Capricorn state of two nations

Capricorn State of the Nation Report 2022

THE STATE OF THE NATION REPORT IS CAPRICORN’S LANDMARK SURVEY. IT LOOKS UNDER THE BONNET OF THE AUTOMOTIVE INDUSTRY IN AUSTRALIA — AND NEW ZEALAND — TO UNDERSTAND THE CURRENT STATE, ISSUES, AND EMERGING CHALLENGES FACING MEMBERS IN THESE TWO COUNTRIES.

It collated responses from 1913 members, including 433 from New Zealand, to provide a credible and useful snapshot of the industry, from light and heavy mechanical workshops through panel and paint, the commercial sector, and more. The Capricorn member-based automotive industry buying group has 25,000 members and 2000 suppliers.

The full report is available on the Capricorn website but we have highlighted key features of the report here.

Capricorn group chief executive David Fraser said the good news in the report was that despite the ravages of Covid, the mood among members remained positive, and making customers happy, solving problems, and the variety of work gave most members real job satisfaction.

The report also teased out the big challenges. Topping the list were finding good staff, maintaining a work-life balance, including finding time for breaks, and the ongoing difficulty in finding parts, now joined by rising prices.

The report also discovered members were investing more in training and learning new technologies, which was clearly a good thing, although Fraser did make the comment that this was possibly more true for the more engaged group who responded to the survey than the population at large.

THE VALUE OF BENCHMARKING

Many businesses — especially in recent years when Covid has prevented conferences and workshops — operate in isolation, finding their own way forward. A survey like this provides an opportunity to look at the issues affecting other similar-sized businesses and to see how they are affected and how they are responding. And, of course, the report highlights both easy wins and concludes with recommendations, which are Capricorn’s considered response to the issues raised.

WHO’S WHO

Of those who responded to this year’s survey, 89 per cent ran independent workshops, 64 per cent ran mechanical workshops, and almost three-quarters were the sole decision-makers in their businesses. The average respondent was male and aged 46. Most respondents were from Australia, with 23 per cent from New Zealand. Commercial truck respondents increased five percentage points on last year, to 10 per cent. Most respondents operated mechanical workshops. See Figure 1.3.

Members had an average of 4.4 staff, ranging from the 22 per cent who had one team member, to the 24 per cent who had six or more. The average number of hoists was 2.9. How are we keeping our hoists busy? More than three-quarters relied on word-of-mouth marketing. Just over half are using social media channels to find work and communicate with customers. See Figure 1.7 and Figure 1.5

Figure 1.2 shows the age breakdown of respondents and David Fraser commented that the industry is seeing a younger generation coming through that has grown up in a digital world.

“They are going to think differently, act differently. It’s very exciting.

• Members have been working an average of 22 years in the industry and running their own workshop for 14 years. • 14% of vehicles serviced are 2019 models or newer, 18% are 2016-18, and 21% are 2011-15. • On average, workshops see 28.6 vehicles a week. Australian workshops average 27.3 vehicles and New Zealand workshops 33.

HOW ARE YOU DOING?

For the first time, the survey asked respondents how happy they were in their careers. Almost two-thirds of respondents said they were very or extremely happy with their automotive industry career and this ratio held true no matter what a business’s turnover was, but there does seem to be a strong link between having lots of work, enjoying being a business owner, and happiness.

Members said making customers happy was the best thing about working in automotive; almost a third said they enjoyed the fun of problem-solving and fixing things, with six in 10 members saying that being successful means

FIVE KEY TAKEAWAYS FOR VEHICLE REPAIR WORKSHOPS

• 46% of members had trouble finding time to take a holiday, compared to 54% in 2021. • Just 28% of members said changing technology was a challenge for the industry (down from 49% in 2020) as Australia’s

Right to Repair laws come into effect. • Insurance companies determining prices is a major challenge for panel and paint shops (65%).

doing high-quality work. It beat out financial considerations as the top answer to the question “what does success look like?” 1. The shortage of qualified technicians continues but members are taking on more apprentices and there’s a great opportunity to create a more diverse industry to attract new talent. 2. Both pay rates and labour charge-out rates are up as members grapple with the skills shortage. But many are still missing opportunities when it comes to calculating margins and mark-ups. 3. Supply chain issues continue to cause some shortages in spare parts and members should plan ahead so they’re always prepared. 4. While members are generally both happy and optimistic, many still struggle to take a break and maintain their work-life balance. It’s an area that needs real attention. 5. Members have made a lot of improvements in the past couple of years but there are still plenty of easy wins open to boost profitability and efficiency in most workshops.

CHALLENGES

CHALLENGE 1: ACHIEVING A WORKLIFE BALANCE

Finding time to take a break and maintaining worklife balance again topped the list of challenges to running a business — although things seem to be getting better (Figure 3.1). A parts shortage has been impacting the industry globally and that’s reflected in this year’s report. Difficulty getting parts was up three percentage points on 2021, to 39 per cent. Commercial truck and panel and paint businesses have been most likely to experience major delays in procuring parts and equipment. Few business types have been free from supply chain issues at some level. “The emergence of inflation and related price and cost pressures, the geopolitical unrest, and ongoing pandemic are all contributing to these inflationary pressures,” David said. Almost two in five members said finding good staff was a challenge (see our Skills Shortage section). Despite several excellent resources being available, three-quarters of members still use Google to find technical information. Almost one in five members said access to technical information and diagnostics, changing technology, and staying up-todate were major challenges.

A lack of qualified staff is the top challenge facing the industry, and finding good staff remains a top three challenge for members in running their businesses. Fifty-six per cent of members were very or extremely concerned about the problem. The larger the workshop, the greater the problem. A third of members were struggling to find skilled staff, a quarter were currently looking for staff, and 15 per cent had unfilled positions. That’s causing backlogs of work, longer working hours, a reduction in work-life balance, an increase in stress, and longer turnaround times. As we identified last year, we’re not attracting or employing enough apprentices. We’re also not employing enough women or providing enough opportunities for them. Just 6 per cent of workshops have a female mechanic and just 12 per cent employ a female apprentice (Figure 5.3). Our industry cannot afford to ignore 50 per cent of the labour market. Labour rates and wages are up 6.8 per cent across the board this year. The highest pay increases are 11 per cent for Australian auto electricians and 12 per cent for New Zealand panel beaters and spray painters. Investing in current employees by providing training can help with staff retention rates and simultaneously improve productivity. It is pleasing to see so many members invested in more training this year.

• 56% of NZ and 49% of Australian members said finding qualified staff was a challenge for the industry. • 34% of members said having loyal staff was a marker of success. • 57% of members would recommend a career in auto to a young person, up from 52% in 2020. “If we want to attract the best talent, and keep them, then it’s all about making sure you know what your values are and then living by them, expecting those who work for you to share them. A great culture upholds those values”

David Fraser, Capricorn Group CEO

CHALLENGE 3: CHARGING FOR LABOUR AND PARTS

There are two big areas where members may be leaving money on the table.

Margins on parts There are similar problems between the two areas. But starting with margins on parts, 45 per cent of workshops apply a set percentage mark-up to the cost of parts (Figure 6.4). “There’s a difference between mark-up and margin,” Capricorn Group CEO David Fraser said. “If you saved money on the cost of the part and you’re applying a set mark-up, you’re losing gross dollar margin. “Consider the nature of the job and your costs in determining the appropriate mark-up.” Labour rates

A business’ charge-out rate for labour has a huge impact on its performance and profitability. But how is that labour rate being set? Half of members said they were using their “best judgement”, which is like plucking a number from the air. Workshop Whisperer Rachael Evans said members should calculate their break-even point, work out how much profit they want to make, and then reverse engineer their charge-out rate. “It’s not about looking at what the three closest workshops to you are charging and not wanting to charge more than them, because you don’t know what their costs of doing business are — and likely neither do they. So, why would you copy what they’re doing?” she said.

• 88% of members estimate service times based on experience. • Just 37% said they used software-based time guides. • 42% of members now always charge for diagnostics, up from 33% in 2020, and 37% in 2021. • The mark-up on parts has fallen four percentage points in the past year, to an average of 32%.

FIVE EASY WINS

STOP GOOGLING FOR QUICK FIXES

Don’t know how to repair something? Three-quarters of members are turning to the internet to search for information on how to repair, install, or replace. • In Australia, new Right to Repair Laws that came into force on 1 July gave access to significant amounts of information and data. Make use of it. • Capricorn Service Data, powered by Auto Data, is free to all members and has service information on more than 34,000 different vehicles.

REASSESS YOUR MARGIN ON PARTS

How are you calculating your margin on parts? Don’t simply put a set percentage mark-up on all parts sales. Be thoughtful in the way you calculate what you charge. • If you saved money on the purchase of the part but only charge your usual percentage margin, you’re passing the savings on to the customer. Could those funds be invested into your business instead? • Don’t just match the retail price for a part, understand your break-even point and the margin you need to make.

“There’s plenty of research to show that having a diverse workplace is strongly linked to improvements in business performance, effectiveness, profitability, and revenue generation”

RETHINK HIRING AN APPRENTICE

If you’re thinking about taking on an apprentice (especially if you’re worried about the time and expense), take advantage of the government funds available to help auto businesses. • Find out what incentives are available and find out whether you qualify. • Help expand opportunities for women in our industry by taking on a female apprentice.

THE FUTURE

Many members have spent the past year working on plans to grow their businesses. Almost threequarters now have a growth plan in place, with 40 per cent planning to increase the capacity of their workshop. More than half of members

CHARGE FOR DIAGNOSTICS

Almost half of all workshops are still only charging for diagnostics sometimes. More than one in 10 never charge. They are throwing money away. • Diagnostic equipment is expensive. Charging for it helps cover the cost of the equipment, the all-important updates, and the time taken to do the diagnosis. • It’s time to recognise the specialist knowledge, skills, and years of training and experience that go into diagnostics. Doctors don’t diagnose for free; nor should skilled workshop technicians.

REASSESS YOUR CHARGE-OUT RATE FOR LABOUR

Qualified technicians are getting harder to find, so labour costs have gone up. Consider whether that’s a cost you can afford to absorb or whether you need to pass it on to your customers. • Labour charge-out rates of members who participated in the survey are up by an average of $5 an hour on last year, suggesting many members are choosing to pass on costs, rather than absorb them. • Calculate your charge-out rate based on your costs plus the profit margin you want to make, rather than what other workshops nearby are charging.

are extremely or very confident about the future of their businesses, while 44 per cent are confident in the future of the industry as a whole (Figure 7.1). The biggest question mark members have about the future is the transition to EVs, with a third saying it made them either not at all confident or only slightly confident about the future. That’s up seven percentage points on last year. Retirement planning and succession planning appear to have stalled, with 45 per cent of over 55s having either no plan or saying it’s too early to plan. Fewer members now plan to put their businesses up for sale when they retire. Capricorn CEO of Automotive Bradley Gannon said that means many members will fail to realise the value of the asset they’ve built.

RECOMMENDATIONS

MAKE USE OF QUALITY DATA SOURCES

Stop Googling for information about repairs. Use reputable resources, like Capricorn Service Data.

GET READY FOR EVS

Whether you like them or not, they’re the future. We’re going to see more of them on our roads and you need to be ready for them.

TAKE ON AN APPRENTICE

They’re our pipeline of future talent and the long-term solution to the skills shortage. Provide opportunities for female apprentices.

CHARGE CUSTOMERS FAIRLY

Charge for diagnostics. Mark up parts thoughtfully. Consider increasing your labour charge-out rate if necessary to meet rising costs.

PLAN FOR SPARE PARTS SHORTAGES

While global supply chains are causing problems getting parts, Capricorn Members should feel confident that our Preferred Suppliers are doing everything they possibly can to supply members with the parts they need.

INVEST IN TRAINING

Training improves your productivity and your competitiveness. It’s also an investment in staff that helps with retention.

INVEST IN TECHNOLOGY

Don’t fall behind your competitors or risk turning away business because you don’t have the tools or training you need. Recoup tech costs by charging for diagnostics.

CREATE AN EXCELLENT WORKPLACE CULTURE

Make your workshop the kind of place people want to be. Embrace the benefits of a more diverse workforce.

TAKE A BREAK

You need to rest. Structure your business so you can get away. Pay yourself with time off like you’d pay your bills – on time, in full, and non-negotiable.

PLAN FOR THE FUTURE

Whether it’s growing your business or handing over to the next generation, have a plan in place for the future. It’s never too early to have a succession plan in place.

To read the full report, download it from the Capricorn website here: https://www.capricorn.coop/campaigns/state-ofthe-nation-2022.