Chris Collins discusses trends in the automotive industry favoring shops moving from flat-rate to hourly pay, but notes far more shops move toward hourly. He argues that top technicians care about how work is dispatched and the environment (e.g., access to advisor numbers, parts, keys) rather than entitlement. He presents financial observations: hourly pay often inflates true labor cost (typically 30–50% higher than perceived), gives an example of a $25/hr technician at 50% efficiency effectively costing $50/hr, and describes shrinkage (about 25%) in diagnostics/warranty capture in hourly environments. He also covers hiring practices — preferring flat-rate technicians who are motivated to flag hours versus hourly techs who may expect guarantees (e.g., 38–40 hour guarantees) that can increase turnover or lower performance.
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Now, when we talk about this, I think we should expand our horizons in the sense that we should talk about truck, car.
Okay.
Yeah, everything. Because I think that it is different.
And so we are hearing over and over again that there's a trend in the industry and a push towards shops that are flat rate to go hourly.
Way more than there is shops that are hourly to go flat rate.
Very much so.
And so the feeling, I think, from a lot of technicians.
Is that they, they have the skill, they have the tools.
Right. The expertise, and.
They don't feel like they should be.
Measured as much on production.
Some. Yeah.
Now there can be situations there where the place that they work, the work isn't dispatched or there isn't enough work. So there, there probably are situations where. Where that's a legitimate concern from a technician. Right.
Yeah, I would.
It's definitely more of an outlier to me from what we see.
But I'm trying, I'm trying to. I'm trying to take into consideration every side of this coin.
I respect that.
Understanding that a lot of people listening to this are going to.
Say that we're gonna see that in the comments. Right.
So.
It does happen. There probably is a case for that.
What I know is that the best technicians I've ever hired in the interview.
Are more concerned about how the work is dispatched, where the keys are kept, what parts is like, because they already in their head are trying to figure out how many hours they can flag. Then entitlement.
Guarantees.
A safety net.
Yeah. Definitely the right questions to ask is what I would say.
You can tell. And so would you. If you were hiring a technician, would you want a technician that was concerned about production versus a technician that was entitled and it was all on the company.
To provide his efficiency? Basically, like, very little responsibility falls on the tech. It falls on the company, the environment.
Well, I want up you too. Also the technician that's concerned about advisor performance. So my favorite is the technician that asked to see the advisor numbers when they do an interview.
Yeah. Which again, it's about thinking about performance.
How many hours can they get out of one ticket. Yeah.
And also I have seen technicians that are less concerned about their hourly rate in the sense that they might take $2 less to be in an environment that they can flag more.
Yeah. It doesn't take long to catch that up. Yeah.
And so in our industry, the thing that we keep seeing when we're, when we're looking at financials and shops is when you get to figuring out their cost of labor, like how much does it cost to produce an hour of labor? In just about every situation where the shop is hourly, the cost of labor is 30 to 50% more than what is perceived by the people working there. And so in a sense, if you. Let's just say that we have an hourly technician that is making $25 an hour and they are 50% efficient. So it takes them two hours to flag one hour.
Of labor. What does it cost me for that technician?
$50 an hour.
And then my question would be, could we hire a flat rate tech for 35 or 40 and have somebody that's vested?
Yes.
The other thing that happens, and I've only found this out by going into a shop that's hourly and throwing in a couple flat rate techs. So if you take a shop and let's say you have 12 technicians that are all hourly in a shop and let's just say your efficiency is 70%. So they're doing okay, they're 70% efficient. And I take a couple of those guys that in the interview are asking, where's the keyboard? Can I see the advisor's numbers? And they're just thinking about.
Point me to the stall and let me get to work. They want to flag some hours.
You throw them into that environment. What do you think becomes very apparent?
That production is the way to get to the top.
I don't disagree with that, but.
I have another experience a little different than that is that in an environment where the technicians are hourly, there's usually about 25% shrinkage in free diagnosis advisors. Having them do work that they're not getting paid for. They're not writing good enough stories if there's warranty involved because they're not vested in the outcome and they don't care if an advisor has them do something and the company gets paid or not, it doesn't really matter. They're not connected. It's way harder for an advisor to give time away when the tech's like, hey, you got to flag me for that. And they got to put it on the arm, they got to flag them. It's way harder for them to, you know, give away a little bit from the till when the technician is vested in what is flagged and their performance. And so you don't just see it in the cost of labor, you also see it in the shrinkage of, of the advisors, the warranty administrator, whatever, not being able to claim as much or sell as much because there's shrinkage, you can give it away and there's no accountability in there.
Yeah.
So you could give diagnosis away, you could give warranty away, it wouldn't matter.
Right. So an RO that should have $400 on it really has $300 on it because no one's checking, no one's double checking the work.
Yeah. Because something that the book says should pay three hours the advisor can give to the technician doesn't really care because.
The advisor thinks that the reason a customer buys is price. Yeah, that's right.
And so then the other thing that you see, and I've seen this with shops, is they counter this. But I would question if all of this really is worth it in the end is what they will do is they'll say, we'll guarantee you 40 hours a week.
To get technicians in because they're struggling to get technicians in. Then they will put a minimum requirement in place.
That if you don't flag 38 hours or whatever it is, you're fired or they let you go.
What happens is you, you build a culture of people just getting by or you end up getting rid of some techs. So you have a lot of turnover.
And I think that you would hire different technicians if that wasn't your business model. You would hire technicians that actually are going to flag. You'd be better off paying a little bit more for techs that are flat rate that are going to flag than having technicians that want the guarantee that you have to get rid of every once in a while because they're not hitting the minimum requirement. And if you don't have a minimum requirement, usually most of the time you're not making money and your cost of labor is pretty high. There's no doubt it's costing you twice as much to produce an hour of labor than what you think. And you have shrinkage.
Yeah.
Thanks so much for watching this clip of Service Driving Revolution. We're uploading new stuff every day, so make sure you subscribe and click the bell icon so you don't miss out. If you have a question you'd like us to answer on the show, call 8333 Ask SDR and we'll answer your question on the show. That's 83 Ask SDR. For special deals on our books and training, head over to offers.chris collins inc.com that's offers.chris collinsinc.com I'm Chris Collins and I'll see you in the next video.
