Starting a successful auto repair shop does not happen by accident. A more detailed information can be found in several books, including one from this site. This book will explain how to manage business on a day to day basis with information about market analysis and planning, advertising, employee records and training, accounting and bookkeeping, determining your target market, how to analyze the competition, and much more. The only problem is that this book will cost you US$ 33.00 to download.
Hence, for our purposes, a quick and condensed overall view of how the auto repair shop business works is enough. This broad picture will give us a starting point to grasp the flat rate concept.
The auto repair business is configured in a way to assure that the auto shop owner makes money no matter what happens. The way the shop charges the customer is based on an hourly rate.
This rate is usually set at a very high number, some were between PhP 150.00 - PhP 350.00 an hour depending on what part of the country your in and economic factors in your area. Parts of National Capital Region (NCR) and business centers are even charging as much as PhP 500.00 an hour. If you are in a high wage area you can guarantee the hourly rate is near the top of this scale.
The labor charges assigned to your auto repair are based on this hourly rate. In other countries, the time charged for any given job are supposed to be obtained from a standardized auto repair labor guide. Sadly, there are no standard guide in the Philippines.
Typical auto shop bill
Now lets start out by using PhP 350.00 an hour as a base line measurement. For example, if you need a water pump replaced and the job pays 2.0 hours then the labor charge would be PhP 700.00 plus parts, taxes, auto shop supplies and disposal fees.
You can see how this system is designed to charge you the maximum on any given repair.
Now here is the evil part. The mechanic gets paid on average of only about PhP 170.00 an hour out of the auto shops hourly charge. The mechanic works on a method of payment called flat rate.
This means that if the job pays 2 hours the mechanic gets PhP 340.00. If the job takes 3 hours to complete the mechanic still gets PhP 340.00 if the job takes 10 minutes he still gets the PhP 340.00.
For the mechanic, this means sometimes you beat the flat rate time and win. And sometimes the job takes longer than the labor time allows, due to various reasons like broken bolts and lack of experience and you loose money on the job.
Using the real world example above if the mechanic replaces your water pump and it takes him 20 minutes he still gets paid his PhP 340.00.
This motivates him to rush through the job as fast as humanly possible and move on to the next job and do the same thing over and over again.
Rushing like this the mechanic is most likely to take short cuts reducing the quality of the auto repair. The mechanic is concentrating on the money he can make instead of the cars he can fix.
In some cases mechanics are competing for the next job sitting in the auto shop parking lot. The first mechanic done his task gets first crack at the next task.
It is very easy to get greedy and push yourself beyond your ability to perform quality repairs.
What if the car is not fixed properly?
This will result in a comeback where the customer must once again return for an auto repair often related to the first repair.
Again the facility tries to turn this in their favor by saying the comeback is unrelated to the original repair and charges you a second time.
The auto repair center benefits from this on an accelerated scale. Using this same example the auto shop made PhP 700.00 in labor and paid the mechanic PhP 340.00 and walked away with just a labor profit of about PhP 360.00 in 20 minutes.
Then they mark up the price of the parts on average of cost plus 30% and tack on auto shop supplies and disposal fee’s to make their grand total of profit.
Next they will multiply this by adding more mechanics and repeating the process from open till close. Hence why most auto repair businesses are open late and run 6 to 7 days a week.
More auto repair shop facts here.
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Hence, for our purposes, a quick and condensed overall view of how the auto repair shop business works is enough. This broad picture will give us a starting point to grasp the flat rate concept.
The auto repair business is configured in a way to assure that the auto shop owner makes money no matter what happens. The way the shop charges the customer is based on an hourly rate.
This rate is usually set at a very high number, some were between PhP 150.00 - PhP 350.00 an hour depending on what part of the country your in and economic factors in your area. Parts of National Capital Region (NCR) and business centers are even charging as much as PhP 500.00 an hour. If you are in a high wage area you can guarantee the hourly rate is near the top of this scale.
The labor charges assigned to your auto repair are based on this hourly rate. In other countries, the time charged for any given job are supposed to be obtained from a standardized auto repair labor guide. Sadly, there are no standard guide in the Philippines.
Typical auto shop billNow lets start out by using PhP 350.00 an hour as a base line measurement. For example, if you need a water pump replaced and the job pays 2.0 hours then the labor charge would be PhP 700.00 plus parts, taxes, auto shop supplies and disposal fees.
You can see how this system is designed to charge you the maximum on any given repair.
Now here is the evil part. The mechanic gets paid on average of only about PhP 170.00 an hour out of the auto shops hourly charge. The mechanic works on a method of payment called flat rate.
This means that if the job pays 2 hours the mechanic gets PhP 340.00. If the job takes 3 hours to complete the mechanic still gets PhP 340.00 if the job takes 10 minutes he still gets the PhP 340.00.
For the mechanic, this means sometimes you beat the flat rate time and win. And sometimes the job takes longer than the labor time allows, due to various reasons like broken bolts and lack of experience and you loose money on the job.
Using the real world example above if the mechanic replaces your water pump and it takes him 20 minutes he still gets paid his PhP 340.00.
This motivates him to rush through the job as fast as humanly possible and move on to the next job and do the same thing over and over again.
Rushing like this the mechanic is most likely to take short cuts reducing the quality of the auto repair. The mechanic is concentrating on the money he can make instead of the cars he can fix.In some cases mechanics are competing for the next job sitting in the auto shop parking lot. The first mechanic done his task gets first crack at the next task.
It is very easy to get greedy and push yourself beyond your ability to perform quality repairs.
What if the car is not fixed properly?
This will result in a comeback where the customer must once again return for an auto repair often related to the first repair.
Again the facility tries to turn this in their favor by saying the comeback is unrelated to the original repair and charges you a second time.
The auto repair center benefits from this on an accelerated scale. Using this same example the auto shop made PhP 700.00 in labor and paid the mechanic PhP 340.00 and walked away with just a labor profit of about PhP 360.00 in 20 minutes.
Then they mark up the price of the parts on average of cost plus 30% and tack on auto shop supplies and disposal fee’s to make their grand total of profit.
Next they will multiply this by adding more mechanics and repeating the process from open till close. Hence why most auto repair businesses are open late and run 6 to 7 days a week.
More auto repair shop facts here.
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