An Economic Forecast for Shop Owners

Since we all know the joke about opinions, I have one like everyone else, and I'd like to share my opinion on the economy in 2009 with you. I have been through a few tough times since I joined the automotive brotherhood in 1971. Actually, I went through rough times before then. While I am the CEO of a company that mentors 947 independent automotive service centers and tire dealers every week, I had three different colleges ask me to leave, and leave I did. So I have seen in our industry some shops doing better and just as many doing much worse. So what's my opinion on 2009 and what can you do to survive?

We are now in a recession that will probably not bottom out until the third quarter of 2010. Be prepared for a long slow recovery and don't get comfortable at the first sign of improvement. This is not going to be the typical recession we have all seen where car sales go down and the repair business goes up. The fleet has matured and is capable of going long periods without repair and maintenance. The housing market will continue to decline until the first quarter 2010, when the entire market will be in the trough and begin to climb out.

If you can re-engineer your business to generate cash, there will be a lot of opportunities if you wait on them. Disinflation (a decrease in inflation) will take place in 2009 and 2010 with it returning from 2011-2013. This will allow you to only have to increase prices slightly to keep up with your financial model you have been used to. Credit conditions will not improve in 2009, but 2010 will be a good year to borrow, maybe even a good time to buy that building or property you've been thinking about.

The U.S. unemployment rate will increase in 2009, which will help you hire some great people that may have been out of your reach in normal times. Plan on the automotive sector to be down for the next couple of years. In certain areas, unemployment will dramatically reduce your car count and cause consumers not to drive as much. Many companies are moving to telecommuting, which will reduce driving considerably.

The good news is that with many of your competitors going out of business, pro-active shop owners can increase market share and repair sales even though the maintenance business will suffer. Re-engineer your management objectives to take advantage of the upturn on the other side of this recession. Make no mistake about it: the shops that are really in trouble right now will have terrible odds of surviving until 2010 unless they change immediately. Lead with confidence and optimism that we can beat this economic downturn.

Now, I want to tell you that most of us, I believe, will be fine in the service and tire replacement business if we pay attention in order of importance to gross profit, margin dollars, average repair order, stabilizing car count and expenses. The toughest challenge for owners is to make those tough decisions to stay alive. Many may have to die so you can live.

You must re-engineer your staffing, business and financial model so you can get through these tough times. If you were a military commander, you would have to get used to sacrificing lives so the majority could live. Many shop owners can't do this or they do it too late in the game after it has sucked the life out of the cash flow of the business. I strongly suggest a coach or a mentor to help you through these times if you are famous for reacting too slowly.

I have two coaches that help me make better, faster decisions because I know I am a softy and will do damage because I am too slow to change. If you or your loved ones have ever told you that you change too slowly, you are in very dangerous territory in this economy. If you have not re-engineered your business for the next two years, you have already moved way too slow and have probably damaged your retirement timetable.

Talking about retirement, I said before that as of Nov. 1, you could expect another 10 percent drop in the S&P 500 before we start back uphill. Now that the date has passed, you can judge my ability to forecast. I also said you could expect a very volatile market until January 2009, so just hang in there on your retirement investments. The markets in Russia, France and the Netherlands will be a mess for quite a while.

For those of you who have held on to your mutual fund portfolios, don't panic, but do get more defensive and consider some new strategies. There is no great rebound on the other side of this recession, only a long slow climb out. Rather than buying broad based mutual funds, invest in sectors you are willing to hold onto for the long term. In the post-2010 year, I say you should avoid bond funds, as they will be under long-term negative pressure. I made this mistake big time and plan to bail in the fourth quarter of 2009.

Borrow as much money as you can in 2010, because it may get much harder in the following years. If you have no debt now and don't need any money, consider getting a line of credit right now. Banks love lending money to people who don't need it even in times like this. You will pay a small commitment fee annually to have it in place, but you may sleep better at night. If something happens to your business plan and you run out of cash, it may be the safety net that gets you through 2010. Shop owners who prepare for this downturn will be able to grow and prosper. Remember, cash is king.

The action steps I recommend to ATI clients start with going back to basics. Re-engineer your financial model to net 20 percent to 30 percent cash profit depending on your tire/service mix. Look at your pricing and check your margins as compared to the last time you set them. Tune up your service manager by sending him or her to a relationship-based sales course.

Many managers are being told by the customer that they won't buy anything, so they stop trying to even recommend needed items. Re-visit leadership and financial modeling courses. Attend events with successful shop owners who are being proactive in this environment and succeeding. Our SuperConference in Mexico in February is a great place to meet the best of the best and get some quiet time to plan your strategy.

Although controlling expenses is critical in a poor economy, don't stop trying to stabilize your car count with retention and acquisition techniques. Send me an e-mail and I will give you a rebated scholarship to a cash profits boot camp seminar or a financial remodeling seminar near you for a live tune-up. If you are concerned or stressed out, I am here for you. Just don't do nothing, honey. You know the definition of that!

Q: What is different about this recession vs. all the others us baby boomers have been through?

A: The current fleet of automobiles is more capable of going greater distances without repairs and maintenance. By 2010 we will all realize that this recession was the worst we will see in our lifetime. You have not seen anything yet, get ready and go back to monitoring your basic metrics every day not just every week.

Do you have a question for Chubby? E-mail him at [email protected].

Chris "Chubby" Frederick is CEO and president of the Automotive Training Institute. He is thankful for assistance from George Zeeks and Brian Canning in preparing this monthly column. Contact Chubby at [email protected].