Auto repair service overview and industry practices

Auto Repair Service

Keys to success

Organizational structure

Personal background analysis and organizational responsibilities

Organizational chart

Marketing

Marketing goals

Marketing objectives

PEST analysis

Political factors

Economic factors

Social factors

Technological factors

Product

Price

Placement - location

Promotion

The market

Market analysis summary

Market segmentation

Target market segment strategy

Market needs

Market trends

Market growth

Competition

Sales forecasting

Accounting

Financial analysis

Break-even analysis

Sources of capital

Financial ratios

Auto Hicksville offers a wide range of repair services and a wide range of auto-parts. The company will focus on customized services by offering rapid service to the customers. Furthermore, a complex computerized inventory system will be adopted to ensure that a wide range of auto-parts are on stock when needed, while minimizing inventory costs and maximizing its turnover. Finally, the company has a strong relationship with key vendors that have the capacity to ship major auto-parts in a short period of time.

1.2. Keys to success

The keys to success refer to the following:

Fast auto repair service.

A wide range of auto-parts that are always on stock.

The ability to order and have shipped major auto-parts in a short period of time.

Access and referral from the local towing network.

2. Introduction

Auto Hicksville will provide auto repair services to the local community. The market analysis performed throughout the business plan shows there is insufficient supply for the strong market demand.

Auto Hicksville is an auto repair start-up. The initial investment is worth $10,000, from the owner's savings plus an additional $5,000 from its credit card. So far, further investment will be financed from current sales. Basically, are profit will be reinvested back in the business until the annual net profit becomes positive.

The market analysis includes a thorough analysis of the PEST analysis (political, economic, social and technologic factors influencing the business environment), competition, market demand and supply, consumer behavior and capacity/ability to buy the services offered by Auto Hicksville, marketing mix and financial analysis (including break-even sales and financing recommendations).

3. Organizational structure

Auto Hicksville is a new start-up with only one owner, which will also be the company's executive manager. The executive manager will focus on the operational, sales and marketing activities. For the financial activities, an expert will be hired to handle the accountability as well as the business analysis.

New York is a very large state of over 54,000 square miles. Traveling from one side of the state to another is a four hour-drive, thus many residents own an automobile. Additionally, the automobile prices have fallen with the relocation of car manufacturing to low-cost countries and the emergence of cheap high technologies. Consequently the need for convenient and reliable auto services has registered a sensitive growth. Auto Hicksville will target the low to middle class segments in the Hicksville area. The company will be privately owned by its unique owner, and most of the additional needed funding will be contracted through a bank loan.

The company will be located in the centre of the city and will function from 8 a.m. To 9 p.m. On a daily basis and Monday to Friday during the week. However, the customers will have the possibility to be served outside working hours for emergency issues. Auto Hicksville's auto-parts vendors also have an extended working schedule, which will ensure the provision of main parts in a short period of time.

3.1. Personal background analysis and organizational responsibilities

The owner is soon to graduate from a management course, which will enable it to run the operational, sales and marketing activities. Moreover, its five-year experience in car repair will guarantee the knowledge and access to key vendors and towing company networks and to a fair number of other "collaborators." The other "collaborators" category ranges from potential employees with a good background and experience to financial service providers (e.g. insurance companies or banks).

Mrs. Anna Brown will be the company's financial advisor and accountant. She will be in charge of all the financial documents needed for the day-to-day activity as well as for the business analysis.

In the beginning the company will hire two mechanics with at least five years experience on both national and foreign cars. The employees will be hired through the owner's referral network from its previous experience in this field.

3.2. Organizational chart

Basically, both the financial manager and the senior mechanic positions will be subordinated to the executive manager. However, the responsibilities and salaries will vary from one function to another and none of the positions can be considered superior to the other.

Further information about personnel-related costs is available in the appendix section, under 'personnel plan' category.

4. Marketing

4.1. Marketing goals

Among the marketing goals, increasing sales and awareness are the most important in the first years of activity. The company wishes to increase visibility in the community and increase sales by attracting more customers either local or passing through the city or from the neighboring cities.

4.2. Marketing objectives

The objectives that will help meeting the company's goals can be summarized as follows:

Aim for customer fidelity, by creating special price and product/service packages.

Post billboards and flyers in strategic places in the city with high traffic and that are most likely to be visited by people from outside the city.

Create a website to increase accessibility of people both from outside and inside the city.

4.3. PEST analysis

The PEST analysis covers four environment-related influence factors: political, economic, social and technological. The factors influence both the macroeconomic and microeconomic outlook of the whole state/region/country.

4.3.1. Political factors

New York's present constitution ratified in 1938 specifies the functions, responsibilities of the state government. The document also specifies that the state is governed by three branches of the government: executive, judicial and legislative. The state is politically stable.

The state is usually perceived as a democratic, rather than a republican one, NY supporting mostly democrat candidates to the presidency. However, rural upstate tends to favor the Republican Party as the community members in that part of the state are more conservative.

In terms of taxation, the state ranks 42nd in federal spending per tax dollar. Also its balance of federal payments is biased as for each 1$ contributed to the federal government it received back 82 cents.

4.3.2. Economic factors

New York's GDP (Gross domestic product) is the third largest in U.S., with a steady growth rate between 3 and 3.5% and its GDP per capita is the fifth largest. The country's unemployment rate dropped to 4.5%, getting close to a 5-year low.

The trade balance decreased with 3.8% since December 2006 and the inflation rate as of December 2006 was 2.5%. The main concerns, at country level, are the high inflation and the slow economic growth (2.5-3% for 2007). The prospects for the next two years for the economic growth are not very optimistic, situating the indicator below 4%.

The annual rate for mortgage was 5-6% in 2007, while the health care providers' interest rate was 11%, showing a 2% increase compared to 2006 and 4% increased compared to 2005. The interest rate for business loans ranges from 3-4% to 6-7%, depending on the type of loan (private/government; small business/large business; long-term/short-term).

4.3.3. Social factors

New York's official language is English. However, the state is well-known for its cultural diversity. Thus, in 2000, 28% of the population above 5 years of age spoke a language other than English, Spanish being the 1st most spoken foreign language. The major ethnic groups in New York are African-American (15.8%), Italian (14.4%), Irish (12.9%), and German (11.1%). In 2004 the population of foreign-born was estimated at 20.4%.

In terms of education, the state is the 2nd largest university host after California and it is the home of 307 degree granting institutions. The education statistics for Hicksville are slightly different than the state ones. However, they follow the same trend (see fig.1 & 2).

FIG. 1 - EDUCATION ATTAINMENT - HICKSVILLE vs. NY

Source:

http://www.city-data.com/

FIG. 2 - SCHOOL ENROLLMENT by LEVEL of SCHOOL

Source:

http://www.city-data.com/

The standard of living varies across the state from one city to another. Overall, New York is a highly industrialized state and the leading center of communication, banking and financial services in U.S.. Although life conditions are considered satisfactory, the state is known as one with the highest criminality rates in the country.

4.3.4. Technological factors

New York is a large contributor to the country's technological innovation. A large part of R&D (Research & Development) funds are federal, NY ranking 5th in terms of government funds in 2000 with over $3 bn spent. The overall spent in the same year was close to $13.6 billion, ranking 3rd nationwide. Nevertheless, the R&D intensity (calculated as the ratio of R&D expenditure to its gross state product) ranked only 24th in the country.

In terms of employment, 48 out of every 1000 workers employed in the private sector in New York works in a high-tech firm and approximately 3.4% of the country's scientists had a high tech job in this state.

The copyright is protected by federal law. The law may have different interpretations in different states, but the regulation is the same across country. The intellectual property is encouraged nationwide.

4.4. The 4Ps

The 4Ps refer to the marketing mix: product, price, placement (location/distribution) and promotion.

4.4.1. Product

Auto Hicksville has the core competencies embedded its crew to work on all models of domestic vehicles and a large number of foreign ones. Quick turnaround is always on objective at Auto Hicksville with as all employees focused on superior customer service and the shop will have 3 service bays working in parallel.

Auto Hicksville considers that being honest and accurate with customers in terms of estimates for quoting costs and repair completion time is very important in this business. Auto Hicksville employees are focused on delivering their promises. The company's strategy to build strong customer relationships based on integrity and trust is expected to be the catalyst in establishing a strong regular customer base.

Auto Hicksville will use a fairly good degree of technology to manage its diversified auto parts inventory. The goal is to maximize inventory turnover, while managing to always have a specific part in the shop when needed. For this purpose, the company has established strong vendor relationships with the most reputable vendors in terms of shipping time of auto parts.

4.4.2. Price

The company will position its service to target the low to medium income market segments as the economic recession is estimated to last longer. Moreover, this segment is likely to own cars of longer usage period, which usually require more repair services. The company will adopt a lower margin on its price quotations and will increase profit by increasing the quantity of customers served.

The same type of margin will be adopted for auto-parts acquired from its vendors. For emergency repairs and auto-parts orders, an extra 20% will be charged over the normal price and the company will guarantee the repair within 48 hours from the moment the car enters its auto shop.

For the local community and therefore our returning customers, the company will have a fidelity card, with 10% off for routine checks and operations, such as oil change or engine check.

4.4.3. Placement - location

The auto shop will be located in the center of Hicksville, with easy access from any place of the city. The operational office, where the financial and executive managers will seat, will be incorporated in the auto shop. That way, the management will be in touch with the customers at all times.

The storage will also be incorporated in the auto shop as the auto parts have to be available for change in any moment and timing is crucial. This part of the auto shop will be equipped with a software that will keep track of all the objects in the inventory at any moment and will return all parts that are missing/needed and will have to be ordered to avoid a stock rupture. The distribution of auto parts from vendors to the auto shop will be insured by the former and shipping costs will be paid by the vendors for normal orders and shared for urgent ones.

4.4.4. Promotion

As promotional activity, the following strategies will be used by Auto Hicksville to attract its customers:

Network recommendations - the company will use its own network to recommend the company's services. The network includes among others auto-parts vendors and towing companies. This will be done through the owner who acquired knowledge about the market and the services provided by his company throughout his entire work activity.

Direct marketing - contact potential customers in the local community by phone, fax, email or letter to present the company's services. Design, print and distribute flyers about its services to create customer awareness.

Participate to auto fairs and expositions either as guest or a formal participant to create visibility on the company's services.

Auto Hicksville will also sponsor the publishing of a number of articles in the local newspapers and magazines that are usually more read by its targeted customers. This will provide more information about the company to potential customers and create product/service awareness.

Create a company website to provide more visibility to customers searching for repair services in the area. The website will have a full list of auto-parts available on stock at each moment in time, an updated price list and the possibility to require quotes via email. In the future, the company will take under consideration the possibility of developing a forum in which customers will be able to ask questions about their car problems and get the expert's answer within hours.

5. The market

5.1. Market analysis summary

Hicksville, NY has a population of 41,269 inhabitants according to 2000 Census data. The population is divided in roughly equal gender segments (49% male, 51% female), it has an average age of 39 years and most of the people are in the 25-64 age segment (53%). The vast majority of the inhabitants are white (80%), followed by Hispanic or latino (7.3%), Asian (7%) and others (5.7%).

The per capita income had a steady growth rate from one year to another (see fig. 3):

FIG. 3 - PER CAPITA INCOME in HICKSVILLE, NY - 1998-2000 DATA

Source: Census, 2000, www.census.gov

According to more recent government data, the average salary for an individual was $43,202 and for a household $67,703, in Hicksville, in 2008 (see fig. 4).

FIG. 4 - PER CAPITA INCOME in HICKSVILLE, NY 2008

Source:

www.simplyhired.com

The employment outlook has moved on an upward since 2006, with the number of jobs increasing by 38% since (see fig. 5). Also, the city has an unemployment rate of 3.1%, below the national average of 5.8%.

FIG. 5 - EMPLOYMENT OUTLOOK - HICKSVILLE, NY 2008

Source:

www.simplyhired.com

In terms of industries, the leading companies come from: educational, health and social services with 19%, retail trade with 13% and professional, scientific, management and administrative services with 11%. The most popular job listings include: commercial and investment banking, miscellaneous store retailers and search & navigation instruments mfg.

According to the Census 2002, out of the 19,837 inhabitants over 16 years of age and employed, the commuting to work was as follows:

14,923 car, truck or van - drove alone

1,734 car, truck or van - carpooled

2,380 - public transportation

386 - walked

100 - other means

314 - worked from home

FIG. 6 - TRAVEL TIME to WORK

Source:

http://www.city-data.com/

5.2. Market segmentation

The most relevant market segmentation for this plan is the one based on income (see fig. 7). The segments targeted by Auto Hicksville are the low and medium income ones.

FIG. 7 - INCOME MARKET SEGMENTATION - HICKSVILLE, NY - 2000

Source: Census, 2000 www.census.gov

Auto Hicksville will focus its strategy on the low and medium income individuals. Those two segments are the largest and the start-up investment needed for a repair shop to correspond their standards is not as high as it would be for the high income segment.

5.3. Target market segment strategy

The success keys to our strategy include the following:

Increased customer fidelity - regular customer will beneficiate from special prices and customized service package. As price is important for low and medium income individuals, we expect to have a considerable number of regular customers attracted by this measure.

Short response time - quotes and repair services will be provided fast. As vehicle is essential for transportation from home to work and back, we expect this speed of response to attract many customers.

5.4. Market needs

Hicksville auto repair market is a rather small one. Accurate statistical data is not available. However, an estimate based on the county's average number of vehicles per capita shows that Hicksville's automobile ownership should be around 30,000 units, as the county average of per capita registered automobiles is 0.72 (NYS DMV, 2006).

As the number of households/families increases and as individuals migrate from rural side to urban, the average time spend in a vehicle increases and so does the usage. The market needs regular auto repair and check services. Auto Hicksville intends to focus on delivering such services and offer price discounts to regular customers. Given that the target market segments are price sensitive, this price strategy is expected to be successful.

5.5. Market trends

US vehicle ownership is increasing over time despite the crude price reaching record high. More and more Americans use personal vehicles for transportation and due to the expansion of urban areas, commuting has become more popular. Therefore, automobiles are used more intensively during the day in terms of miles per time unit. The vehicle usage is proportional to the number of miles the vehicles was on the road. Hence, the demand for auto repair is increased by both increased vehicle ownership and vehicle usage.

The demand for auto repair services on the low and medium income segments increases with urbanization. Cities become more and more developed and as companies more towards the city center, inhabitants more further away. Thus, the average distance to work expands and individuals switch from public transportation to personal vehicle more and more and as individuals migrate from rural to urban areas the usage of transportation of any kind increases as well.

Technological advancement enables the use of developed and cheaper technologies to build cars faster and cheaper. Thus, the price of vehicles increases as their quality increases over time. The vehicle consumption increases as the price decreases and the price-quality ratio improves.

Also, the female emancipation expanded the labor market, which meant more vehicles used for transportation and therefore an increased demand for auto repair services.

Finally, as the number of households/families increases, individuals tend to relocate to the city suburbs and drive to work more than when living in the city. Thus, the time spent in transit increases, and so does the usage. Hicksville is a quiet, small town, which attracts families. Therefore, the number of families is expected to grow here.

5.6. Market growth

FIG. 8 - U.S. HIGHWAY TRANSPORTATION - HISTORICAL VALUES

Source: Bureau of Transportation Statistics, www.bts.gov

The number of vehicles increases nationwide as the price of vehicles decreases and as the average distance between work and home increases. The historical values in fig. 8 show a dramatic increase between the 1960s and 1990s and a moderate one from the 1990s until present times. The slow down of vehicle number growth rhythm is explained by economic factors, such as recession and the increased popularity of remote work or home based.

6. Competition

The competition is tight in the Hicksville area as the city is part of the New York state. Thus, even thought he latter is a large state, individuals have easy access to a large pool of companies and a wide variety of services.

A search in Yellow Pages for auto repair companies in Hicksville returned the following results:

TABLE 1 - NUMBER of AUTO SERVICE RELATED COMPANIES in HICKSVILLE NY AREA - 2008

Category of companies

Total auto repair related services

With "auto repair" in their name, of which:

Auto engine rebuilding

Auto repair & Service

Automobile Accessories

Automobile body repairing & painting

Automobile Body Shop Equipment & Supplies

Automobile Body Shop Equipment & Supply-Wholesale & Manufacturers

Automobile Dealers-Used Cars-Wholesale

Automobile Diagnostic Service

Automobile Electric Service

Automobile Inspection Stations & Services

Automobile Manufacturers Equipment & Supplies

Automobile Parts & Supplies

Automobile Parts & Supplies-Used & Rebuilt

Automobile Parts, Supplies & Accessories-Wholesale & Manufacturers

Automobile Repairing & Service-Equipment & Supplies

Automobile Restoration-Antique & Classic

Brake Repair

Buses-Distributors & Manufacturers

Buses-Parts & Supplies

Car Rental

Dent Removal

Electric Contractors

Engines-Rebuild & Exchange

Fix-it Shops

Gas Stations

Glass Circles & Other Special Shapes

Glass-Wholesale & Manufacturers

New Car Dealers

Parking Lots & Garages

Source:

www.yellowpages.com

Assuming that half of these companies are direct competitors to Auto Hicksville. That means that there are roughly 90 auto repair companies for 30,000 vehicles in the city, which is an average of 333 cars per repair shop/year. This high number suggests that the auto repair business, although competitive is large enough to allow other players to enter the market.

7. Sales forecasting

The sales forecasting and accounting/financial analyses have been built using the Business Plan Pro-tool.

The sales forecasting was made based on the following assumptions:

7% sales growth each year;

An average of 333 clients per year;

mechanics' work entered direct costs;

Inventory worth of $1,000 available at all times;

The company sales to two market segments: low income and medium income. The low income segment refers to individuals with less than $15,000 income per year, and represents 6.1% of Hicksville's population. The high income segment refers to individuals whose income range from $15,000 to $75,000 per year. Assuming that the automobile ownership is evenly spread across different levels of income, it was deducted that 11% (36 clients) of the company's income will come from the 1st segment, whereas the 2nd one will be the rest 89% (297 clients);

The low income segment has a 5% growth per year, while the medium income segment has a 10% growth rate (see table 2 and fig. 9).

TABLE 2 - CUSTOMER DISTRIBUTION ACROSS INCOME SEGMENTS

Market Analysis

2008 2009 2010 2011 2012 Potential Customers Growth CAGR Low income segment 5% 36-38 40-42-44 5.14% Medium income segment 10% 297-327 360-396-436 10.07% Total 9.57% 333-365 400-438-480 9.57%

The main services/products offered by the company include: maintenance, auto parts replacement and repair;

The main item entering the 'direct costs' category include: spare parts, labor and consumables (e.g. oil);

The sales forecasting was rolled up for three years and it starts with FY09 (see table 3 and figs. 10 & 11).

TABLE 3 - SALES FORECASTING FY09-11

Sales Forecast

FY 2009

FY 2010

FY 2011

Sales

Maintainance

Auto parts replacement

Repair

Total Sales

Direct Cost of Sales

FY 2009

FY 2010

FY 2011

Spare parts

Labor

Consumables

Subtotal Direct Cost of Sales

8. Accounting

Following the results of the accounting analysis, the cash flow is negative in the 1st month, which is normal for a start-up business. The cash-flow increases from one year to another, from $125,407 in FY09 to $388,402 in FY11 (see table 4).

TABLE 4 - CASH FLOW PROJECTIONS FY09-FY11

FY 2009

FY 2010

FY 2011

Cash Received

Cash from Operations

Cash Sales

Subtotal Cash from Operations

Additional Cash Received

Sales Tax, VAT, HST/GST Received