Investors pour money into auto repair shops
With mechanics in gas stations scarce and fewer auto dealerships in business, America’s aging automobile fleet leads to a timely question: Where will you go to fix your well-traveled car?
America has become the land of old cars — really old cars.
From road-weary Kia Rios to battered Ford Broncos, some 81 million autos will have been in use 16 years or longer by 2021, experts predict, a 20 percent increase in elderly vehicles nationwide in five years.
Call this the golden era for the clunker.
With mechanics in gas stations scarce and fewer auto dealerships in business, the aging fleet of vehicles with cracked windshields, tired fuel senders, rattling brake calipers and other road travails lead to a simple question: Where will you go to fix your time-tested car?
Chances are it’ll be a shiny new repair shop.
In cities throughout the country, deep-pocket companies are pouring into the vehicle fix-and-maintain business. Just like fast-food chains a generation ago edged out corner diners, car repair chains backed by wealthy investors are popping up, drawing customers from locally owned garages.
Big companies acquired more than 500 local shops throughout the nation last year, a consolidation led by Detroitbased Icahn Automotive Group LLC, owner of the Pep Boys maintenance shop brand, reports the trade journal Tire Business. At the same time, established repair chains expanded.
In Memphis and Nashville, for example, Meineke Car Care Centers LLC is searching for potential franchise owners able to build and operate new shops financed in some cases by U.S. Small Business Administration loans.
While new franchise owners must afford Meineke’s $35,000 license fee and show a $250,000 minimum net worth, experience under the hood isn’t considered a necessity.
“We look for candidates who are aggressive and want to grow,’’ said Devin Hughes, director of franchise sales for Meineke, a brand with about 900 shops nationwide. “The vast majority of our franchisees are coming from corporate America and looking to build an investment for themselves.”
While Louisville, Kentucky, and Washington contain ample Meineke outlets, Hughes said, under-served metropolitan areas include Dallas, Detroit, northside Indianapolis, Memphis, Nashville and Orlando, Florida.
Overseeing the car shop expansion strategy is the Charlotte, North Carolina-based owner, Driven Brands Inc., and its chain-savvy chief executive, Jonathan Fitzpatrick. Formerly Burger King’s chief brand and operations officer, Fitzpatrick intends to double Meineke annual sales in the next five years to $1 billion.
Profits from the expansion will flow to Atlanta, home of Driven Brands owner Roark Capital Group, a leading investor in a stable of well-known national chains. These have included Arby’s, Cinnabon, Jimmy John’s, McAlister’s Deli, Moe’s Southwest Grill and Schlotzsky’s. The Atlanta firm bought Driven Brands three years ago from New York investor Harvest Partners LP, whose investment pool includes money from top-rung money managers including New York-based Goldman Sachs Asset Management.
Buying used cars
Just why fixing old cars has attracted big investors rests in part on this number: 100 million.
Over the last six years, a sales frenzy put 100 million new cars and trucks on U.S. highways. America’s appetite for horsepower and steel might make you think every other vehicle on the road looks new. Look again.
“Despite the record high number of new cars, there’s been tremendous growth in very old vehicles,” said automotive consultant Jim Lang of Lang Marketing in Fort Wayne, Indiana. “In fact, vehicles 12 years old and older account for almost half the vehicles on U.S. roads.”
The sales boom contributed to the clunker fleet in a roundabout way.
Strong consumer demand in conjunction with low interest rates allowed automakers to pack expensive options into vehicles and raise prices year after year on the car lots. By this summer, the typical buyer at a dealership paid $35,285 for a new vehicle, reports market analyst Edmunds.com Inc. of Santa Monica, California. This was about 25 percent over the average transaction price a decade ago.
Auto prices rose so fast that many middle-income buyers backed away from new vehicles. They turned to latemodel used autos. This year about 40 million used cars and trucks of all ages will change hands, compared with sales of about 17.3 million new vehicles.
Strong demand lifted prices — the average used auto cost $20,085 in October — and pushed away lower-income drivers looking for affordable late-model vehicles. They bought older cars instead. This demand in turn raised prices on older vehicles. Scarcity was also a factor.
When layoffs mounted in the 20082009 recession, new auto sales plunged and auto plants trimmed output. Today relatively few vehicles assembled between 2009 and 2012 are on the road.
“Consumers looking to escape record-high new and used vehicle prices are coming up short in the used market,” Edmunds’ market analysts reported recently, noting used “vehicles under $10,000, the most affordable segment, are growing increasingly scarce.”
Rather than pay a lot for a used car, many drivers decided to fix and hold on to their old rides. Working in their favor was vehicle reliability, Lang said. Autos designed since the late 1990s tend to last longer than earlier cars and trucks.
As a result, the nation’s fleet of nearly 300 million cars and trucks contains an unusually large share of elderly vehicles. About 81 million autos will have been on the road 16 years or longer by 2021, compared with 62 million in 2016 and 35 million in 2002, predicts the Auto Care Association, a trade group in Bethesda, Maryland, in its most recent
State of the Auto Industry report.
It is on the busy highways, in among the drugstores, fast-food diners, gas stations and dollar stores, where the repair chains are showing up.
Only 40 percent of motorists have regular maintenance performed, the Auto Care Association reports, noting most drivers cite inconvenience as a reason for avoiding the work. Now, repair chains are taking root on the routes motorists take between home and jobs.
“That working-class market is where we’re focused,” said Hughes.