"So, how’s business?"
This is a question being asked quite often these days of all businesses.
Rising gas prices and their impact on the number of miles driven is a great concern to everyone in the automotive service industry. But many times when you ask a shop owner, “How’s business?” you get an answer that references the number of bays open at the current moment or how the week has been going in general, and there is usually a comment or two about how there has been either too much rain/snow or not enough.
This is all good info, but sometimes we need a bigger picture view of market conditions, so I’ve reached out to Nick Mitchell, senior vice president of research at Northcoast Research, an independent, full-service institutional equity research and trading firm headquartered in Cleveland, OH.
Northcoast Research takes into consideration a number of data points including surveys with auto service shop owners, weather conditions, tax refunds, miles driven, gas prices, employment rates and credit levels to answer the simple question, How’s Business?
According to Northcoast Research, the shops in its survey sample experienced a slowdown in business for March, as compared to a very strong February, but were still slightly ahead of March 2010. Some of the business drivers cited by the techs who witnessed sales growth during the month were the later delivery of tax refunds (refunds were down approximately 1.6% through the end of February; refunds were up roughly 3.7% in March), and a higher average dollar repair ticket.
According to Northcoast’s weather screen, weather trends in the key markets of the survey were a net headwind to business conditions and demand trends during March. Specifically, precipitation was a negative factor, as a net 29% of the markets witnessed increased precipitation during the month and temperature provided only a slight benefit, as a net 7% of markets experienced warmer weather.
Northcoast Research’s Three-Month Outlook Index rebounded 9.5% to 76.5, following a 13.5 point drop in February. The reasons for the techs’ optimism included expectations for an improving economy and a belief that the maintenance that has been deferred in recent years will need to be addressed in 2011.
In fact, nearly 61% of survey respondents indicated their customer base was being more attentive to their vehicles’ maintenance needs, which is the highest percentage they’ve ever recorded.
Northcoast Research remains positive based on the underlying fundamentals within the automotive aftermarket industry, including the aging of the nation’s light vehicle fleet and the ability for consumers to fund vehicle repairs, as long as gas prices do not trump the gains that are being experienced on the employment front.