What’s an Auto Repair Shop Worth?

Views: 46 Comments: 0 0 Post Date: October 27, 2020

They used to say that life in America is much easier if you have three friends – a doctor, a lawyer, and an auto mechanic. Of the three, the auto mechanic is the one technology is considering the last two substitute.

Everything we own needs some TLC once in a while including cars. Over 90% of American households own automobiles. So, we can safely say that this business is here to stay…

Let’s see what an auto repair shop is worth…

There are over 260,000 auto repair shops in America, employing over half a million people, and generating revenues of $70 billion annually. 80% of such shops are owned privately by individuals.

These four trends are reshaping this business as we speak –

  1. Leasing versus Buying – Millennials are one of the largest projected consumers of cars, and they prefer to lease from the dealership or use rideshare services. If they lease, the services and repairs are also done at the dealership.
  2. Cars last longer – useful lives of cars have increased dramatically allowing people to retain cars longer, requiring more service, repairs, and parts for older cars.
  3. Electrification – demand for electric or hybrid and fuel cell cars is on the rise. Many such cars require expensive parts, special training for technicians, and certified software upgrades from the manufacturer.
  4. Shortage of Labor – the increase in demand for more software savvy technicians has added pressure on the already short supply of experienced and qualified technicians.

  • Auto repair shops sell for 25-40% of their annual revenue, plus any excess inventory. Machinery and equipment are included in this rule of thumb.
  • Only add excess inventory in case the business runs inventory heavy for example tire shops. 75% of auto repair shops have revenue of less than $1M, which seems to be the tipping point at which the value increases, as buyers want to invest in auto shops where they can hire a manager and be absentee owners.

A few points that appraisers and buyers will be paying attention to and can help you maximize the value of your business…

  1. Curb Appeal – no one wants to visit an auto repair shop that’s shabby or in a disarray. Keep your workplace clean, organized, with a fresh coat of paint and clean uniforms.
  2. Customer Loyalty – customers appreciate honest and knowledgeable mechanics and auto shops. Having a customer loyalty plan with small facilities like tire storage, drop and pick up, payment plans, etc. will keep the customers happy and returning. A friendly customer waiting area is always a plus.
  3. Online Marketing – positive online reviews, easy and friendly website with strong SEO and published pricing will attract customers and project an image of quality and transparency.
  4. Relationships with Suppliers and Insurance Companies – good suppliers will help you keep your costs low, and insurance direct repair programs will keep the revenue consistent. Need I say more?

The demand for auto repair shops will never run out. This is one of the few businesses that is almost recession-proof. This business is built on the oldest currencies known to man. Trust and Transparency. If you can run a simple but honest operation, customers that need you will keep coming back and bring in friend search time.

Bharat Kanodia – Founder and Chief Appraiser

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