If your car breaks down, you need to fix it. The necessity of automotive repair—whether that’s at an auto and tire repair shop, or you do it yourself—has given the aftermarket auto parts industry an almost recession proof superpower. Despite this strength, however, the industry is quickly changing. New trends and challenges are creating a lot of uncertainty but also opportunities for growth and future consolidation.

Shop owners need to take stock of how these changes are affecting their business and what it means for their future. This means having your books in order, having a sound management team in place, being prepared for industry disruptors like electric or hybrid vehicles, and making plans to diversify your offerings. As these key trends reshape the industry, now is the time to focus on how your business will react and make the changes needed to remain competitive.

E-commerce is changing the way auto and tire repair centers do business in a major way. From distribution of parts to consumer buying habits, small- and medium-sized shops must either adapt or get crushed by those who have.

One area shops are seeing a big change is in the distribution of parts. Competitors and consumers are increasingly buying parts online and asking owners or shops to install those parts, chipping away from their business. Traditionally, auto and tire repair centers buy parts wholesale from distributors and are able to mark up the price of the part after installation in a customer’s vehicle. This markup covers labor and the warranty that the shop stands behind the repair.

Consumers today, however, see that mark up, look online, and feel like the repair center is ripping them off. Rather than buy that part directly from the shop, customers are turning to online auto parts distributers and asking the repair center to install it for them.

In the past, repair centers refused to do this, not willing to take the risk, but as the practice has become more prevalent, shops are being forced to change best practices. While they typically won’t offer a warranty on the parts or the labor required with installation of the part, I’ve heard from shop owners who now say yes to installing the part for fear they will lose a customer who will just go somewhere else.

Wider access to auto parts online has also opened discourse around the consumers ability to fix their own vehicle or have it repaired at the service center of their choosing without having to return to the car manufacturer. Tesla, for example, is notorious for restricting access to repair services outside of an authorized Telsa service location.

Ongoing litigation around the idea of Right to Repair argues that manufacturers don’t legally have control over vehicles post-sale. It’s likely law will rule in favor of the consumer rather than the car manufacturers, as everyone should have the right to fix something without ramifications.

This is also a win for small repair shops that are being threatened by more sophisticated vehicles made with proprietary technology parts. With more accessibility around repairs, these shops can continue to compete with dealerships and large repair centers.

Even with a win around the Right to Repair, shop owners need to be prepared for how electric and hybrid vehicles will change the industry. Though EVs don’t have traditional engines, there are still quite a few components that will need to be serviced. Even electric cars can breakdown.

With that in mind, repair centers need to change the model of they are selling, oil changes and other bread and butter high volume products may no longer be needed but will be replaced with something else. As you go upmarket into more expensive cars, for example, you’re also starting to see dual gear transmissions, which is more similar to a traditional vehicle, with more gears, more moving parts, and more potential for repairs.

Hybrid vehicles offer a lot of potential, as well, with demand for hybrids overtaking electric. Hybrid sales in the first quarter of 2024 increased 18% year-over-year, while EV sales only increased 3.8% as consumer confidence in electric vehicles declining.

While this re-engages everybody, because this means more components, the uncertainty about what the future will bring remains. There are a lot of unknowns about EVs, including their longevity. Where a Toyota can last you 30 years, and you still see them ticking down the road, we don’t have enough information about how long their electric counterpart can last. It’s a new world, and shop owners must be willing to adapt to it.

Auto and tire repair centers also need to get smarter on electronics, expanding their expertise to cover software, wiring harnesses, and other technical advice.

Auto part supply chains are beginning to normalize following the Covid pandemic, but inventory is still a major challenge for suppliers. As more vehicles come to market with different models and brands, the proliferation of SKUs makes it challenging to know what to keep in stock.

There are so many parts out there that repair centers don’t know what to hold. It’s a delicate balance around having the right thing when a customer needs it and holding costly excessive inventory.

Parts and tire inventory is a delicate balancing act. You need to have parts on the shelf to be able to sell quickly, but don’t want to have inventory sitting for a long time tying up cash.  Your safest bet is selecting the tires and parts you sell quickly and often, keeping those on hand and leaning heavily on your distributors to support your growing needs. Tire distributors also have begun to implement “hot shot” delivery services for a fee, which is a convenient option for customers who are on a time crunch. Most customers are even willing to pay the fee.

Shop owners must work with their parts distributors to get priority delivery and hold them to a delivery time commitment. Most distributors should have delivery time reporting; ask for the reports, review them quarterly and hold your partners accountable. Additionally, make sure you have alternatives and back up options for both parts and tires. Never put all your eggs in one basket.

Consolidation of tire and service still remains relatively low, especially in the middle of the country, but interest from private equity is growing as these market dynamics create new opportunities for growth. Consolidation is happening, and it’s changing the customer profile. The larger players can offer more service options faster but rarely offer the services and quality of a small business.

As this trend continues, smaller operators need to consider if they want to work toward growth opportunities (offering new services, buying or opening new locations), if they are prepared to sell their business, or maybe it’s time to close the doors all together. Whatever the choice, staying still is no longer an option.

Smaller shops looking to remain competitive need to be able to provide something above and beyond like better shop equipment and supplies or a large footprint, with multiple convenient locations. Keeping an eye of your margin profitability profile, strong financials, and clear, concise record keeping will be important. Additionally, letting go of sole control with an experienced management team in place indicates a strong and healthy business and will set you apart in fragmented industry poised for big changes ahead.