And with the rise of EVs comes a new potential challenge for the average shop of the future. Most EVs are made up of significantly fewer moving parts, meaning fewer part replacements needed—a shift Vin Waterhouse, financial advisor and president of The Waterhouse Group, noted is just one good reason shops can stay ahead of the curve by adopting labor intensive and diagnostic labor rates.
In a recent session hosted by the Midwest Auto Care Alliance (MWACA), Waterhouse explained why labor intensive and diagnostic formulas can pay off for shops in the long run and some tips for making the shift.
Fewer opportunities and more complex repairs are a motivating factor.
Today’s vehicles are not only made with better quality, but use fewer parts. “When I was a kid, if a vehicle hit 100,000 or 110,000 miles you threw it away. Today, it’s not at all uncommon to work on vehicles to 200,000 miles,” said Waterhouse. And while the average internal combustion engine vehicles (ICEs) contains anywhere from 28,000 to 30,000 parts while a Tesla may only have 7,000 to 10,000 parts, and as the industry moves increasingly toward EVs, repair shops are predicted to sell two-thirds less parts per vehicle Waterhouse said.
Not only does the vehicle of tomorrow offer fewer opportunities for part replacement, but those parts are often harder to replace. “The compartments on today’s vehicles are so tight and the time it takes to disassemble, get to the source of the problem, make the repair, and reassemble is time you want to be charging for or those repairs will bleed you dry.”
Waterhouse notes that the more diagnostic work repair shops need to do to accurately repair a vehicle, the more a shift to a labor-focused profit model will be needed. “The good news is that electricians, plumbers, carpenters, accountants, and lawyers, figured this out a long time ago,” Waterhouse said. “The key is understanding where your time is really going and not short-changing yourself on that.”
Efficiency is paramount.
Waterhouse recommends using a labor intensive rate for low profit repairs and a diagnostic labor rate for electronic issues. And as shops begin to embrace labor intensive and diagnostic labor rates, Waterhouse advises that operators keep staff wages high and put a focus on increasing shop efficiency. “With demand for skilled talent so high, you don’t want to lower wages or you’ll impact the talent you’re attracting, but with this shift you can fix your output,” Waterhouse said.
Waterhouse says that striving for even a five percent increase in technician efficiency can have a major impact with a labor intensive and diagnostic-focused approach. “When you do the math, a five percent increase in efficiency is the equivalent of each technician performing for three more minutes per hour. You’re raising your growth from 58 percent to 61 percent without having to make major changes,” said Waterhouse.
Offer incentives.
In order to motivate their technicians to hustle a bit harder and meet those new efficiency goals, Waterhouse recommends offering incentives, including cash bonuses, which can ultimately bring in far more profit with little financial investment.
“If I have five employees and I’m offering them each a $300 bonus if we can keep things in motion just a few more minutes each hour, it’s a challenge and there’s a clear reward. That little bit’s going to go a long way.”
