Why are most auto garages small and terrible?
In terms of thinking about where some of the big gains from tech remain to be made, I mentioned a few days ago that it comes from applying tech to non-tech fields. Those naturally are those with a ton of inefficiencies remaining, and my mind gravitated towards markets that are generally terrible and unpleasant. One that sticks out is the auto industry…whether it’s parts, repair, or dealerships, the whole customer experience dealing with any aspects of those tends to be terrible and to have changed surprisingly little in the past few decades. Why is this?
I would posit it’s the fragmentation of the industry, as the auto-repair business is one of the most fragmented businesses in America, with the vast majority of business being done either by mom-and-pops or by micro-chains. I know for a fact it’s not because the margins make consolidation unprofitable – all the auto-related businesses are actually quite profitable, with 30-50% gross margins. Here are some other hypotheses:
Competitive barriers: There might be powerful barriers to starting a new repair shop – it wouldn’t necessarily be regulatory, as then there would be positive returns to scale, but perhaps straightforward anti-competitive measures on a local level.
Labor power: Mechanics are, obviously, highly skilled labor. Is it possible that this has kept the power of management to implement consolidation low? After all, your best mechanics can easily leave and go into business for themselves if they feel that they are being underpaid. This would also explain why the customer experience is so crappy – the mechanics run the show.
Negative returns to scale: Is there something about the logistics of auto repair which makes larger enterprises less profitable? It doesn’t seem so at first glance – there are a lot of things that should receive savings from scale. But maybe there is.
The returns to cracking this market are huge – it’s so fragmented that someone who can Apple-ify the customer experience could makes serious bank. By Apple-ify, I don’t just mean great design and flatscreens – I mean creating a superior customer experience, where the customers are happy to be there and don’t feel they’re being ripped off. It’s not glamorous to be in auto repair, but I think there’s really huge money there.