It’s important to know where you’ve been in order to realize where you’re going.
In that spirit, NOLN is taking a look at some big topics from 2019 that will continue to be hot topics in the coming year. These are areas that really get at your business’ bottom line: wages, tariffs and industry consolidation.
These issues are always hovering around the balance sheets for operators, but events in 2019 set the stage for big change in these areas. Issues like tariffs and wages grabbed headlines in the past 12 months but remain unresolved into the new year.
In addition, the quick lube industry continues to see network growth among the biggest names in the business. Analysts see more of the same in the near future. NOLN spoke with one figure at the top of the quick lube industry to see where he stands at the precipice of 2020.
Issue No. 1: Wage and Salary Growth
Whether or not it affected the labor rates in your shop, payroll was a big topic in 2019.
From the Trump Administration’s proposed changes to overtime exemption laws to some cities and states passing minimum wages of $15 per hour.
In July, the U.S. House of Representatives passed its own $15 minimum wage bill, which would step up hourly pay to that level by 2025. The bill has little chance of passing the Senate or receiving the President’s signature, however.
In the quick lube industry, hourly pay for lube techs hasn’t grown much. The average rate for lube techs in 2009 was reported as $9.12, according to the NOLN Operator Survey.
In 2019, the hourly rate is $10.41.
While politics play out on the national stage, there are often different factors that influence hourly pay at individual shops. NOLN spoke to one longtime manager about the changes he’s seen in payroll matters.
Local Levers Affect Pay
Bob Earnest says he’s both the district manager and the go-to guy at Speedy Oil Change. He’s been with the company since 1985, and today they run three locations in the Tuscaloosa, Ala., area.
“They used to start off at minimum wage, which back then was like $3.35 per hour back in ’85,” he says.
Twenty-two states have minimum wages less than $8 per hour. Alabama is one of them. Without a state-specified wage, the law falls to the federal rate of $7.25 per hour.
Earnest says that the hourly pay for a tech at Speedy starts at around $12. He says that it’s a market-driven rate not influenced by legislatures, but by industry. They have to stay attractive to prospective employees in an area with other auto industry jobs.
“We’re trying to keep people here and from going to the plants,” Earnest says. “It’s been a gradual rise over the years. When Mercedes first opened up, it (wages) jumped quite a bit just to keep people here.”
That opened about 20 years ago. Business has remained steady for the independent quick lube shops, Earnest says. There is competition from some franchised brands in the area, but the shop keeps managing its labor costs alongside supplies— all while working to stay competitive in pay.
At the local level, savvy operators should keep an eye out for employment trends in other local industries. They might not be your competition in business, but they are your competition for labor.
While it’s unclear what the national outlook is for wages, the big regional changes in 2019 and a presidential election in 2020 could bring the issue to center stage. Most of the major democratic candidates have taken a position to raise the federal minimum wage, and Trump’s Department of Labor continues its work to amend overtime exemption rules.
Issue No. 2: Tariffs
“We didn’t think we’d be so deeply involved in this issue back at the start of the year.”
That was Aaron Lowe, senior vice president for regulatory and government affairs for the Auto Care Association, back in NOLN’s February cover story on tariffs (“The Trump Tariffs and How They Are Affecting Auto Care in the U.S.”). At the time, the U.S. had imposed steel and aluminum tariffs, as well as tariffs on $50 billion in goods coming from China.
The year proved to be a volatile one for trade. The Trump administration removed the steel and aluminum tariffs on imports from Mexico and Canada.
But new tariffs were added on imports from China. In June, NOLN reported that the 25 percent tariffs on a total of $250 billion in goods included things like windshield wipers, oil filters, fuel pumps, electrical parts and other common automotive items. An additional $300 billion in goods was added to the tariff list in August, though the administration amended its effective dates on some goods. China also had its own back and forth, at times putting retaliatory tariffs into place and other times them for U.S. goods.
Many additional costs on imports have been borne by the companies that deal in those parts. A representative for one distributor told NOLN that it came at a significant cost, but they declined to comment for this article.
One person who was following the issue closely throughout 2019 was Nelson Dong, a senior partner at the international law firm Dorsey and Whitney, where he heads the national security group and co-heads that Asia group.
In addition, Dong is a member of the board of directors of the National Committee on US-China Relations and a member of the board of directors of the Washington State China Relations Council.
Dong released statements saying that it might be difficult for the two countries to reach a trade deal amid the tit-for-tat tariff climate. In addition, a battle between the two powerful economies can have collateral effects on both sides of the Pacific.
“Eventually, when tariffs are imposed at this scale, consumers and end users will have to pay higher prices and thus have less effective purchasing power, and many parties along the supply chain will either experience lower profits or more lost sales—or some combination of the two,” Dong says. “The resulting damage to consumers, producers and intermediaries can only combine to erode investor and consumer confidence, stall many needed investments, and increase the risks of negative local, regional or even global consequences.”
As both countries continue to ratchet up tariffs, the more prolonged the trade war is expected to be, Dong says. It becomes a massive undertaking just to unwind the economic decisions already in place, particularly when both countries will have to consider the publicity factors in doing so.
The 2020 outlook appears to be a continuation, as the two countries have become mutually reliant on each others’ actions in the dispute.
“The question remains whether the two countries also have the capacity and will to escape some kind of ‘economic death spiral’ where they are each so locked into positions from which they cannot easily back away to allow a political resolution,” Dong says.
What does all this mean for your quick lube shop in 2020?
This is the year when more pass-through costs could be felt more by shop owners. It’s an opportunity to focus on sales efforts and to educate customers on the value that your products provide to their vehicles.
Distributors can be a go-to contact to learn more about the products you sell.
“A distributor can be a good source of information,” says Jack Breman of Jackson Oil and Solvents, a Midwest distributor. “We’re probably not used enough for information.”
Issue No. 3: Consolidation
This was a big year for growth for the biggest quick lube brands. Names like Valvoline Instant Oil Change, Take 5 Oil Change and Jiffy Lube continued to expand their networks across the country.
That reflects a lot of confidence in the industry by investors. Speaking with NOLN in July, Joe Conner of Harris Williams and Co., an investment bank that specializes in mergers and acquisitions that has worked on some of the biggest deals in the industry, echoed that.
“In good times in the market and in bad times in the market, they need to be fixed or the car doesn't work,” says Conner, director of the transportation and logistics group. “That steady, consistent nature where it’s good steady growth.”
No U.S. quick lube franchise network is bigger than Jiffy Lube’s. Its listing in TOPS In the Industry showed 1,929 franchised locations. NOLN caught up with Jiffy Lube President Patrick Southwick for a year-end review.
What’s happened over the year around Jiffy Lube’s network?
Jiffy Lube remains the dominant leader in the quick lube industry. We are committed to growth, striving to have the right network with the right locations offering the right services to meet consumer needs.
As part of this effort, Jiffy Lube has continued to expand its footprint, adding new locations and rationalizing existing locations throughout 2019. We plan to sustain this strategy into the foreseeable future and have completed a number of actions that will accelerate the pace of our network expansion.
What are some of the benefits of Jiffy Lube's size?
Jiffy Lube has been maintaining consumers’ vehicles for 40 years. This longevity reflects our winning business model, winning brand and the best franchisees. Jiffy Lube revolutionized the industry with an innovative business model: changing how consumers maintain their vehicles. And for 40 years, Jiffy Lube has remained the industry leader, helping shape and evolve it over time. Our scale helps us to provide the winning experience to more customers across the country and helps us meet the needs of fleet customers.
What are some reasons that make it a good time to grow your quick lube shop network?
Our strategic growth plan aligns with one of our key brand attributes, which is convenience. We want to ensure that Jiffy Lube meets consumers’ needs by offering the services they need to maintain their vehicle at a location convenient to their home or place of work.
Jiffy Lube recently evolved it business model, offering expanded services including brakes, tires and diagnostics through Jiffy Lube Multicare. Jiffy Lube is known for speed, convenience and quality service so we are taking that same brand equity to provide a robust automotive maintenance offering. Again, more locations means we have more opportunities to service customers with our winning business model at more and more convenient locations. It also helps us meet the needs of local, regional and national fleets.
What are you looking forward to in the near future of the quick lube industry?
Vehicle complexity continues to increase, and there are more hybrids and electric vehicles on the road today and these will continue to grow. Today’s consumer also continues to evolve. This creates both opportunities and challenges for those in the automotive maintenance industry. This evolution of the vehicle fleet along with the consumer is the reason we launched Jiffy Lube Multicare.
We know we must continue to evolve. Going forward we look to continue our focus on innovation in terms of our business model, how we engage consumers and how we drive the right customer experience.