Will Cold Weather Jumpstart Stalled Auto Repair Shop Growth?

Private businesses providing auto repair, maintenance one of the slowest-growing industries

Auto Repair Shop

RALEIGH, N.C. -- Severe cold and icy conditions in much of the United States recently may generate some much-needed business for privately held auto repair and maintenance shops, which saw minimal sales growth in 2013 as U.S. auto sales hit a six-year high.

A recent estimate from Sageworks, a financial information company, shows that private businesses providing auto repair and maintenance on average posted 1.7% sales growth last year. That makes the industry one of the slowest-growing of all, and it is the industry's smallest sales growth since 2009, when sales actually decreased, according to Sageworks' financial statement analysis.

The exact cause of the slowdown isn't clear, but Sageworks analyst Peter Brown noted automobile dealers in Sageworks' database of private companies increased sales an average of 11.9% last year.

"As we've seen record growth in sales in the auto industry--both at the retail and wholesale levels--it's likely that people who've been buying cars in the last year or two have not needed repair work done," Brown said. "Also, when you look at the data for public auto repair shops, they had stronger sales growth than the private shops, so it may be that the bigger repair shops gobbled up some market share."

Specialized repair shops posted generally weaker sales growth than general auto repair and maintenance firms, though the reason behind the difference isn't clear, Brown said.

Reuters reported in January that U.S. auto industry sales in 2013 increased nearly 8%, to 15.6 million vehicles, from 2012, and sales were the strongest since 2007.

Despite slower sales growth, or perhaps because of it, profitability improved for the average auto repair shop. In fact, net profit margin nearly doubled, to 9.1% from 4.7% in 2012, according to Sageworks' data.

"It appears that some operating expenses have gone down by a fairly substantial amount," Brown said.

Net profit margin for auto repair shops has been steadily improving since 2009, when the average auto repair and maintenance shop took home about two cents for every dollar brought in. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies' operational performance.

Sageworks possesses a proprietary database of privately held company financial statements aggregated by industry. Each day, Sageworks collects approximately 1,000 of these financial statements from accounting firms, banks and credit unions through a cooperative data model with Sageworks' clients. The data is segmented and can be queried by 1,400 industry codes, 70 financial metrics, company size and geographic location.

Raleigh, N.C.,-based Sageworks is a financial information company that provides financial analysis and industry benchmarking solutions to accounting firms. Sageworks' data and applications are used by thousands of banks and accounting firms across North America. Sageworks provides industry data on private companies to U.S. accounting firms at no cost.