Auto Lube &
Tune Up Shops
We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of auto lube and tune up shop businesses. Below is a brief synopsis of the industry.
Description of Business
This U.S. industry comprises establishments primarily engaged in changing motor oil and lubricating the chassis of automotive vehicles, such as passenger cars, trucks, and vans.
General Industry Information
According to the recent US Census, there were 8,223 Auto Lube and Tune-Up operations in the industry. This represents an overall increase in businesses from 1997, which recorded 7,431 operators. This 11% increase is unique, due in large part to the increased specialization in fast oil changing services.
The auto lube business has become focused on quick, in and out service. Franchises have standardized much of the operations in this industry, where customers expect rapid service and low prices. The top franchise operators include Jiffy Lube, Valvoline Instant Oil Change, Express Oil Change and Grease Monkey International.
Smaller oil change shops often augment sales from lube services by providing other light maintenance services, namely smog diagnosis and brake repair. Often, the number of vehicle bays and general equipment mix determines the shop’s productivity.
The oil change industry is considerably less cyclical in nature than other businesses. Routine repair and maintenance servicing is considerably less expensive than other types of automotive care. During economic downturns, customers are more aware of maintenance issues, preferring to pay for upkeep than risk major vehicular problems from vehicle negligence.
During routine service inspections, technicians test and lubricate engines and other major components. In some cases, the technician may repair or replace worn parts before they cause breakdowns that could damage critical components of the vehicle. Technicians usually follow a checklist to ensure that they examine every critical part. (Source: Occupational Outlook Handbook, Bureau of Labor Statistics). The industry does not require intensive training, and as a result, turnover of technicians is often an issue for service shops.
Red Flags and Risks
As this industry is becoming dominated by franchise operators, the effects of franchise payments and agreements should be a major component during a business due diligence period. Potential buyers should realistically consider potential revenue as a function of total vehicle bays. Productivity is often a function of a leased space’s capacity. However, operators must concern themselves with the effects of competition. An emerging neighbor with more bays and customer volume can easily put an independent operator out of business. It would be wise for a buyer to survey local competition.
Another point that must be considered by anyone interested in buying an auto lube and tune-up shop is the management of waste material. Many communities progressively restrict automotive shops in an effort to curb contamination. Soil and air pollution can result in hefty cleanup costs, and even cause unforeseen legal liabilities.
Amongst the largest risks for these businesses is the potential for on-site injury. Auto mechanics deal with heavy, elevated cars and hot liquids. The likelihood of burns, slips, and falls mandates proper implementation of safety procedures. Accidents can be costly for both workers and owners. Finally, it is important to consider the effect of a sale on any existing leases. Specific items within the lease that should be of interest to a buyer include rent amount, the length of the lease, utility payment agreements, and maintenance agreements.
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