What do the most profitable quick lubes do differently from their poorer brethren? According to a survey released this week by the Automotive Oil Change Association, higher profit firms give a few more discounts, buy a little more advertising, and spend a little less on the lubes and other goods sold. But the most significant difference is operating expense control.
The 2007 AOCA Cost of Doing Business Survey shows that high profit firms spend 52.5 percent of total sales revenues for operating expenses, compared to 58 percent of sales spent by all quick lubes. Salaries, rental expenses and insurance are among the categories where the more profitable firms are better able to control expenses.
The AOCA Survey provides detailed information on U.S. quick lube firms, presented for all responding firms and for high profit firms (the upper 50 percent based on pretax profit as a percent of sales), by sales volume size, by geographic region, and by number of lube shops operated.
The median sales increase from 2005 to 2006 reported by all companies responding to the survey was 4 percent, while the higher profit firms saw sales rise over 7 percent. Quick lube sales in the East Central region (Ky., W.Va., Va., Md., Del. and D.C.) rose a hefty 13 percent, while western firms (Calif., Ore., Wash., Ariz., Nev., Idaho, Utah, Hawaii and Alaska) saw a 1 percent decline in sales.
Profits rose more than 8 percent at firms with multiple locations, and less than 2 percent at one-shop firms.
Looking at profitability performance, the survey showed that the typical firm reported a return on assets (net profit as a percent of total assets) of nearly 14 percent. The smallest companies, with sales under $500,000, reported return on assets of less than 3 percent.
On the flip side, looking at total debt as a percent of total assets, the smallest firms carried more debt (75 percent) than larger firms (60 percent). Not surprisingly, high profit firms carried the least (50 percent).
The report analyzes trends over the past 10 years. Net sales per vehicle serviced have risen steadily, from $29 in 1996 to $46 in 2006. Sales per employee rose from nearly $53,700 in 1996 to more than $72,360 in 2006, while gross margin per employee rose through 2004, but dropped in 2006 (from $50,890 in 2004 to $47,700 in 2006).
The total number of vehicles serviced per three-bay lube shop has dropped since 1996 – falling each year except for a spike in 2002. Shops typically serviced 12,900 vehicles in 1996, but just 11,330 in 2006.
AOCA, based in Dallas, Texas, conducted the survey earlier this year as a service to industry members, to allow companies to compare their performance with industry norms and evaluate their own results. The 103-page report contains data on profitability; sales; inventory, asset and personnel productivity; financial and receivables management; balance sheets; income statements; compensation; insurance expenses; vehicles serviced; and more.
The 2007 Cost of Doing Business Survey can be purchased from AOCA for $175. Contact the association at 800-331-0329 or www.aoca.org.