Inflation putting pressure on shops to either raise parts prices or labor rates
Ever since the post-pandemic market rebound, the automotive supply chain has become costlier. Questions regarding inflation over Facebook’s Automotive Service Shop Owner’s Group drew mixed concerns over the lasting impacts of sustained price increases.
“We’re only seeing the tip of the iceberg right now,” quipped Paul Kurt, a member of the social media club. Next came a barrage of anecdotal evidence: A 29 percent jump in brakes, fluids up 25 percent, plus a 10 percent bump at the end of June, short notice cost bulletins announced by suppliers.
Chemical categories to common parts to shop supplies have been affected to varying degrees, resulting in diminished buying power, concluded the online shop owner’s discussion. The cost-push on general commodities like oils or brake rotors carries heavy implications, they agreed. How much more—or for how long— a shop spends in today’s diminished dollar is debatable as the U.S. economy climbs out of the pandemic recession.
George Buckley, owner of Buckley’s Auto Care in Wilmington, Delaware, urged his Facebook peers to brace against customer blowback, noting that the vehicle repairer stands at the tail end of the supply chain. “We’re downstream in the equation,” said Buckley adding, “I find it critical that we pay attention to the micro and macroeconomic activities to keep ourselves alive.”
Inflation in May saw its most telling leap to 5 percent since 2008, according to the U.S. Labor Department. Notably, used cars and trucks jumped 7.3 percent, which amounts to one-third of all goods bought, the monthly announcement read on June 10.
Throughout the recession and into the recovery, Judy Walter, president of Zimmerman’s Automotive, has been monitoring the acquisition values on pre-owned vehicles that her full-service repair business sells on the side in Mechanicsburg, Pennsylvania. Sticker prices have peaked to the point where Zimmerman’s customers are rethinking about scrapping their aging models. Instead, Walter finds that they are approving jobs at a vastly steeper quote that they would have rejected one year ago. “People are having their vehicle fixed because when they go out to replace the car with another used vehicle, they’re not finding what they want at a price they are willing to pay,” Walter said.
Meanwhile, a separate survey by The Federal Reserve Bank of New York said that consumers expect more price tag uncertainty in the year ahead regarding the available goods and services in the marketplace. The Fed measured the latest figure at 0.6 percent points, marking the seventh succeeding month of household sentiment to where inflation is headed.
Focused on managing his budgetary direction for Christian Brothers Automotive in Tulsa, Oklahoma, shop proprietor Russ Knight thinks he can stretch each dollar and still operate a healthy business. Knight said that he is processing the cost and the demand signals rippling across Oklahoma’s second-largest city before making any drastic changes.
Even if stages of the supply chain are more expensive than what the dealer pays for by their manufacturers, Knight tries to offset the price hikes by purchasing in bulk discount. Addressing staffing shortages is a county-wide issue as the need for general maintenance and specialty repairs has surpassed pre-COVID-19 levels. Misallocated employment, contends Knight, has exerted pressure on businesses to raise labor rates. “I’ve been in the toughest spot in these six years in business,” said Knight, adding that the 402,325 Tulsa residents are suffering the consequences for the short supply of aftermarket workers who should have been kept on the payrolls. “I also think that as the dealers cut staff during the pandemic, they lost a lot of knowledgeable parts folks, which has made it tough on us.”
Sometimes, admits Knight, he can make cost control work against him. Aftermarket products, despite their affordability, do not fit the Christian Brothers franchise business model. Due to better warranty promises and perceived quality, he orders genuine factory-made items. This trade-off has inserted the car care business into a weakened captive dealer network. Besides frequent backorders on specific Asian-made components, the employees must cope without the service department’s guidance on secure product fitment.
And yet, with the inadequate number of factory-trained specialists and subsequently longer research time for complex vehicle treatments, Knight says he is reluctant about overcharging his clients. “This year, we have not raised our labor rates, but I sense there are going to be further pressures.”
Arguably so, vehicle owners have other options for getting their cars fixed. And in so doing, Knight differentiates the service center as the alternative to the dealerships while balancing a trading relationship with those same competitors.
Elsewhere around Tulsa, claims Knight, the automotive repair community has expressed a willingness to nudge wages up to attract techs and retain their current ones. “Anytime that you’re packed with cars and you cannot get it done, I think certainly there’s market pressure to justify raising labor rate and not impacting sales.”
How long Knight plans to outlast expanding inflation remains fleeting as to when the breaking point hurts sales. Each month, Knight trawls for potential margin losses. Inevitably he senses that shrinking profitability will become a driving factor for what beholds Christian Brothers.
So for the moment, while demand for repair services gains speed with a limited labor supply and upward creeping prices, Knight is sticking to his plan. “We try to stay market competitive as the city’s independent automotive service provider. The dealers are leading on the rates. So we try to be less expensive.”
