Powering up your future business
Understanding the impact of the shift towards EVs and hybrids on your business will help you make a success of the change
By Neil Pattermore |
Published: 04 January, 2020
Life never stands still and this also applies to vehicle design and the subsequent diagnostic and repair requirements. Any workshop business that does not evolve will, sooner or later, fail. The pace of change in vehicle design has been exponential in the last 10 years, across vehicle systems such as the development of driver assist systems, but equally for powertrain designs.
Part of the powertrain development has been for engine management, such as direct injection for petrol engines, cylinder de-activation and Atkinson cycle technologies, but these have been developments of existing internal combustion designs. There have also been different fuels, such as hydrogen, but again, evolution, rather than revolution.
The real change has been the rapid increase in the number of electrically powered cars, partly due to the development of both battery technology and volumes, with the subsequent reduction in prices, making vehicles both more affordable and useable, but the most significant influence has come from the political environment to move away from the reliance on fossil fuels.
Viable
Although electric vehicles are far from a new idea – the first (small scale) electric vehicles were developed in the 1830s, with viable vehicles being manufactured from the very early 1900s, including the first hybrid vehicles. Although the concept is not new and workshops have dealt with low voltage ‘electrics’ in the form of starting, ignition and lighting (SIL) batteries for over a hundred years, today’s electric powertrains pose significantly different challenges.
These challenges fall into several distinct categories, some of which you can directly do something about, while others which are outside of your direct control.
Firstly, doing nothing to develop your business is not the answer – the expansion of electrically powered vehicles is here to stay and the key is to understand what you need to do and when you need to do it. For the workshop, from the technical perspective, it is principally a competency issue that involves having the right equipment and the skills of the technician. Both of these will depend on how deeply you feel is necessary to be able to handle the level of work on the electrification of the vehicle’s powertrain and to some extent, this will be dictated by the demographics of your location, and your customer base.
There are several new vehicles which are now entering the market that use 48-volt systems, so these are not so challenging, but the existing and bulk of the future electrically powered vehicles will have much higher voltage systems and this is a key tipping point. To work on these systems imposes a duty of care on the business to ensure that technicians are not asked to work on potentially lethal systems without the appropriate equipment, protection and skill levels. For the workshop, this imposes a compliance for both the Electricity at Work Regulation (EWR) 1989 and the Safety at Work Act 1979.
Investment
However, the level of involvement in these higher voltage systems will also dictate the level of investment. This is illustrated by one vehicle manufacturer’s policy of implementing three levels in their main dealer networks for their hybrid or fully electric vehicles – level one is purely vehicle maintenance, level two is repair and replacement of components and level three is working on live systems.
In both Canada and Germany, compulsory training and accreditation of all vehicle repair technicians is mandatory.
For independent workshops in the UK, this three step approach would also allow the workshop to adopt an ‘evolutionary’ approach to investment, starting with some basic equipment and then building on this with the more specialist tools and equipment as the business develops, but I would strongly suggest that the technical training should be at a higher level from the outset to ensure that the technician fully understands the wider design and functionality of electrically powered vehicle systems to know the boundaries of where the work on a vehicle changes across the three levels – a good case of avoiding that ‘you don’t know what you don’t know’. Once your business has the competencies, then it is about promoting this to existing customers who at some stage will be hybrid or electric vehicle owners, or to those who already are, but don’t know that you can handle their vehicles – so if you make the investment, shout about it.
Opportunity
On another positive point, the European Commission have confirmed that electric vehicles still need to support access to their in-vehicle systems for repair and maintenance – clarifying the mis-held belief that if there were no emissions, then no OBD connector needed to be fitted.
These are the things that you may be able to control about electrically powered vehicles, but there are other aspects that are outside of your control which will impact your business. The most obvious is the extended service intervals and the reduced level of work which electrically powered vehicles need. Fairly obviously, this directly relates to no engine components on fully electrically powered vehicles, but even if tyre wear may increase due to their increased weight, their brakes last longer due to the capturing of energy when slowing down to re-charge the battery.
Electric vehicles will require new skillsets for their repair, away from mechanical repairs into more electrical and electronic orientated repairs. This will change the profile of the technician that is needed and also create an increased dependency on downloading software updates. However, these may be increasingly over-the-air updates from the vehicle manufacturer, without the need for a vehicle to come into a workshop. Just think about what TESLA are already doing. The way that the vehicles are purchased is also changing – especially for electric vehicles – as there is a separation of the cost of the vehicle and the renting of the battery to avoid the twin problems of the higher price of new electric vehicles and the concerns around the cost of replacing a battery as the vehicle ages.
Additionally, there will be changes in the ownership of the vehicle as ‘mobility as a service’ develops, but this may be an opportunity for independent workshops to provide competitive local repair and maintenance services to these new mobility operators, but only if the workshop is competent to do so – and so there is both a threat and an opportunity presented by electrically powered vehicles.
xenconsultancy.com
- Connecting to tomorrow’s lean workshop
In a previous article, I had written about the fourth industrial revolution, but I suspect that this may not have been the most threatening topic that you were thinking about concerning your day-to-day workshop business – the business of diagnosing and repairing cars, using a range of workshop equipment and agreeing ‘partnership’ relationships for the technical data and replacement spare parts.
The way that you work may have evolved over the years, mainly due to the increasing vehicle technology, but the basic principle has remained the same. You have customers who choose to come to you due to the good service and competitive pricing that you provide. However, the world of vehicle repair is changing and if you do not adapt, you will die. Unlike previous industrial revolutions, the pace of change is now much faster. So how is this going to impact the aftermarket?
Approach
The ‘internet of things’ (IOT) will change the approach to diagnostics, service and repair of vehicles, but also the way that the workshop equipment will be connected, the way that you handle your customers’ data and the way that you exchange data outside of the workshop, both as a consumer of data, but also as a data provider in data trading eco systems. All this will change the way that you do business. This might all sound like some science fiction concept, but this is already happening today with many vehicle manufacturers and their associated main dealer workshops. If the aftermarket does not start to develop the same approach and service offers, then it will not be able to compete.
However, to understand this better, let’s start with today’s ‘classical business model’ and then see what will change. Today it all starts with your ability to directly communicate with both your customer and with their vehicle and (for the more difficult jobs once that vehicle is in the workshop) your ability to offer a competitive quotation.
Once the vehicle is in your workshop, the diagnostic work or the replacement parts are identified, the parts ordered and the ‘complete repair process’ is conducted. However, there are three fundamental aspects to ensure that this process can be fulfilled – firstly, being in direct contact with the customer, secondly, being able to directly access their vehicle via the OBD plug and subsequently its data and thirdly, using that information to conduct
the complete repair process in the workshop.
Internet of things
So, what is changing and how will the ‘IOT’ help to implement new and ‘lean’ business models to remain competitive? It will still all start with the ‘repair process’, but this will no longer be with the customer initially calling you or coming into the workshop with a question of ‘can you fix my car?’, but it will be through remote monitoring of the ‘thing’ – the vehicle (via OBD plug-in devices or in-vehicle telematics platforms) to conduct remote diagnostics, prognostics and predictive maintenance services. This will inform you when the vehicle needs work and should lead into being able to contact the customer and offer a competitive quotation for the work needed that ultimately should still result in the vehicle coming into the workshop.
When the vehicle does arrive, you will already know the details of the vehicle and the necessary work, so can configure the workshop resources (which ramp, what workshop equipment, what technical data, what replacement parts etc.), before the vehicle arrives.
You can also ensure that the various ‘external data’ that may be needed for the job is pre-arranged and can be downloaded into the specific workshop equipment which is needed as part of the repair process. This can be a ‘just in time’ download of the technical data, the diagnostic test routine, the replacement part fitment method and so on. All this can easily reduce the workshop time needed to complete the repair process by 50%.
Captured
This may already sound like a great move forward to be lean, more profitable and more competitive, but there is even more! You also now have new ways to use the data that you have captured. Not only will you know the faults of the specific make and model of vehicle, which in turn, you will store in your database (non-personal, machine generated data), but you will also be able to use this data to exchange or trade data with your existing suppliers or other (new) partners to reduce both your costs and theirs. Welcome to the world of data trading – and get used to it, because it will be your future. The internet of things, means linking to the ‘thing’ (e.g. the vehicle and workshop equipment) and then handling the data created, by using it in new ways to make the whole workshop and vehicle repair process more efficient, as well as supporting new business models beyond just what you can do today in the workshop. However, let’s also take a step back and look at workshop equipment as part of ‘the internet of things’. It already starts with a new range of ‘connected’ workshop equipment that will not only be able to be remotely monitored by the equipment manufacturer to ensure better reliability, together with faster and cheaper repairs, but will also be the basis for ensuring that the technical information you require for the job ‘in hand’ is supplied not only ‘just in time’, but also charged for on a new competitive bidding basis from a range of suppliers and charged on an individual job basis. Going a stage further, you may be able to exchange data with your equipment suppliers so that they can collect ‘big data’ from all their customers and use it for their own new data trading business models and in turn, use this to offset supplying data or services to you at
a lower cost. This may also apply with your parts suppliers to provide them with better forecasting and trend analysis.
Data centric
The classic business model of today that is ‘customer centric’ will change to become ‘data centric’ that creates added value to the consumer’s experience, but also to the service provider – you!
This change of accessing the vehicle, your customer and use of the vehicle-generated data is a disruptive evolution that will drive (no pun intended) a revolution in the aftermarket. However, the key issue will be the ability to access the vehicle, its data and in-vehicle displays to offer your services when the vehicle needs work and that is likely to be a legislative issue as the vehicle manufacturers try to use their technological advantage to dominate and control tomorrow’s repair and maintenance business. It’s up to you to fight not only for your ‘right to do business’, but for your ability to evolve your current business models into those of tomorrow.
- Aftermarket scenario planning
Definition of uncertainty:
a state of having limited knowledge where it is impossible to exactly describe the existing state, a future outcome, or more than one possible outcome.
- part TWO: Succeeding with succession
Businesses change hands for all manner of reasons, but crucially for family businesses, change has the potential to damage family harmony as well as destroy the future wealth of all concerned. But what happens should no family members want to take on the business and the business has to be sold?
In this instance David Emanuel, Partner at law firm VWV and head of its Family Business team, says the family should take advice on the options. He advises seeking recommendations and says to “think hard about engaging people who work principally on a success fee percentage commission-only basis – the overall cost may be higher, although you may be insulating yourself from costs if a deal doesn’t go ahead – but there can be a conflict of interest for people remunerated only if a deal goes ahead.”
One step that will ease the process is to undertake some financial and legal due diligence as if the seller were a buyer, to identify any gaps or issues that may affect price or saleability.
Seeking a valuation
Businesses will generally be valued on one of three bases – the value of net assets plus a valuation of goodwill; a multiple of earnings; or discounted future cash flow.
Nick Smith, a family business consultant with the Family Business Consultancy, sees some families seeking the next generation pay the full market value for their interest, and other situations where shares are just handed over.
“In between the extremes,” says Nick, “there are a raft of approaches and solutions including discounted prices and stage payments. There are also more complicated solutions such as freezer share mechanisms, where no sale takes place but the senior generation lock in the current value of their shares to be left to the wider family and the next generation family members actually working in the business receive the benefit of any growth in value during their time in charge.”
What of an arm's length sale? Here David says: “The family will ideally want to be paid in cash, in full, at completion, rather than risk the possibility of deferred consideration not getting paid because the business gets into difficulties under its new owners, or a dispute arises over what should be paid.” However, he says that may not be possible, and there may be many good reasons why the retiring shareholders keep an equity stake or agree to be paid over time or agree that some of what they get paid is subject to future performance. Even so, he suggests starting with the idea of the ‘clean break’ and working back from there if you have to.
It’s important to remember that in a succession situation, where one generation is passing the business to the next, and the retirees are expecting a payment of value to cover their retirement ambitions, deferred payment risks may be looked at differently depending on the circumstances – families will be more trusting.
Tax planning and family succession
As might be expected, tax planning is important and should always form part of the decision-making process but it should never be the main driver. That said, no-one wants to hand over, by way of inheritance tax, 40% of the value of what they have worked for.
Both Nick and David consider tax planning key. Says Smith, “the most important point is what is right for the family members and the business itself.” He believes the UK offers a fairly benign tax-planning environment for family business succession so that most family businesses can be passed on free of inheritance and capital gains tax to other family members. However, the risk of paying a bit of tax pales into insignificance if passing on the family business to the next generation means passing on a working lifetime of misery and a failing business. David points out that if Entrepreneur’s Relief is available, the effective rate of Capital Gains Tax is just 10%.
In summary
Family businesses are peculiar entities, caught by both the need to compete in the marketplace and the need to keep familial factions onside. Whatever course is taken to secure the future of the business, one thing is certain – everyone needs to keep the lines of communication open.
- Avoiding the ‘seven deadly sins’
We have all witnessed the ‘buggers muddle’ that has seen the UK Parliament struggling to find a solution to the challenge of Brexit. By the time you are reading this in December, the general election will be upon us. However, this also showed how difficult it is to align different stakeholder views and there were many instances where some cardinal sins were evident in trying to find solutions. What happened in Parliament would never work in a business environment. So, what are the ‘deadly sins’ to avoid in the management of a day to day business.
Each of these ‘seven deadly sins’ probably deserve an article in their own right, but I hope to provide some form of thought provoking ‘sins’ that you need to consider directly in relation to you and your business.
Firstly, and most importantly, be really honest with yourself and see how these seven key areas apply to you.
1. Don’t be a busy fool!
How easy it is to fall into this trap. Often, in a futile attempt to keep business costs to a minimum, it leads to you getting bogged down in the day-to-day issues and fire-fighting. There's less and less time to step back, plan for the future, anticipate problems and manage the business, which then hit as the cycle starts again. You must make time to manage the business, not just run it.
In addition, guilt about the lack of ‘quality’ time spent with friends and family can compound the issue and in extreme cases can lead to exhaustion and collapse.
Many business owners kid themselves that everything is OK and only start to hire staff or outsource when the cracks are beginning to show. By then it can already be too late. So, get additional help early on.
2. How do you know what you don't know?
You know what you are good at and that has allowed your business to start and develop. To really drive the business forward will also involve finding clients, marketing, recruiting and motivating staff and managing cash flow and developing systems and procedures, plus a whole lot more.
It is unlikely that any one business owner knows everything he needs to know.
Learn to recognise where your skills and knowledge fall short and take action to remedy this gap in your business. Be clear about what precise help you need, what objective it will lead to being fulfilled and the relevant expertise you need to hire in.
3. Trying to grow too fast and too soon
You will obviously have a great passion and belief in your business. So, you gear up by expanding staff and premises - only to have to cut back as the anticipated increase in business turned out to be a false projection.
Every business needs working capital and as the business increases so does the working capital requirement. If cash is tied up in stock or in covering debtors that owe money, then the company runs the risk of running out of cash. This is a well recognised phenomenon and you need to plan accordingly – especially with your bank and accountant.
Make sure you plan for any expansion – don’t celebrate the increase in business and then blame the banks for pulling the plug just when things are picking up. The reality is you need to sit down with your accountant and bank and discuss the need for funding several months in advance to avoid any panic requests.
Additionally, as the business grows, it is critical that you allow for the introduction of the appropriate systems and procedures, so you don't end up being sucked into fire fighting as the business grows, meaning you spend more time working in the business and less time working on it.
4. Who can you talk to?
Many garages are too small to have a proper Board or even a Non-Executive Director. It would be inappropriate to talk to staff about some issues and often partners and friends just don't ‘get it’. External advisors may have only a narrow focus or worse still have their own agenda, so business owners end up marooned on their own little island.
This can be very damaging. Talking things through with others is important as it often provides new ideas and perspectives or can simply endorse your view reassuring you that you are heading the right way. Business breakfast clubs can work well or develop a small network of people you can trust and use them to talk things through and get their input.
5. Don’t employ another you!
Many business owners employ people who are similar to themselves - so the skills gaps are not actually filled. It's also common for recruitment to be left until the last minute and so a decision is made in haste, to be regretted at leisure!
This leads to problems being overlooked, references are not checked, or business partners are not consulted. Also remember, no matter how good someone is, if there is a difference in their work ethics and values, then the only questions will be "When will the row happen?" and "On what subject will it be?" before they leave or you have to fire them.
6. Who are you?
Many business owners refuse to face their fears and insecurities, often because they don't want to appear stupid or expose a lack of knowledge. They don't trust other people and want to hold on to everything themselves because they believe no one can do it as well as they can. Ultimately this means they are less able to build an appropriate team around them.
Be brutally honest with yourself, about your strengths and weaknesses and their impact on others.
Ensure that you know how to be a great delegator. Learn how to delegate, motivate and communicate with your staff – it is a key man management skill and avoid just dumping or micro-managing.
7. Make a new circle around you
Who's challenging you and testing your business development strategy? Get out of your comfort zone. Very often business owners surround themselves with people from the same sector. The thinking goes something like; ‘unless you've been man and boy in my sector for 50 years – you couldn't possibly have anything to contribute.’ This may apply in some situations, but innovation comes from picking up ideas from outside ‘conventional thinking’. Mixing with others will increase your chances of doing this.
By avoiding these ‘seven deadly sins’, your business has a far greater chance of not just surviving, but thriving.
Take a look at each of these areas and ask yourself some tough questions - and be honest with yourself! Your answers and the resulting actions you take could make all the difference to your future wealth, health and happiness.
xenconsultancy.com
- Top Garage 2020 launches
op Garage 2020 begins its run today (Friday 1 November). Following last year’s amazing competition, thousands of businesses are expected to take part. Those who go through the various rounds will face a number of online tasks, which culminate in a live final on Saturday 20 June 2020.
