How to Value: Auto Mechanics

Industry Description

The auto mechanics industry in the US provides repair and maintenance services for automobiles (NAICS 811110). This industry includes self-employed mechanics, auto repair shops, garages and car care centers and does not include car dealerships, auto parts retailers or gas stations that provide industry services. Also not included in this industry are auto bodywork, car wash, oil change or air conditioning repair services.

The following are some basic characteristics of the auto mechanics industry:

  • Auto mechanics industry has a combined revenue of $65.8 billion, with a decline rate of 0.5% in 2016-2021
  • There are approximately 260,000 businesses as of 2021
  • The auto mechanics industry employs approximately 419,000 people

Industry Trends

The auto mechanics industry in the US is highly fragmented, with low levels of market share concentration. The top industry operators comprised approximately 8% of revenue in 2021. Prominent players have multiple locations across the country, while small players are owned and operated independently in a specific region or city. Some key external forces influencing the industry are (i) the shift towards electric vehicles, (ii) the increasing complexity of automotive technology, and (iii) the rise of do-it-yourself (DIY) repair options. Each of these is described in further detail below.

Electric vehicles accounted for 4.6% of car sales in 2021 and are forecasted to reach 40% in 2030. Auto mechanics need to be knowledgeable about the newer parts and systems such as batteries, electric motors, and regenerative braking systems. The shift towards electric vehicles is due to them tending to have lower fuel and maintenance costs, but their repairs are more expensive due to the unique parts and systems involved. Auto mechanics need to understand how these parts and systems work together and how to diagnose and repair them when they fail, which requires additional training and education, which can be costly and time-consuming. Auto mechanics need to adapt to this change in landscape to meet industry needs.

The increasing demand for safety features has resulted in a wide range of sophisticated systems being integrated into modern vehicles. These features include airbags, backup cameras, lane departure warning systems, and adaptive cruise control which are designed to provide drivers with critical information about the surrounding environment and help prevent accidents. These systems have increased the complexity of automotive technology. Safety systems require sophisticated sensors and computer systems to operate effectively and must be carefully calibrated to work together seamlessly. This has significantly increased the number of components and systems that make up modern vehicles, making repairs and maintenance more challenging and costly.

The industry is facing a significant challenge from the growing popularity of do-it-yourself (DIY) repairs. Nearly half of consumers have personally performed maintenance, repairs or customizations to their vehicles in 2022. This is being fueled by the increasing accessibility of information online, as well as the ease of purchasing necessary tools and parts. More and more car owners, especially younger generations who are tech-savvy and adept at self-reliance, are opting to undertake repairs on their own rather than seeking the services of a mechanic. Consequently, auto repair shops are struggling to retain their customer base, especially for basic repairs that can be accomplished at home.

Despite these changes the industry remains a vital and growing sector. By staying on top of industry trends and adapting to changing demands, industry operators can continue to provide high-quality service to their customers while ensuring the industry’s long-term viability. The industry is evolving rapidly, and by staying ahead of the curve, industry operators can continue to fill an essential role.

Key Performance Metrics

In evaluating auto mechanics, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:

  • Effective labor rate
  • Average repair order
  • Service bays per technician
  • Repair orders written per day/month
  • Revenue per repair order
  • Hours per repair order
  • Revenue per technician
  • Quote capture rate
  • Client satisfaction and retention

Industry Organizations & Publications

The following organizations publish useful information:

  • Automotive Service Association
  • Automotive Maintenance & Repair Association
  • National Auto Body Council
  • National Institute for Automotive Service Excellence

Guideline Information: Private Purchase Transactions

Most auto mechanics are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held auto mechanics is generally the best source of information to appraise a subject company.

The following are typical appraisal multiples from sale of auto mechanics:

  • Revenue multiple between 0.19 and 0.71 times
  • Gross profit multiples between 0.32 and 1.29 times
  • EBITDA multiples between 2.0 and 5.7 times

In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.

Guideline Information: Publicly Traded Companies

Most auto mechanics are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company. 

The largest publicly traded US auto mechanics is TravelCenters of America Inc. (TA) – $1.3 billion market capitalization

The Price-to-Earnings (P/E) ratio of this company is 7.7 times.

Appraisal Rules of Thumb

Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.

Auto mechanics are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.