Independent Automotive Professionals Association “Leaders in Automotive Service”

IN THISISSUE

President’s MessageBAR 2013 Update Training

Gross Profit and Shop Success

INVENTORY-WHO NEEDS IT?by Phil Unander

It may seem a bit odd for me, a person on the supply side of inventory objectively discussing who needs to stock what but I do believe that most shops have way too much inventory. Many years ago (most of my stories are from many years ago!) I had as a customer a shop in Goleta that loved inventory. The owner was an older German guy and his shop specialized in working on Volkswagens. The shop is still in existence but has changed owners at least two

times and of course now works on all cars. This owner was a very good VW mechanic and ran a very honest shop. He performed all aspects of VW repair and in those days was starting to branch out to Datsun and Toyota repairs also. He bought parts from my store because then we specialized in many foreign car lines. He also however bought from companies such as IMC. Then as now, the companies like IMC would always have things on special. I remember one instance that instead of buying 1 exhaust valve from me for $8.00, he bought 4 from IMC for $5.50 each. The problem was that he only needed one, but thought he would put the rest in his inventory because they were such a good deal. He ran his shop successfully like this for many years and then one day he decided to sell. He found that he had about $40,000 in inventory and the person that was interested in buying the shop did not want it He sold the shop less the $40,000 and took his inventory home. I’m sure that he really believed he could just sell it to someone for market value. He could not. A few years later he brought me an inventory list in an attempt to entice me to buy it for slightly less that he paid for it. Like most of us I’m always interested in a deal so I looked at his list. He had for example several numbers of Bosch spark plugs in quantity’s that were well beyond what I stocked, and most of these numbers were on the down slope of movement. I really didn’t want them even at a steal. He wanted almost full value for them. He still didn’t quite grasp the reality of what he had done by buying all of this inventory that was now worth almost nothing. I think he still has most of it in his garage. My opinion on inventory is a lot different than his. I think that stocking inventory can be a good idea for a shop if several conditions are met. First lets examine the shop’s very basic goal. You as a shop need to purchase parts to install on vehicles that you are repairing. You then sell these parts to the customer as part of the job. You mark up the parts for a profit which along with your labor is how you make your money. Simple enough. Let’s now consider that you do a lot of oil changes. You get them

N O V E M B E R 2 0 1 2

IAPA President’s Message Wednesday, November 14th at SBCC Auto Quad Speaker Scott Brown, President, International Automotive Technician Network IATN.

If you would like to help sponsor a student please let Phil know when he calls for your RSVP.IAPA Santa Barbara General Meetings are on the third Wednesday of each month at Mulligan’s at 6:45 pm.

Meeting and dinner $20.

IAPA Meetings

in and out as fast as you can and so you have a definite need to stock some oil filters so that you are not holding up a job waiting for your supplier to deliver the filter. You may also get a better deal by stocking filters and increase your profit margin. All of this is basic Shop Management that you all should understand. The question now is how much should you stock and how much money should you invest in your filter stock. A business calculates how many “turns” they can get on their inventory in a year. This means that at your cost, how many times will you sell the total value of your inventory in a year? A good projection for a shop is 4 to 6 times a year. This means that if you stock $200.00 worth of filters, then you in a year should have total sales (calculated at your cost) of $800. to $1,200. If you stocked $1,200 worth of filters and only sold $1,200 in that year, that is only 1 turn and you have too much money invested in inventory. If you stock only $50. worth of filters and you sold the same $1,200 in a year, you have way to little inventory. This is in it’s most basic and simplest form but the rule is the same. Another consideration is to stock things that you will sell more of if you have the part available immediately. Wiper blades are a good example of this but again with the proper dollar amount to get your required turns per year. Several years ago I had a customer right around the corner that put in a large stock of oil and air filters from a different supplier. I had not suggested a stock for him because at that time, he had 2 parts stores within a half a block of him that were both open earlier and later then he was. Both of us delivered. There was no benefit to him to invest several hundred dollars in a stock of filters except a price reduction on each filter but he could have made whatever margin he needed by simply charging the customer more at the sale. The other issue of course is how many do you stock. In the parts supply world, it’s like an upside down pyramid of what you need to stock to get the same coverage. In 1970, you could probably stock 20 oil filters and have about 90% coverage. Today you might stock 40 filters and only have 35% coverage. Another factor to consider is your supplier’s return policy. I know of another shop that stocked alternators and Starters. When it came time for him to just close his business down, the supplier was not interested in taking back any of his units, even at less than their cost. Also factor in if your supplier is

willing to periodically clean up your stock that is not selling and replace it with new stock that will sell. All of these considerations should be used to insure that you are not only NOT over inventoried but do not end up with a bunch of stuff in your garage when you sell or retire. My list of inventory lines to consider stocking is chemicals, oil, filters, light bulbs and wiper blades and anything that may make a sale if you have the part right now. You can do a decent job of coverage with minimal numbers and dollars invested. I do not recommend stocking water pumps, fuel pumps, brake pads or anything else that is for a job that may take a while and that you are not going to lose a sale by waiting. You may find that your shop will have exceptions to some of my opinions, but you will still need to apply the basic rule. In these difficult times, it takes a pretty sharp pencil and a good sense of business management to produce a profit and stay in business. Watch out for your money.

November 2012 2

by Bob Stockero

BAR 2013 Update Training

Title: Evaporative Emissions Training (16 hours)

Description: Purpose and operation of the various OBD2 evaporative emission systems, including diagnosis of evaporative emission system related problems resulting from malfunctions in the various fuel system components.

Cost: $295 (check made payable to SBCC) plus $25 book (check made payable to

SBCC Auto Trust Fund)

When: Dates for classes are determined by the demand for it. In order to hold the class there must be at least 7 students in attendance. Once there is a minimum of 7 students able to attend a particular 2-Saturday session the dates will be confirmed. Contact the instructor, Bob Stockero, at 805 570-1792 for available dates.

Days/Time: Two consecutive Saturdays from 8:30 AM to 5 PM (1/2 hour lunch break)

Location: SBCC, Room OE 182

Network with other smog technicians to help make the minimum numbers of students required in order to hold a class. It is important to note that successful completion of this training is good for 2 years and that initially there is strong demand for the course, making it easier to get the required number of students. If you don’t enroll early there may not be enough demand for it later and you will have to travel outside the local area to get it, often at a much higher cost.

The Mastering Wiring Diagrams

The Mastering Wiring Diagrams, Waveforms and You

Become proficient at wiring diagrams and waveforms analysis by mastering the methods of:

• Dealing with complex information

• Problem solving

• Taking charge of the process of learning, analysis and diagnosis.

At the end of this seminar you will leave with a deep understanding of how to get the most from a wiring diagram and waveform analysis. You will also gain a complete set of “brain tools” that will allow you to think more clearly and guide yourself through tough diagnostic challenges.

• Wiring Diagram Analysis Techniques…including Color Coding

• Scope Specs and Features – What you should know about them.

• The Journey and Techniques of Waveform Analysis

• The Road to Expertise - turning your service bay into your best zzclassroom and you into your own best teacher.

by Jorge

Scott Brown’s automotive career began after tech-school in the early 80’s. In the early 90’s, he became a shop owner. With a strong focus on driveability and engine performance, Scott began collaborating with other industry professionals on-line in the early 90’s. Since 1995, he has been an instrumental resource in the development of the largest on-line community of automotive service professionals, the International Automotive Technicians’ Network IATN where he now serves as company president.

Speaker

November 2012 3

A Mentoring ExperienceMy name is Vanessa Lovato and I’ve been working at Ayers Automotive for about three months. It all started because I’m in a program called Youth Work Experience Program. It’s to help teens obtain job readiness skills and lets them work in a job workforce of their choice. I chose automotive because it’s something not a lot of females are into, I don’t mind getting dirty, and I want to be able to go to car shows and understand what they’re talking about. In the beginning I was a bit nervous. I mean how can you not get nervous? Meeting new people, working with equipment you’ve never seen or worked with before, and being a newbie to everything, It’s a lot to take in at once. I didn’t know what to expect, I’ve never worked in this field before. On my first day I learned some basics like checking the tire tread and how an oil change is done. As the week progressed I was educated on the business, emotional, and physical sides of mechanics. Business side as in time is money and to be well-rounded on managing every small detail because it’s a big competition between all the other shops out there, so you need to show costumers why yours is so great compared to the others. The emotional side; like you can get flustered if a part isn’t going the way you need it to or if you can’t find the right tool for a certain job it will bug you until you find it. Last but not least the physical side. Needing to have upper and lower body strength to lift heavy parts and the energy to keep your body going during a long job on a vehicle. As time went on I learned that safety is a big priority, whether it be in shop tidiness or in getting equipment checked routinely so there is a greater chance there won’t be any accidents. About a month in I started reading a textbook about cars and as the weeks passed I learned about buying a car, how expenses can add up, and that cars have manufacturer dates. The engine configuration and the four strokes in a four-stroke internal combustion engine. Then about tools which I only knew a few from the start but after that I knew nothing about all the other tools. Next came fluids, electrical systems, drive train, starting system, suspension, and tires. I watched Alfredo, my technician mentor, do his daily work of doing oil changes, changing radiators, throttle body services, etc. I asked him questions like what are you doing? and what is that? to help my learning. There is a form he fills out called a cmi and it stands for courtesy maintenance inspection and its where the technician checks all the fluids, battery, lights, wipers, hoses, etc. to report whether anything needs to be replaced. I helped him fill out the form, it was a great way to learn about what should be checked and that under each hood the parts are in different locations so once you get to know a certain make of cars you will get to know where certain parts are located. I learned there is a main computer in a car and it is connected to almost all the systems and the malfunction indicator lamp displays if there is any problems that showed up in the computer and lets the driver know there is a problem in their car. I learned there are parts to keep metal from touching other metal. I found out that coolant runs through the engine and there can be great damage if it gets into the chambers because only oil, fuel, and air should only be in the chambers for the engine to properly run. I knew that there is such a thing as manual and automatic but I didn’t know much more than that. I understood that a car needs to transition into different gears and in an automatic the transmission automatically shifts into different gears while the manual has a clutch, transmission, and a stick shift so the driver has to move the stick shift to different

by Vanessa Lovato

gears every so often. Working as a mentored for a few months has got me to see what working in the real world is like. I got to work with great people and found that their business is one big happy family. Finding out that being an auto technician is not just a job it’s a lifestyle. There is so much work and dedication put in. Working here at Ayers Automotive Repairs has taught me a lot. I thank Nikki, Robert, Alfredo, and the rest for letting me have this experience I will always remember.

November 2012 4

by Brian Canning

Gross Profit and Shop SuccessWhen attempting to manage a shop, we are often faced with the need to make strategic decisions in getting ourselves from an unprofitable state to one of profit. Choices will often fall between increasing sales, cutting fixed expenses or increasing gross profit. Though working to increase sales would seem a logical response, and cutting expenses will certainly have a positive effect on bottom line performance, gross profit is by far the most effective way to improve cash flow and bottom

line performance.

Most of us, when faced with a cash deficit, will immediately set about doing two things; we will work harder and we will spend less. As individuals, this might mean more hours at the office, turning out the overtime and at home, eating out less and doing without the luxuries in our lives. As business owners, we might similarly put in more hours, working a lot harder to drive sales and we sure aren’t going to buy that new software package or alignment machine. We might even put off buying those new golf clubs and maybe cut back on staff overtime and watch our utility bills. The problem here is that increased sales without profits have you working harder with no return. Although cutting expenses is generally a good thing, it is unlikely that you will be able to cut them far enough to improve profits before we start reducing production capacity & our ability to operate. Gross profits might be a solution that will allow us to improve the return on our current sales.

I do an exercise in working with a Shop Owner or Service Manager where we take a hypothetical shop with hypothetical sales, parts costs, labor costs and expenses (fixed costs). I ask what things they would do to increase net operating profits (NOP). The most common response we get would be to increase sales. Maintaining shop efficiencies and margins where they were, we increase our imagined sales by 25%. There is no discussion of our ability to handle this or if it were even practical. We add 25% to the top line sales, track flow through to the bottom line and note profit dollars generated; a significant number to be sure! In the practical world, you cannot budget for a sales increase such as this and unless there is an effort toward our being more efficient and productive, we are likely to be very busy, very stressed and barely better off for the effort.

Next, we take our shop and decrease our expenses or fixed costs by 20%. Again, in the real world it is not entirely practical that we cut our expenses by this drastic an amount, but for the sake of this exercise we do it. With all other performances being equal, we once again track bottom line performance. There is no doubt that the very second you reduce expenses; you will see an improved bottom line. We definitely did and got an even larger number! In most shops, rent is the single largest expense with Marketing/ advertising being a close second. I would encourage any shop owner to frequently audit expenses, look for ways to reduce this number but only in ways that would allow us to continue to operate efficiently.

Finally, we took this imaginary shop & simply manipulated the parts and labor cost numbers to show a 5% increase in gross profit. Now, unlike the other two exercises, this small increase in gross profit would be completely practical and in most cases, easily doable. With a very modest adjustment in how we price our parts, in how we pay our techs and in

how well we control overtime and discounts, we could easily improve gross profit by 5%. Other ways would include asking for deeper discounts from our parts vendors or in building our menu items and canned jobs to reflect a very modest gross profit increase. Finally, pay attention to what prices we end up charging our customers. Negotiating a great price with our parts supplier will mean little if we give it away in discounts. In doing this exercise, we were able improve bottom line performance dramatically and well beyond what we accomplished with a huge increase in sales and much better than we accomplished in slashing our expenses.

In searching for solutions to our problems with cash flow, we need to be practical and confine our efforts to those things that we can reasonably accomplish. Chasing sales numbers would seem a reasonable response but unless you are profitable; which the average shop is not, you will work very hard to get a modest return. Cutting expenses is another rational approach, but one limited by what is real and achievable. There are few businesses that have 20% fat to cut from their expenses and too often in the effort; we end up reducing our ability to efficiently operate. Sprinting with one less leg becomes an exercise in futility. Most important in all of this is how easily we can affect gross profit. We must get a little better at the things that we already do. Gross profit is the path and cash is our destination.

Most business owners that I talk to are very hard working and more than willing to put in the hours to make sure their business runs well. This passionate dedication on the one hand is admirable, but too often our beliefs and thereby our return on investment forces us to work those extra hours. Rather than using this time to analyze and improve, we are often struggling just to survive. Too often, fueled by our inefficiencies and a profit structure that limits our return on investment, we work an extraordinarily long day and week and have little or no opportunity to step back and find ways to improve. This last point is critical, unless our intention is to be stuck behind that counter forever and unless we resign ourselves to low profit margins and a marginal return. I don’t know about uou but I hope to retire some day but unless you find ways to be more profitable, retirement could be a real challenge.

The automotive repair industry is nothing if not changeable, and where we are now compared to where we were 20 years ago is both amazing and frightening. We are maintenance driven and can no longer rely on repairs to drive our business. Vehicle reliability is transformed and forces us to be very thorough and very consistent to have any chance at our fair share. In the 80’s, you didn’t have to look far or hard to generate sales and profits. In today’s market, if you aren’t looking, you are likely to struggle. Do not compound the challenge of this market by failing to maximize the opportunity that your existing car count would represent.

Profit and cash flow are such that we are struggling. We are having difficulty in making ends meet or hitting our goals. Something has to change. It is not simply selling more or cutting back on expenses. Search for ways to be more efficient and productive.

Try something radical and different. Be profitable!

November 2012 5

Scott Stephen

The Need For Training

Last week while attending a training class, a technician that I see at most classes approached me and thought I was working at a particular shop. I let him know that I am teaching at Allan Hancock College, but I knew of the shop he was talking about. He was looking for a better job and was trying to get some information about the shop. I told him that I knew two of the technicians there and they have repeatedly discussed the inabilities of the present service advisor to keep them busy, even when fed with plenty of needed

and sellable repair work and maintenance. I explained that while their frustration is not unusual these days, it is still unacceptable.

I asked about where he was currently working and what prompted him to seek out other possibilities for employment. He explained that the service station he is currently working for is also having trouble selling work, despite having over 200 fuel customers pass by their bays every day. He stated that it was not a lack of customers, but that fewer and fewer additional sales were being sold. He is now making the least amount of income in his thirty plus years as a technician.

I do sympathize with him, but without purposely throwing anyone under the bus, I see this as more of an owner and service advisor problem, rather than a customer problem. There is plenty of work to do out there, but you have to be more aggressive, smarter and work harder to get it.

I have people come up to me all the time and ask “where can I get _____ done?” not where I can get it done cheap. Most people I run into are just looking for a fair price, on a job done right. Most of the shops have done the right thing and gotten their techs to training one way or another and the done right part of the equation is working out. Most complaints I hear are not from substandard work, but from lack of preparing the customer for future maintenance needs or even trying to up sell maintenance needed now and only noting it on the repair order.

I think it is time to do a check up on how well your service advisors are working to turn technician recommendations into added sales. All shops should employ some kind of a secret shopper system, even if you are using your current customers for feedback. As an owner you need to be checking up on how well your service advisor is doing by talking directly to your customers after the service visit, get their opinion and use this feedback to see where improvements can

be made. Even if you have a designated person to do your after service call backs, the owner should do some random sampling to make sure nothing is missed.

Maybe what you will find is that the owner is holding back the service advisor. I see too many owners that feel that they have to stop what they need to be doing to “look over” everything that their service advisor is doing. If they need that much attention, get rid of them or better yet, get them trained. Training for service advisors? Yes, just like you keep your technicians up to date on all the latest automotive service procedures; you need to keep your service advisor up to date on all the latest customer service procedures. I am not trying to plug any particular company out there, just find the one that works for you and your service advisor.

I have talked with both local automotive shops and facilities across the country, what I see is the shops that are investing in the training of every person, including themselves, to do their job to best they possibly can, are the shops that are experiencing business growth even in these tough economic times. There are people out there with plenty of money to spend on their vehicles; there are people that can barely afford to put fuel

in their car, and everywhere in between. Be prepared to take care of all the customers to the best of your shops abilities and never prejudge what they are willing to spend to have safe and reliable transportation. Training has and always been the soundest investment in the automotive industry.

Scott Stephen Allan Hancock College Instructor

by Phil Unander

MEMBER OR NON-MEMBER

Memorial LunchMemorial Lunch for Janet Ingram (Hill) When: Saturday, December 1, 2012

Time: 12:00 Noon

Where: Stow Grove Park Group Area,

580 La Patera Lane, Goleta

Please RSVP to: Julie Vior (Ingram):

jvior7@gmail.com

by November 25, 2012

A little get together to remember Janet’s life. Pizza, Salad, Desert, Water and Sodas.

Starting in January 2013, we will no longer send our newsletter by E Mail or regular mail to non- members. Several months ago we extended our mailing list to many people, shops and organizations outside of our membership. The purpose of this was to keep some former members in contact with the hope that they may someday choose to rejoin IAPA and to maybe introduce some new members to who we are and what we do hoping that they may also choose to join. We put a lot of work into our newsletter and are proud of it every month. We believe that this along with most of our efforts are member benefits. We WILL NOT stop fighting for industry rights that do help members and non-members but we feel that it is time to limit our newsletter circulation to members only. We encourage former and non-members to think about all that we do for you and to reconsider joining us. I recently invited a non member to our meeting with the BAR doing a presentation. This shop owner informed me that he would never join us because of his dislike of another member. I reminded him that we are all now adults and that his attitude was very much like High School. We as an organization fight many battles on his behalf and bring him a lot of benefits. He pays no dues and offers no support for this. He did attend the BAR meeting and although it was not a good as we had hoped, he did get something out of it. A lot of work went into setting it all up as in all of our events and functions. IAPA brings a lot to the table and it’s time for all of you non-members to make a decision and start supporting us. We need your help!

November 2012 6

Independent Automotive Professionals Association

Santa Barbara Chapter PresidentPhil Unander .....................................................(805) 964-3545Santa Barbara Chapter Vice PresidentManual Escobar ................................................(805) 965-1540Santa Barbara Chapter SecretaryTim Kitt .............................................................(805) 962-6633Santa Barbara Chapter TreasurerSteve Bowman ..................................................(805) 965-5051Santa Barbara Membership ChairmanGrant Lee ..........................................................(805) 966-3649Santa Barbara Chapter Board MemberJon McConnel ..................................................(805) 969-1357Santa Barbara Chapter Board MemberRon Cooper .......................................................(805) 730-0084Santa Barbara Chapter Board MemberJohn Hurley .......................................................(805) 962-2404Santa Barbara Chapter Board MemberHenry Hinck ......................................................(805) 962-8015Santa Barbara Chapter Past PresidentHunter Self ........................................................(805) 969-4147Central Coast ContactGeoff Lyons.......................................................(805) 238-0477Newsletter / Webwww.groupprofessionals.com ...........................(310) 320-9575Santa Barbara Chapter EducationBob Stockero ........................................ (805) 965-0581-X2836IAPA Chairman of the BoardClark Volmar .....................................................(805) 966-3649IAPA AttorneyRobin Unander ..................................................(805) 962-5949IAPA Merchant Services - AxiaR. Damon Perez ................................................(888) 324-2858 IAPA Government AffairsJon McConnel ...................................................(805) 969-1357Nikki Ayers .......................................................(805) 845-4242

Independent Automotive Professionals Association Disclaimer

Independent Automotive Professionals Association, its chapters, officers, board members, employees, members, and affiliates in no way warrant the quality, competency, or merchantability of any goods or services advertised in this publication. In connection with this disclaimer, the IAPA in no way warrants or insures the goods or services described above and each and every individual and entity contracting with these manufactures shall do so at their own risk. Furthermore, individuals utilizing these services are forewarned that the IAPA has conducted no investigation into any representations made in any advertising, literature, or ad distributed by the advertisers in this or any other publication. Additionally, please be advised that the opinions and comments expressed by the contributors to this publication are those of the contributors alone and do not necessarily reflect the opinions of the Independent Automotive Professionals Association, its officers, directors, employees, other contributors, or membersFebruary 2012 “Leaders in Automotive Service” Page 7

Independent Automotive Professionals Association

Santa Barbara Chapter PresidentPhil Unander .....................................................(805) 964-3545Santa Barbara Chapter Vice PresidentManual Escobar ................................................(805) 965-1540Santa Barbara Chapter SecretaryTim Kitt .............................................................(805) 962-6633Santa Barbara Chapter TreasurerSteve Bowman ..................................................(805) 965-5051Santa Barbara Membership ChairmanGrant Lee ..........................................................(805) 966-3649Santa Barbara Chapter Board MemberJon McConnel ..................................................(805) 969-1357Santa Barbara Chapter Board MemberRon Cooper .......................................................(805) 730-0084Santa Barbara Chapter Board MemberJohn Hurley .......................................................(805) 962-2404Santa Barbara Chapter Board MemberHenry Hinck ......................................................(805) 962-8015Santa Barbara Chapter Past PresidentHunter Self ........................................................(805) 969-4147Central Coast ContactGeoff Lyons.......................................................(805) 238-0477Newsletter / WebMike Pickett ...... mpickett@groupprofessionals.com 968-4680Santa Barbara Chapter EducationBob Stockero ........................................ (805) 965-0581-X2836IAPA Chairman of the BoardClark Volmar .....................................................(805) 966-3649IAPA AttorneyRobin Unander ..................................................(805) 962-5949IAPA Merchant Services - AxiaR. Damon Perez ................................................(888) 324-2858 IAPA Government AffairsJon McConnel ...................................................(805) 969-1357Nikki Ayers .......................................................(805) 845-4242

Independent Automotive Professionals Association

(805) 642-1157Andre BarbeauOwner Operator

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Family Business Mistakes By Gary McCoy, Fairway Communications(http://workshop.search-autoparts.com/_Family-Business-Mistakes/blog/5621205/31710.html?cid=95879)In a recent presentation to the Spring Manufacturers Association (SMI), Joe Murray of First Financial Group reviewed six mistakes that can most commonly prove disastrous for family businesses. He provided attendees with a risk barometer to help assess the health of their business. Murray said the most common mistakes that family business owners make are contained in these statements:1. "I know what my business is worth."2. "I'm too busy running the company."3. "That'll never happen to me."4. "There's plenty of time for that."

5. "My business is my retirement."6. "You can't beat Uncle Sam."

Murray said every family business needs to have a succession plan and a team of advisors in place. Why? So there is a way to transition the business to the next generation. He said this is especially important because the odds of a family business surviving to the second or third generation are difficult without this.

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