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A POINT OF GARAGE DIFFERENCE

A POINT OF GARAGE DIFFERENCE

Sometimes it’s good to take a bit of time out to think through why a customer should choose you, as opposed to any other garage in the area.

Thinking about your business from your customers’ perspective is an exercise worth taking. After all, we can be so immersed in what we do that we lose track and take things for granted.

Personally, I think I can safely vouch for your typical customer and tell you that most find it very difficult to differentiate between one garage and another. Many independent garages unfortunately do appear the same. They all say they do brakes, clutches, servicing; some offer air conditioning services and other’s MOTs, but there never seems to be a lot of difference between them.

This makes it very difficult for customers to make informed decisions on which garage to use. They have very little to go by. They may have driven past your premises, seen your signage, again reiterating that you do what everyone else does.

Some premises will be big and others small; in these cases, price will probably go through the customer’s mind, big = expensive (but perhaps they have more capabilities); small = cheaper (but can they work on new cars?).

LOYALTY
This could be a reason why some customers don’t stay loyal and change garages from year to year. Or, worse still, you lose out on a major repair because the customer wasn’t aware that you could do it and went elsewhere.

Very often customers are left to read the ‘signals’ that independent garages put out and to decipher for themselves who to use.

But this means for those who do reach out to their customers, who are prepared to communicate and engage with them, there are great opportunities to win them over. Customers do need more information to help them with their decisions. It’s not all about price and where you are.

To the majority, the mechanics of cars are a mystery. Most never lift their bonnet from year-to-year and as technology rapidly advances, people understand less and less. This only increases their difficulty with decisions. Who is really up to the job – can that small garage down the road really handle my particular car?

DIFFERENCE
So how can you make yourself more appealing to customers? You need to differentiate yourself from the crowd. You need to help customers with their decision making so they gravitate to you.

In an industry where this is rarely done (outside of the dealerships), there are opportunities for those prepared to put in the effort. And this is what marketing is about – it’s not necessarily about hard-sell offers and saying how great you are. It’s about helping customers, informing them and going that extra mile. It does take time and effort but it can pay off.

If you take a leaf out of other industries it might help you understand what I mean by ‘differentiation’. Take the airlines; you’ve got Easyjet, Virgin and British Airways, all fly planes and take passengers fromAtoB–butallare distinctly different and spend a lot of money communicating how different they are and evolving services to back this up. Customers know pretty much what to expect.

Then there’s the supermarkets, who do you choose Waitrose or Lidl? Extreme cases I know, but with one you know the products have been chosen with a more discerning approach, plus you can pick up a nice lifestyle magazine with hints, tips and interesting stories. Whereas the other has a more, no frills, pile ‘em high, sell ‘em cheap approach – both are clearly different.

It has been said that those that are too ‘middle-ground’ or too general are the businesses that are struggling. You’ve only got to look at some big high street names that have gone to the wall. In most cases, it was because they lost their way and,
in the eyes of the customer, weren’t different enough.

So how can you differentiate your garage? As I’ve already said, in most towns there are great opportunities for those who are just bothered to communicate; to actually do something like sending out regular mailings. This is because most don’t do anything.

But the key here is ‘communicating’, after all, it’s no good being good at something, or offering something different if you don’t tell anyone.

For those bookish types out there, I recommend reading any book by Jack Trout the author of ‘Repositioning’ (an updated version of his earlier book ‘Positioning: The battle for your mind’, or ‘Differentiate or Die’. These books will give you greater insight into differentiation techniques.

MAKING A DIFFERENCE

  • Becoming the local expert
  • Offering guarantees
  • Providing a unique approach to serving customers
  • Specialising in types of vehicles
  • Providing more customer endorsements
  • Providing additional products and services that others don’t n Doing charitable work
  • A long track record or unique story

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ACQUISITIONS NEED PLANNING

ACQUISITIONS NEED PLANNING

Takeovers are in fashion in the aftermarket, but you need to find a company that’s the right fit, writes Adam Bernstein

The question of how to grow a business is one that has perplexed many for generations, namely: organic growth or acquisitive growth? It makes no odds which route is taken, the end goal is the same – greater profitability.

Acquisitions seem to be in vogue for the aftermarket at the moment. You’ve probably already read in this issue that Canadian parts giant Uni-Select has acquired The Parts Alliance, which has itself been on the lookout for smaller factors to buy. GroupAuto’s parent company AAG has made numerous acquisitions in the past year, including FPS and LKQ’s attempted tie-up between ECP and Andrew Page has attracted the attention of the Competitions and Market’s Authority, for which we await the decision in November.

There’s nothing wrong with organic growth, it’s just that it takes time. And compared to setting up a new unit from scratch acquisition takes less time, resources and finance that many firms struggle to provide. So how should firms acquire? What are the issues to be aware of?

DUE DILIGENCE
Understanding what is being bought is key. Although acquirers will usually be able to obtain warranties (think guarantees) from shareholders, there is no substitute for extensively checking the detail of the transaction through “due diligence.” The process falls into three distinct areas – legal which will be handled by lawyers; financial and tax which will be dealt with by accountants; and commercial which falls to the acquirer. If any skeletons in the cupboard are identified, these can be turned into indemnities and, as such, the risk stays with the vendors.

But while due diligence is important, desktop research should be completed before any approach is made along with market and commercial due diligence. Research is much easier nowadays as so much information is available in the public domain through Companies House, online databases, the web, and other information gained discreetly through industry sources. But remember, financial information can be months out of date and cannot be relied upon to give an accurate view of a firm’s financial health.

Skimping here will mean the acquirer will have no idea about the veracity of what they are being told.

WORKPLACE CULTURE CLASH
Acquirers need to recognise that buying the assets of a firm is one thing, but businesses also come with staff already employed and they must get along with the acquirer’s own employees. There are countless examples where mergers and acquisitions have failed because of culture clash – Daimler and Chrysler, AOL and Time Warner, HP and Compaq.

Culture is something that should be looked at closely; compatibility is one of the key requirements. Inevitably there is a learning curve following acquisition, but many find that due diligence meetings usually indicate if the businesses can adapt. Others suggest looking at the top to board level for clues on possible culture issues.

TAKING PRECAUTIONS
Of course, some businesses are bought when they are in trouble and here the purchaser should be particularly cautious.

Firms in trouble often find themselves the target of creditors who can apply pressure; this must be considered when arriving at a valuation.

A question to ask is what is the reason for the decline? Is it the loss of a major client or a bad debt? Is the firm out of step with the market and unable to compete? Can the decline be reversed? Some buyers choose to wait until the target goes into a formal insolvency process before making an offer to the administrator or liquidator when the price the target can be acquired at should be considerably lower. But there is a warning – there will be no warranties and the acquisition will be on a ‘buyer beware basis’. Buying a business from an administrator is risky; their job is not to help the buyer but to realise the greatest possible value for the creditors.

It’s important to also look out for Crown debt arrears such as PAYE and VAT. If these exist a time to pay arrangement is crucial if a rescue is to be completed. But buying a failed firm may mean that existing customers may lack confidence in the business. Similarly, creditors who would have suffered due to the business failure – will be wary too.

ACQUISITION COST
Acquisitions involve significant costs and many are not insignificant. Purchasers should budget for the corporate finance finder’s fee, accountant’s costs, legal fees (legal drafting, due diligence and deal completion matters), insurance warranty payments and costs allied with any associated funding. These can be over 10% of the purchase price.

Also, buyers should not ignore property and any stamp duty that is payable. And just as importantly is the hidden cost of the Transfer of Undertakings (Protection of Employment) Regulations 2006 – TUPE – which crystallises if there is a staff restructure following the takeover. Employees involved in a business acquisition can sometimes have a significant level of protection under TUPE – which in practice means that dismissing employees following an acquisition can be restricted or costly. Acquirers also need to consider any changes that have to be made to accommodate staff with disability issues.

There’s also the threat of loss of business due to change of control, changing relationships and the possible loss of key staff following the takeover. But these can be managed by having close liaison with customers and offering staff revised employment contracts that come with incentives. Further, existing contracts and arrangements will need to be honoured once the former management leaves.

But there is one more expense that is harder to quantify – time. It is important to make sure that the acquisition doesn’t become a huge distraction and the underlying business is not neglected.

BOLD MOVE
An acquisition is not for the faint hearted – acquirers should consider if they are better off focusing energy on organic growth or proceed ahead by taking a larger risk with an acquisition.

The adage that “people buy people” applies to staff as much as it does to the seller and customer relationship. Ignoring and potential staffing and culture issue can do more damage than any over-valuation.

NOTABLE AFTERMARKET ACQUISITIONS

  • There have been thousands of takeovers in our sector over the years. Here are a few that sprung to mind:
  • Lookers PLC took the decision to sell FPS Distribution, BTN Turbo and Apec Braking to Alliance Automotive Group (AAG) in 2016.
  • American recycled parts firm LKQ Corporation acquired Euro Car Parts in 2011 after months of rumour and speculation around the aftermarket (much of it incorrect). More recently, LKQ has acquired Arleigh International, a large distributor of touring and leisure products.
  • In 1973 Burmah Oil acquired Quinton Hazell ltd from the man of the same name. Hazell didn’t take to working as part of a large corporation and took a stake in the Supra Group, where he started competing against his former company.
  • ZF and TRW came together in 2016, though Helmut Ernst, CEO of ZF was keen to stress to CAT that TRW as a brand was ‘an asset that would remain’.
  • Cash and carry chain Maccess was sold in 1999 in an MBO valued at £68m. It was a rare example of then-parent Finelist selling a company for profit. Finelist Group collapsed in 2001 while Maccess lasted until 2015 before it ran out of ‘time and customers’ according to the then owner Tetrosyl.

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COULD YOU ENTER A FRANCHISE?

COULD YOU ENTER A FRANCHISE?

‘Franchise’ is almost a dirty word in the aftermarket, but is there an opportunity that is being missed here? Mike Owen suggests not

Franchises come in all shapes and sizes from McDonalds to mopeds, a plethora of VMs and then the smaller offerings which, frankly, are little more than pyramid selling in disguise.

The first rule, and like Monty Pythons ‘Bruce’s sketch’ every other rule thereafter is check your chosen franchisor – it is not unknown for these companies to go down the tubes and, as with Rover, take many well-established franchisees with them to ‘Carey Street’ or at least leave you holding the baby.

Now, a good franchise relationship does two things, it gives an income stream to the franchisee and incremental sales to the franchisor – a relationship is born!

As with any relationship they need nurturing, can go wrong and often have a dominant partner.

There are two basic reasons for considering a franchise. The first is for volume; a recognised name that will bring customers to your door, the second, surprisingly, is business discipline – training and business systems aimed at making the franchisee more professional.

In our industry when we talk about ‘franchises’ the first thing to spring into anyone’s mind is a vehicle franchise and that involves crossing over to the dark side! Firstly, and contrary to opinion, are not generally available – it is well known that the old ‘territory’ system was overturned by the European Commission only to be reincarnated under ‘Areas of Influence’ which are not quite as rigid but come a pretty close second!

You will note that the old ‘family’ garage business has all but disappeared in favour of the ‘groups’ or Plc’s – this offers comfort to the franchisee that the company is correctly funded and under proper financial control – they are fed up with getting burned.

OPEN POINT
Now suppose you have the premises in the right area and it is an ‘open-point’ for a franchise worth having, you are prepared to build from the floor to meet the draconian ‘corporate identity’ standards and, having spent a couple of million and still have a few more millions to go, let’s talk turkey.

As you stand on the edge of the world and prepare to leap into the abyss of becoming a Dealer consider the Faustian degree of your decision – just how far are you getting into bed with the devil?

Before the ink is dry on the contract your life will change – do not expect to operate a franchise for profit; your life will become entirely dependent on ‘standards bonuses’. Back in the good-old days when you could expect 18-20% discount on your cars and up to 50% on parts, now you may squeak 5% on vehicles and 18-20% on parts – the problem is you will be expected to give it all away. Your purchase margin will be passed on to your customers.

Standards bonus cover all things from vehicle sales volumes to customer satisfaction indexes and from parts penetration to finance penetration – the number of cars you sell using the franchises finance offerings. Compulsory training will be charged for and your warranty account will be watched like a hawk. You will input your business information to be measured as part of the ‘Inter Firm Comparison’ and you will receive your data back compared with national, local, size related and upper quartile businesses across the country. Your franchise representatives, be they Sales, Aftersales or Business, will be in and out of your business like a fiddler’s elbow and your life will belong to them.

BONUS
But return to these standards bonuses – you will be told what they could (or should) be but at each inspection you will receive de-merits; how much they will be reduced by, this creates a very threatening relationship. The top brick on the chimney for the franchisors, in this case the manufacturers, book of measurements, has to be volume! I get this, they are dependent on volume of manufacture and long gone as are Red-Robo and the fields full of new vehicles covered in brambles of the 70s and 80s. For the franchisee – you, you will quickly find that operating on a zero-profit basis on the promise of standards bonus to turn your empire into a success you will do anything to hit volume; this is where self-registered vehicles come into your life.

Self-registration is where you take stock vehicles and register them just to hit bonus. The consequence is that you now have a registered new vehicle that is immediately depreciated and going steadily down each month – now trading for nothing becomes trading for a loss. Experience dictates that a phone call will happen at 16:00 on the last day of the month informing you to register 50 units! But, you shout, they’re not allowed to self- register; suffice it to say, there are ways and means…

Dealer management is not for the feint-hearted, more those with a degree in self-deception but please don’t think it can’t be done; it can and is. The art is in never stop negotiating with your franchise, never accept you’re on the best terms, deals are done all over and you’ll need to be cautious!

So there you are, and all that just to have a new car five or six times a year and be taxed on it by HMRC – are you mad?

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SPREADING KNOWLEDGE ABOUT SUSPENSION

SPREADING KNOWLEDGE ABOUT SUSPENSION

Is training garages partly the responsibility of the supplier?

TADIS training platform

As vehicles get ever more complex, do parts suppliers and factors have a responsibility to train garages about the systems that use parts that they sell?

Brian Sanders, Buisness Support Manager at Tenneco says that they do. “We do indeed encourage training throughout the industry, and since its launch in 2007 Tenneco has actually delivered education to 360,000 trainees. Our trainings actively cover technical aspects of our products in both the Ride Performance and Clean Air categories as well as providing soft skills such as sales and negotiation, presentation and communication skills”.

Taking a slightly different angle, Yvette Koehorst from air suspension maker Arnott Europe says: “Arnott believes it’s shared responsibility. We actively try to educate the garage owners and mechanics, especially because replacing air suspension is seen as ‘complicated’ which is not the case” she says. “Anyone that can replace a normal shock absorber can replace air suspension. For example, we have created a ‘tips and trick’ and a ‘most common made mistakes’ sheet which we will also be distributing at Automechanika Birmingham as well”.

VALUABLE INFO
Kevin Price, a Manager at ZF Aftermarket is of the belief that manufacturers cannot provide enough information to garages. “We have long advocated making our technical information freely available to the garages” he says. “If we and other OE quality manufacturers don’t do this, then eventually the IAM business model will collapse. Contradicting the ethos of block exemption, this would limit customer choice and force drivers towards the more expensive main dealer – whether they wanted to or not; as they would be the only ones with the ability and the money to cater for the new and emerging technological system environments in which the components operate.”

“Suppliers must also play their part in ensuring that the manufacturer messages and available resources are passed on in an unbiased way to the garages,” Price adds. “Their business model is such that they have the biggest access to the garages and the means to inf luence decision making”.

For all of this, Price believes that it will ultimately always be the garage owners who will decide how well their workforce are trained. “The garages should take advantage of the training available and embrace it as a vital investment in order to remain competitive and future proof their business” he says.”Of course, this can be difficult in terms of time off versus labour needed to complete the jobs won – and this is where online and remote training comes into its own”.

On that subject, Price’s firm offers a subscription-based workshop concept called ‘Pro Tech’. This allows garages who have joined the scheme access to a number of short courses and training modules. “The courses have a strong practical emphasis that complements the theory, and are continuously updated in line with ZF’s development in its chosen areas of driveline, chassis and steering” explains Price. “The course content ranges from assembly, repair and servicing of power steering units and clutches, to the trouble-shooting of 6HP and 8HP automatic transmissions and torque converters. The modules include the detailed specifics of popular passenger cars sold across the defined markets”.

Arnott’s Koehorst says that her firm has also put some training resources online. “For a growing number of products we also have installation videos where mechanics can literally see step-by-step how a replacement should be done. Most of our products are made as ‘plug & play’ solution so that with the guidance of the manual, any mechanic is able to replace the worn down air suspension part” she says. “Additionally they can always email or call us for technical assistance”.

Tenneco’s Sanders explains that his firm has put its training materials into an online portal, where customers can access all the content in one place. “It is called TADIS (Technicians Advanced Digital Information System) and you can find technical bulletins, fitting instructions, technical videos, and comprehensive product support and cataloguing in one place” he explains.

It seems that these technical resources are more than just added value as they offer useful advice for technicians, which should encourage repeat business and fewer non-faulty returns – plus of course, a nation of delighted motorists. Now isn’t that something we could all subscribe to?

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THREE WAYS TECH COULD BE KILLING BUSINESS

THREE WAYS TECH COULD BE KILLING BUSINESS

Technology can help businesses achieve their growth objectives, but it can also create problems. Is your business suffering?

It’s certainly an exciting time to be working in the automotive sector as the various takeovers, mergers and private finance deals in these pages will testify. However, change brings challenges as well as opportunities. Technology can help businesses achieve their growth objectives, but it can also create problems. In fact, your organisation could already be suffering from some potentially fatal issues that aware of. As tech moves at such a pace, it is almost impossible to keep track of every problem.

A piece of software, for example, may no longer be operating properly, but the faults go unnoticed because no one uses it regularly. This can go on for years and, all the while, you’re still paying for it.

If you want to ride out the wave of profitability hitting the industry, you need to identify any existing technology problems within your business – from how digital is influencing workplace culture to more specific IT infrastructure issues – and sort them out fast.

Here are three of the most common issues affecting organisations operating in the aftermarket and beyond, as well as some suggestions on how you can solve them quickly and cleverly.

WORKBOOK
The fear of missing out (known in horrible management jargon as ‘FOMO’), plagues many workplaces and across all industries. People need to stay constantly in the loop and this is made possible with easy access to mobiles. Unfortunately, employee productivity suffers in the process. According to a phone insurance company, the average Brit spends 23 days a year using their smartphone – which is more than most annual leave allowances!

Some businesses react strongly to this problem and ban the use of personal mobile phones or social media platforms during work hours. The downside of such an extreme policy is that it damages an employer’s reputation and good workers will soon start to look elsewhere for job opportunities.

The truth is, where there’s a will, there’s a way. A social media ban is almost impossible to enforce and will require many more resources to manage. Instead, take a more strategic approach and encourage your employees to use these platforms to build better relationships with customers. More and more salespeople are using Twitter, LinkedIn and Facebook to successfully reach customers. This tactic is known as ‘social selling’ and it involves sharing business-relevant content to attract leads and engage directly with existing and prospective customers.

DATA SILOS
Data ‘silos’ are the death of business intelligence. If your marketing, finance, HR and sales departments all use different software systems to house and manage their data, then you have a serious silo problem. This separation of customer and company information within one organisation inhibits collaboration and creates a disconnected customer experience.

When departments are working against each other, it’s impossible to achieve common business goals.

An example of this sort of inefficiency is when the sales team can’t access the marketing team’s campaign results to identify new lead opportunities. Or, when the marketing team contacts a prospective customer with irrelevant material because they can’t view the sales pipeline.

Data silos are very bad for business and, unfortunately, very common. Your business needs one system and a uniformed process to manage its data. As soon as any information is updated, the change must be immediately visible to all internal stakeholders.

A consolidated information ‘bank’ improves collaboration and efficiency, and ensures that all departments have access to correct data.

Your company is very likely gathering significant amounts of new information daily. This data is a valuable commodity, but the longer you leave it stored in silos, the less it’s worth. Fresh data doesn’t stay fresh forever. Make sure you have a master system in place when you de-silo your data. With unique identifiers for each account, data integration will be painless and important information will remain rich and relevant.

OUTDATED SOFTWARE
Technology could be described as ‘here today, gone tomorrow’. Many popular devices and software systems are outdated within a year or two. The only way businesses within the aftermarket can keep up is to audit their technology regularly. The market moves quickly and some of your competitors are just as fast – a good spring-clean will help you stay one step ahead.

You may be surprised to learn that some of the systems you run have been discontinued and therefore no longer qualify for update or maintenance support. Employees may also have stopped using certain packages that are no longer relevant – yet you’re still paying for them.

Outdated or irrelevant legacy software puts your business at risk and increases running costs. The longer you delay updating your software, the more expensive it becomes to maintain, improve or expand the technology. Experts like to stay up-to-date with new systems, so old software is made more cumbersome by the lack of people who understand how to manage it.

Take time to review your current software and hardware. Assess your company’s technologies and determine what works and what doesn’t. Find out what processes are improving efficiency within your organisation and which ones aren’t. To really work out how technology is helping or hurting your business, you also need to get input from all your staff, especially the end-users.

To prevent technology from killing your business, you need to make it work for you. It’s no good just adopting the latest software packages every time they’re released – what technologies will help you achieve your objectives best? In a highly competitive market like the automotive aftermarket, the right technology can keep your employees engaged and motivated, and help you improve your profits and productivity in the process.

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DON’T GET CAUGHT OUT – MAKE VAT MORE SIMPLE

DON’T GET CAUGHT OUT – MAKE VAT MORE SIMPLE

For once the taxman is listening to your ideas on how to make tax transparent, writes Adam Bernstein.

VAT is a tax that, from the government’s point of view, is very successful. It raised some £117bn last year – 22% of government revenues. And it’s cheap to collect – the VAT-registered trader does most of the work and HMRC just polices it.

But despite HMRC’s efforts, there are some that take advantage of the system for fraudulent purposes. Take the August 2016 case of Ian John Coleman whose Top Gear Transmissions Ltd charged VAT to customers but then pocketed £300,000 of that money. He was jailed for 32 months. He denied any wrongdoing, but offered no explanation for failing to submit accurate VAT returns, saying that he was “no accountant”.

The problem is that VAT is an admin burden, complex and even with help from accounting systems, creates lots of worries and builds in fraud risk. Could it all be simpler? Could that burden be reduced while protecting government revenue? The government is thinking VAT can be simplified and through a review being undertaken by an independent department, you have a chance to contribute.

BACKGROUND
As Paul Morton, Tax Director at the Office of Tax Simplification (OTS), the department running the review, points out, the UK when it joined the Common Market in 1973. With the UK planning to leave the EU, VAT is going to be affected by Brexit.

VAT’S ENOUGH
Those old enough may remember that when VAT was coming in, the then Chancellor, Anthony Barber MP, declared that “VAT will be a simple tax”. But it’s not and lots of areas cause difficulties for the trader, often in deciding whether to charge VAT on something or not.”
The OTS has identified eight areas that are particularly complex and so offer scope for simplification. They are discussed in Progress report and call for evidence it published on its website. Four are particularly interesting to the OTS:

The VAT registration threshold:
This is when a business has to sign up for VAT and start charging it. Morton points out that the UK’s level is £83,000; most others countries are around £20,000: “This can encourage traders to stay below the current £83,000 annual level. We’re told that distorts competition with someone who can stay below the VAT limit gaining a price advantage compared with the VAT-registered trader.”

Morton poses questions – would it be better to raise the UK’s registration level further, which would cut out more businesses, but costs the government money? Or should it be lowered – perhaps to the £20,000 average? But as Morton points out – “that would level the playing field somewhat but means more small businesses have to deal with it – how would they cope?”

Rates of VAT:
Changing tax rates is outside the OTS’s remit but what it’s interested in are boundary issues that cause problems in practice. Where is it difficult to decide what rate to apply? Is that down to product development where VAT hasn’t kept up?

There are of course some famous examples here says Morton. “Some may recall the case over whether a Jaffa Cake was a chocolate-covered biscuit (that would be subject to VAT) or a cake (zero-rated and so it carried no VAT). In the end, the case was decided by a VAT tribunal as it being a cake – they start soft and go hard with age whereas biscuits are the reverse.”

Partial exemption:
Morton says this is a more technical issue, but it’s not the obscure area it once was. The idea is that a trader claims back VAT they have paid on goods and services purchased. The catch is that the purchases have to be linked to supplies they make that are subject to VAT, at the 20%, 5% or 0% rate. If the purchase links to a supply that is exempt or just isn’t a supply at all (that can affect charities) then the VAT can’t be reclaimed.

Morton says “these circumstances are ‘partial exemption’ and seem to catch far more businesses than it used to. A classic example: the farmer who now rents out surplus buildings.”

Special accounting schemes:

There are a range of schemes which were designed to simplify VAT accounting. Morton lists as including flat rate schemes, annual accounting, and retail schemes. The OTS wants to know if they are still working properly and Morton asks: “Do they still simplify – do they need amending? Are some no longer needed?”

There are other areas listed in its report that the OTS will be examining – VAT administration, penalties and appeals; Capital Goods scheme; Option to Tax; a rulings system; and whether particular business sectors need to be taken into account. “But as well as what we have set out, people will no doubt have their own issues that cause complexity.”

THE OTS NEEDS YOUR HELP

The OTS gathers evidence from those who deal with the tax system – businesses, advisers – anyone with an interest. “We’ll do some of our own analysis,” says Morton, “but we need people – especially small businesses – to tell us what causes difficulties in practice and so what would make life simpler.” Email ots@ots.gsi.gov.uk if you have any ideas.

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STEELS THE ANSWER IN MODERN GASKETS

We know what a gasket is, but what does it actually do, and how?

Fibre gaskets now less popular

What is a gasket? It sounds like an obvious question, but in point of fact, it is not the easiest to answer. Some would say it is any flexible material used to mate two surfaces, while others would have a more technical answer that distinguishes a gasket from a seal. Others, particularly those that own anything powered by the Rover K-series, might have another (possibly unprintable) definition of a gasket.

But for the rest of the aftermarket, when someone talks of gaskets they are generally referring to the cylinder head gasket, which as everyone knows is to act as an air, oil and watertight seal between the head and the block. If the gasket blows when the engine overheats then the driver will hopefully notice the sudden increase in temperature and take action before the head warps or the block cracks.

COMPOSITION
Head gaskets generally used to be made from a form of fibre, but these days are more often than not made from steel. The reason for this is that the crush rate is far more predictable, meaning the head can be tightened with a torque wrench without needing to carefully half-tighten each of the bolts in turn.

Another reason for using steel is that with crush gaskets the height of the cylinder head can vary, literally depending on how much the gasket is crushed under the cylinder head. This might seem like an inconsequential amount, but it makes a difference to modern fuel injectors that have a tolerance of only a few microns.

Steel gasket

PROBLEMS
However, steel gaskets have not been without problems. OEMs have battled with creating a gasket that will apply an adequate amount of pressure to stop gasses from escaping. One way of doing this is to add an additional ‘fire ring’ into the steel, although some aftermarket gaskets don’t have this welded ring, instead relying on a ring folded into the metal. Last time we addressed this issue, we spoke to Dominic Moxon, a Senior Product Engineer at FAI Automotive who explained: “The problem is this folded design will not last as it will not be able to cope with the pressures generated in the combustion chamber”.
Clearly, having to do a job twice, particularly an involved and complex task like a head gasket, so it pays to track down a gasket of a similar design to whatever was fitted to the vehicle originally.

WELL I’LL BE BLOWN… GASKET MYTHS DEBUNKED
Paul Grosvenor from Mahle advises that one of the most common misconceptions is that a good plan with a diesel engine is to replace the head gasket with a thicker one.

“It is not best practice to do that” he says. “The difference in the gasket thickness exists primarily because of the tolerance on other parts. It can ultimately affect the emissions levels by using a thick gasket when it should use the thinnest one”.

“Best practice is to fit like for like, because gasket thickness is calculated on the protrusion of the piston from the engine block so if they are only changing the head gasket they should fit the same as was fitted on it originally”.

UNDERLYING ISSUE
Dominic Moxon of FAI Automotive says that if a head gasket has been fitted for some time suddenly goes then technicians need to look for an underlying cause. “There is always a reason for it failing whether that is down to a manufacturing process, installation issues or a running fault”.

REMAN STANDARD
Simply replacing the gaskets and cleaning a used engine does not make it a remanufactured part. In the UK, the Federation of Engine Remanufacturers agreed a set standard for remanned engines 20 years ago and more recently agreed a strict definition with six other trade groups. John Gray, FER President, said: “The remanufacturing industry has lead the acceptance of a range of terms that have UK origins. This international agreement also provides us with further proof that remanufacturing is on the rise, which is extremely positive for the industry.”

Best practice is to fit gaskets like for like

COOLING BLOCK
Pour-in instant head gasket is hardly a professional repair, but claims that it will clog or cause damage to the cooling system appear to be wide of the mark, at least if you are using the Steel Seal product. “It contains no fibrous material to seal your blown head gasket. It relies on a thermo chemical bonding process that is a chemical reaction, to seal the leak in your blown head gasket” reads a statement from the company.

Posted in Accessories, CAT Know-How, Garage News, News, Seals & GasketsComments (0)

THE INTRODUCTION OF THE APPRENTICESHIP LEVY

THE INTRODUCTION OF THE APPRENTICESHIP LEVY

The long-awaited Apprenticeship Levy for UK employers came into effect from 6 April 2017. While it’s been widely heralded, few seem to fully understand what it is, how it will operate and what effect it will have on businesses.

WHAT IS IT?
When the present government was elected in 2015, it revealed ambitious targets to significantly increase the number of apprenticeships in the UK. The plan was that these apprenticeships would be funded in large part by employers and that in turn, they would be able to access the benefits of the new system.

The government then put forward more detailed proposals for a new levy on large employers, with the aim of supporting three million new apprenticeships for people over the age of 16 by 2020. In essence, the levy will be an obligation on all qualifying UK employers in both the public and private sectors to fund new apprenticeships from May 2017.

Although skills training is a devolved policy issue in the UK, the levy will apply equally to employers in England, Northern Ireland, Wales and Scotland. The government has plans to work with those devolved administrations to understand how they intend the levy to operate in their particular areas, but it appears that they plan to utilise the additional funds as a supplement to existing funding arrangements, rather than operate any centralised digital system comparable to that being set up in England.

HOW WILL IT OPERATE?
The purpose of the levy is to encourage employers to invest in apprenticeship programmes and to raise additional funds to improve the quality and quantity of apprenticeships. The levy paid by employers can then be accessed by those same employers to fund apprenticeship training in their business.

In England, control of apprenticeship funding will be put into the hands of employers through the Digital Apprenticeship Service (DAS), an online service that:

  • allows employers to access funding for apprenticeship training;
  • choose the type of apprenticeships they want to run;
  • choose the number of apprentices they take on;
  • choose the training provider that suits their needs.

The levy will be charged at a rate of 0.5% of an employer’s pay bill and will only be paid on annual pay bills in excess of £3 million. In reality, this affects less than 2% of UK employers. The levy will be collected by HMRC through PAYE, alongside income tax and National Insurance Contributions. The pay bill will be calculated with reference to total employee earnings (not additional payments, such as benefits in kind) and will be payable by the employer on a monthly basis. It will be up to employers to notify HMRC each month as to whether they are eligible to pay the levy.

When the money goes into the DAS, it gains a 10% top up from the government. This means that for every £1 that enters a business’ digital account, it gets an additional 10 pence. For example, if a company has a payroll of £3 million, they will pay £15,000 in levy payments throughout the year which will gradually appear in their digital apprenticeship account, and they will also gain an additional £1,500 (or 10%) from the government for the same period. Therefore, the company will have £16,500 in their digital account to pay for apprenticeship training and assessment.

A further aspect of the levy proposals will see each employer receive an annual allowance of £15,000 to offset against their levy payment. If the employer has more than one payroll reference, it may apportion the allowance between them. The levy allowance is spread evenly throughout the year, so that the amount offset against each monthly levy liability is one-twelfth of the total allowance for the year to which the employer is entitled. Any unused allowance from one month is carried forward to offset against subsequent months. At the end of the tax year, the employer may reallocate any unused portion of the levy allowance for one payroll against the liability for another. If the levy has been overpaid, the employer must offset the overpayment against its other PAYE liabilities, before making a claim to HMRC for reimbursement of any remaining excess.

If an employer starts or stops trading during a tax year, the pro-rated share of its allowance for the earlier or later months (as appropriate) is added to that of the month of commencement or cessation (so the full annual allowance still applies). If an employer chooses to adjust a previous month’s pay bill, it should account for the change in its next employer payment summary (EPS). If, at the end of the year, it determines that the National Insurance Contributions reported to HMRC are incorrect, it must submit a correcting EPS.

In the case of a group of employers, only one annual allowance of £15,000 will be available and it will be for the employers themselves to determine how this is apportioned between them.

Each apprenticeship framework will have a maximum funding band and the government has set 15 different bands. Employers can then negotiate an appropriate price with their training provider – for many larger businesses which have a training department, they may be able to make the levy go further by offsetting some of their own training input.

HOW WILL IT AFFECT FIRMS?
Companies which qualify to pay the levy will need to consider the impact that it may have on their business, including:

  • any changes that need to be made to the payroll system;
  • dealing with associated payroll administration;
  • seeking advice on financial (re-)modelling; and
  • potentially mitigating the impact of the new costs incurred.

The government has announced that any unused levy funds (i.e. those that have gone beyond the 18-month expiry date) will be used to fund apprenticeship training for small and medium sized businesses, which do not reach the threshold to pay the levy in the first place. It is expected that the levy will raise approximately £2.5bn per year for training in England and that this will cover all employers who take on apprentices, regardless of their size, as there will be many employers who do not use all the money in their digital accounts. This means that non-qualifying businesses will not miss out.

Non-levy paying businesses with over 50 employees, or businesses that have used up their levy pot, will have to make a contribution of 10% towards the cost of apprenticeships. The remaining 90% will be paid for by the government. Smaller businesses will not have to make a contribution for apprentices up to the age of 23. For all employers who take on apprentices between the ages of 16-18, they will receive a £1,000 bonus payment from the government. However, it is also worth noting that the levy can be used to fund apprenticeships for new or existing employees of any age or position, as long as there is a genuine need for training. Employed adults can undertake apprenticeship training – they do not need to be in entry-level job roles and they can continue to be employed on their existing terms and conditions.

In light of these upcoming changes, therefore, it is important that businesses consider their strategy for dealing with the new levy. Although it may focus primarily on lower-level staff, it should also reach up to include leadership and management programmes and in some cases might also include professional pathways.

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ILLEGAL WORKERS

ILLEGAL WORKERS

As we approach Brexit, employers now more than ever before, need to ensure their employees have the right to work in their business. In 2016, both the offences and penalties relating to the employment of illegal workers broadened significantly, meaning mistakes can be extremely costly for a business.

The problem isn’t new to the automotive sector. Back in October 2011, CAT reported that ECP had been caught employing illegal workers at the Tamworth distribution centre and also at its head office in Wembley. The company was subsequently fined £35000. Interestingly, a recruitment firm – Winner Logistics – which supplied staff to ECP was also caught and fined £15,000.

LAW AND PENALTIES
It is unlawful to employ someone who does not have the right to live and work in the UK or to employ a person who is working in breach of any conditions imposed upon them by the Home Office. Employers have an obligation to prevent illegal working. To comply employers must carry out right to work checks on all prospective employees before their employment begins; conduct follow-up checks on employees who have a time-limited permission to live and work in the UK; keep records of all the checks carried out; and not employ anyone it knows or has reasonable cause to believe is an illegal worker.

THREE STAGE CHECK
Employers need to follow a three- stage check. The first step involves obtaining the employee’s original documents proving their right to live and work in the UK. Next, those documents that relate to the individual in question should be checked to see if they are original, unaltered and are valid. Lastly, they should be copied and kept securely with a record of the date of the check and a date for any follow-up check that may be required.

Different documents must be used for employees that have a permanent right to work in comparison to those who have a time-limited right to work. A full list can be found in the Home Office’s website.

FAKE DOCUMENTS
Employers are not expected to be experts in identifying false documents, however they could still be liable to pay fines if it is “reasonably apparent” that the document is a fake. Employers are therefore urged to carefully examine documents when performing checks but are not required to use any technological aids. The documents should only be originals not copies and the employer should try and ensure they have not been tampered with in any way. Equally, employers should satisfy themselves that the documents provided relate to that employee, for example checking the picture on photo ID is a true likeness of the employee.

PENALTIES
If employers breach their obligations they may now be liable for both a civil penalty and they could also be found to have committed a criminal offence.

An employer will be subject to civil penalty if it is found to employ someone who does not have the right to undertake the work which they are employed to do. The maximum fine is £20,000, which doubled from that levied in 2014.

A criminal offence will be committed if the employer knew or had “reasonable cause to believe” that the employee did not have the appropriate immigration status. After a conviction, an employer can receive an unlimited fine or imprisonment of up five years (or both). The term of imprisonment has more than doubled in under recent legislation.

SITE CLOSURE
The Chief Immigration Officer also now has the power to issue an illegal working closure notice, to effectively close a business premises for up to 48 hours while they apply for an Illegal Compliance Order if the employer has either been convicted of employing an illegal worker, has been required to pay a civil penalty within the last three years, or at any time if a civil penalty remains unpaid.

An illegal compliance order may be issued for up to 12 months and can include conditions prohibiting or restricting access of people to the premises, requiring a specified person to carry out right to work checks, and to produce documents following such checks in order to prevent illegal working.

WORKER’S RIGHTS
But while employers face serious sanctions, a worker who is found to be working illegally can now also be prosecuted for illegal working and/or removed from the UK, as well as having their earnings seized. Immigration officers now have increased powers to enter business premises to search for documents and to seize and retain evidence in relation to any potential offence. Immigration officers may visit a business on their own initiative if they suspect a business is employing illegal workers or they’ve had a tip off.

With high fines, potential for criminal convictions, and negative publicity, employing illegal workers or not undertaking proper checks is unlikely to be a risk many businesses want to take.

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FUELLING SYSTEMS: WHAT’S REALLY THE PROBLEM?

In many cases, the injector and pump are not the cause but the victim of the piece.

The fuel system market is growing, with a recent report citing continued growth globally to 2022. Europe is the second largest market for fuel injectors, partially due to improving economic conditions and tougher emission standards, which is expected to grow the market further.

These emissions standards are at the forefront of manufacturers minds and therefore the onus is on their suppliers to develop products that keep vehicles running efficiently. This has put pressure on the fuel system, which is constantly developing to keep up with the demands of the modern world, and forcing the aftermarket to keep up with innovation, causing problems when it comes to identifying faulty units.

FINE TOLERANCES
Petrol and diesel injectors are intricate parts, with holes around 50 microns wide. To put this into perspective, the human hair is around 100 microns wide, which really highlights the tolerances they’re put under. Any form of dirt or grime pulled through the system from the tank or lines could cause issues. As fuel has to be injected at high pressure, a reduction of 8-10% efficiency could cause a misfire due to a leaner fuel mixture.

Yet a number of fuel system parts can be replaced when they are not the main cause of any issues. The injector is the point that can be observed when a problem is being diagnosed, meaning if there is a report of low fuel pressure, some garages can believe the injector is the issue, leading to a replacement that is not necessary, especially if the original issue remains.

Julian Goulding, UK Marketing Manager at Delphi explains: “The problem causing a loss of pressure could be further down the chain. For example, the pump may have an issue, may not be generating enough pressure, or in terms of diesel, it could be contamination in the rail. It is important that garages therefore carry out a full diagnostic of the system before replacing the injector, then that will resolve the problem. Where the problem becomes visible, may not be the root cause.

“Our distributors see a lot of parts that are returned due to the fact that they have failed early, and this is down to the fact that the original issue has not been rectified, damaging new parts much quicker. It may be a simple flush of the system that is required, but with a set of injectors costing £800 to £1,000 it can be costly to a garage if the part is misfitted or not required.

Garages must also play their part in ensuring injectors and pumps are not damaged or contaminated during fitting,” Goulding continues. “The areas where such components are stored and worked on need to be clean, torque settings must be adhered to and care must be taken, after all, especially in the case of diesel, the fuel system is a high-pressure system.”

Injector testing kit in action

Karl Horton, Warranty and Technical Manager at Carwood, believes there are other reasons as to why a number of units returned are not faulty:

“From injectors being returned to us, we have a three percent return rate on our remanufactured products,” he comments. “Of this, around 1.2% is accepted as we recycle a lot of products in our remanufacturing facility. The remainder is returned either due to contamination or incorrect fitting, or there is no fault found with the unit. What customers do with the products can depend on the level of training on the fitment of these items. We find that some garages are fitting injectors and pumps as a process of elimination, and we return these once we have tested them to see if they are working or not.

“One thing we have also found is that customers are not programming injectors properly. Automatically they then think that the problem is with the product rather than what they are doing. If you look back at vehicles from the 1980s compared with modern ones then there are big changes. A lot of injectors and pumps today are programmed and there are technicians that don’t carry these procedures out, expecting them to work rom the off. In many examples, that isn’t the case.”

UNDER PRESSURE
What then, could be the cause of fuel system issues? “The pump itself is a durable part within the fuel system and under good conditions ‘should’ last for the lifetime of the vehicle,” explains Chris Newey, Product Manager at Cambiare. “However, the fuel pump isn’t the only part of the fuel system that can experience problems which could result in a lack of fuel being delivered to the engine. Typical causes for low fuel pressure include a dirty fuel filter in which the fuel is being obstructed from flowing at the required pressure,incorrect tank venting in which the quantity of air coming into the fuel tank is insufficient to allow fuel to be withdrawn by the pump or restricted fuel lines in which the diameter of the fuel lines is insufficient to support the f low of fuel.”

“Damage during fitment is not an uncommon situation for fuel pumps and injectors. The most common issue we experience with ‘damage during fitment’ is broken fuel pipe connectors on the latest electric pumps. Whilst care should be taken when connecting and securing the pipes to ensure a tight seal, fitters should not over-tighten them as it can cause damage.

Bosch diesel injector

“Removal of old injectors can also be problematic. Over time, the O-Rings can harden and the cylinder head can corrode seizing the injector in place. Once removed, it important to ensure the fuel rail is free from any residual material to ensure the correct fitment of the new injectors and the new seals provided with the new injectors should always be used.”

HIGH LEVEL OF DETAIL
Ian Proctor, Diesel Product Manager at Bosch, adds: “We estimate that around 300,000 Bosch injectors are replaced in the UK every year and it is a part that is made up of very intricate pieces. Most injectors tend to see a lifespan of eight years, however the tolerances they are subjected to are great. Any contamination in the system can mean particles being pushed through the small injector holes which can cause wear, this can add to early failure of a component and is included in that high number of yearly injector replacements.

“When you take an injector apart, there are pieces inside that can easily become lost. For example, a garage may remove the injector and start to take it apart to clean it, before realising that the number of components within is greater than they realised. Without taking care, they may have already lost one of the tiny bearings that lie within, which will mean the entire unit will need to be replaced, or sent to a repair centre where an expert can examine it, at cost.”

DIRTY FUELLING
Which procedures should garages be undertaking to make sure of a correct diagnosis? Chris Newey of Cambiare adds: “Check the electrical circuits to ensure connections are in place, undamaged and in particular, free from rust.

“Fuel injected engines are extremely sensitive to the pressure of the fuel. Technicians should check fuel pressure using a pressure gauge to identify if the pressure is not running too high or too low. If the pressure is too high for the vehicle and the pressure regulator is faulty, the fuel consumption will increase causing a rough idle and surging. If the pressure is running too low for the vehicle, it can cause lean misfire, hesitation, rough idle and misfire when accelerating.”

A common theme is that of contamination in the system, which throws garages off the scent when diagnosing fuelling problems. Cleaners can therefore play their part in repair, sometimes before the idea of replacing the injector or pump should come into question.

Carl Ebanks, Brand Manager at Redex, comments: “Not so much contamination but dirt deposits from the fuel builds up on the fuel injectors, which alters the spray pattern and dosage so they become less efficient, making the car overall less efficient. Fuel System cleaners reduce emissions, clean up the dirt deposits in the fuel system, improve engine performance and save fuel. Cleaners stop dirt deposits building up on them, but do not prevent issues in the case of mechanical breakdown.”

As such an expensive and mechanical piece of the vehicle, diagnosing the problem in a fuel system is only part of the job and taking time to explore and rectify potential problems could save much future hassle. Parts are delicate and care is required, while attention is mandatory.

Posted in CAT Know-How, Factor & Supplier News, Garage News, NewsComments (0)

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