Know your enemy. Check the ‘big ticket items.’ Set your prices just a little higher. Make up your margin on the rest of the stuff.”
Not many shops actually stock much merchandise, so Reid recommends stocking the stuff the customer will forget to buy online or from a mail order house. Make it convenient.
Jay Erschen, MHP Machine, Mesa, AZ said much the same thing. “Sell yourself. Potential customers need faith in you and your shop. Point out the problems that can come up when they order the wrong parts from mail order. You aren’t going to make the profit margins we used to make but you can make it up on the parts the mail order guys don’t sell. That’s where you can get your 50 percent markup.”
He adds, “Everyone is in survival mode. We all need to raise our prices. But no one wants to do that and chase customers away.”
Steve Schoeben, Headwerks, Minneapolis, MN says the key to success is simple: “High performance! Not just speed parts, but in operating in high performance mode. Get the job in the door and get it done. We attack every job as if it is a high performance engine job, as in attention to detail and quality. We even state this on our Web site.”
Headwerks takes pride in its ability to handle whatever comes through the door. They look at new engines as an opportunity to learn. If it is a new application he has not seen, Schoeben takes control of the job himself. He looks for specs, pilots or new tooling, looks into the parts. Sometimes he has to make the parts, if it is so new you can’t find it in the parts books. This forces them to, as he puts it, “step out of our comfort zone.”
Sometimes knowing what will work comes from knowing what does not work well. Joe DeGraw, Grawmondbeck’s Engine Machine, Mason City, IA states, “Know your customer. Not only who they are, but know what they want. Then match these needs with the right parts suppliers.” He brought up the Sport Compact market as a negative lesson. “We tried to learn, educate ourselves about the sport compact market. But our customers were just not interested. The same thing goes for the diesel performance market. It proved to be just bolt-on parts around here. No need for a performance machine shop. Focus on your local market place.”
Doing well can come from saving money, as well as earning it. Darrin Anderson, Engine Machine Pro, Braymer, MO has heard from other shops to be aware of “Rewards Program” credit cards. “Most shops have learned that today’s consumer expects you to take a credit card. But these reward cards give as much as a five-percent bonus back to the user. This comes directly as a cost to the merchant, or shop that accept these cards. The cost of taking credit cards is high enough without someone tacking on another five percent.”
Selling parts in this day and age is challenging. There is no shortage of companies buying better and selling cheaper than you. But can your business really survive in the future without some revenue stream increase? When I started selling parts in the mid ’70s, shops derived half of their income from parts sales. Today it would seem to be desirable to net enough to pay some of the bills.
But why is it so difficult to get paid for the labor provided and to sell the bill of materials in this industry? Why do so many shops price labor sheets look like they did in the 1980s?
I work with a gentleman who tells a story of having an appliance repairman come to his house to get his dryer working. The guy was there for less than a half hour, and the part’s cost was minimal, like $15. He could not negotiate a price on the part, even though the same part down at the “Big Orange Box Store” was only $8. And the labor worked out to something like $230 per hour.
However, since the dryer guy has a one half hour minimum, once the job was done, what are you going to do? And, let’s look at his equipment costs. He has a van with a few parts and his tool belt. A drop in the bucket compared to the cost just to tool up the machinery in most automotive machine shops. Then I think of all the shops that are happy to work for $50 to $60 per hour out here in flyover country. It just does not pencil out.
It seems many have gotten into the business to make friends, because they have an endless list of excuses why they are happy to get that $50 and say, “I can’t tell Hank I won’t use his parts. Heck, this is a small community.” But I ask you this, what does Hank do for fun: clip coupons? How does he make his living and what does he sell? Can I visit his restaurant and bring my own eggs? They are cheaper at the grocery store. I want an addition put on my house. Will he allow me to supply my own cheap green two-by-fours? They are a little warped. Won’t he use them to help me save some money? And what about those doors and windows? Man, they are much cheaper at the big home store. “Doc, can I bring my own drugs that I had shipped in from Canada? This will save me a bundle on that operation.”
I think I got some great suggestions from a few shops. However, if I would have printed the negative comments from all the pessimists who told me they have just given up, THAT list would be much longer. I heard very few real strategies during my phone and personal interviews. I also learned very little that I could classify as “new” ideas. I like the idea of a layered price sheet, or velocity pricing. I also picked up on the point that was made twice about stocking the parts that they will forget to buy online. These are both places to make a better margin.
I still think there is more that can be done and any of you who have spent time talking to me about this subject know I believe in an immediate labor cost increase. Then you can be in a position to discount some of that labor when parts are purchased. Or, think of all those small jobs you are doing for free and charge for them, especially if you are handling someone else’s parts.
Jay Erschen was right again when he said we are all in survival mode. But instead of hunkering down and taking our hits while we wait for business to bounce back, lets look at what needs to be done to work in this business climate. After all, who is to say that business will ever come back like it was? We need to look at what it takes for any business to survive today. I would propose that it has not changed since the first “Open” sign was posted in the window. Profits, plain and simple. And I would say that if a business can make those profits from multiple income streams, rather than just one service, all the better for the success of that business.
Dave Sutton has more than 33 years of automotive aftermarket experience, starting with his days as a jobber store stock clerk and driver. He currently operates a manufacturer’s rep agency in Minneapolis, MN, and is a District Sales manager for Sterling Bearing. For information about developing your own sales plan, email him at email@example.com.