As industry evolves, shop owners must decide to sink or swim
Denver—The wave of acquisitions and consolidations continues to spread across the aftermarket, particularly in the collision repair segment, and now it is cresting on the mechanical service sector.
“The auto repair industry is collapsing,” said Greg Bunch, owner of five-location Aspen Auto Clinic, in the Colorado Springs area. “The landscape is changing and ‘business as usual’ is dead. We can expect significant, continued pain, opportunity and re-engineering as consolidation and vehicle technology, such as ADAS, increases.”
Shop owners have a few choices as the industry advances, he said:
• “Bail out as soon as possible.”
• “Ignore the signs and ride it out — wait and see what happens.”
• “Strive to become a leading voice and dominant player — guide the transition.”
• “Determine strategy now, act quickly, control the future.”
“You don’t want to be one of the last icebox makers who refuses to make refrigerators,” he said. “We have to see the future and not bury our heads in the sand.”
Bunch, who also owns Transformers Institute, a shop training and marketing service, recently spoke to attendees of ASA Colorado’s annual Summmit event about successfully expanding into multi-shop ownership.
Citing a 2015 study, Bunch said 56 percent of mom-and-pop shop owners want to exit the industry by 2020. Driving forces are a lack of time off and financial and personal risk required to maintain staff and regular new tooling and equipment investments.
“There’s going to be a lot of opportunity for shops to acquire additional locations or to absorb customer databases and staffs,” he said, adding that it’s much more inexpensive to acquire a shop than it is to build one from the ground up, even if it’s “broken” and requires fixing.
Among shop owners who are considering expanding locations, concerns of hiring and staffing the right employees rank high, Bunch said. “Quality people are out there, they just happen to be working for your competition. They need to know ‘why’ they should be working for you when you advertise a position, which could include, depending one’s shop: ‘We have longtime tenured technicians (not a lot of turnover),’ ‘Seventy-five percent of our techs make more than $75,000,’ ‘We have all factory scan tools,’ ‘We offer three weeks paid vacation when hired,’ or ‘There’s a $200-a-month tool allowance,’ for example.”
Leadership competency is also a large component to growing a business, he said. Owners must honestly ask themselves how strong their current leaders are, and consider their strengths and weaknesses — do they have the DNA to be a good leader?
“I’m a believer in focusing on people’s strengths, not their weaknesses. There are ways to work around deficiencies,” Bunch said.
They must also be evaluated to determine if they have competency to help double a shop’s current revenues within the next one or two years. “If you’re going to grow, it’s important to develop or hire the right leaders — are they equipped to help you double the number of your shops? You must complete an honest evaluation of what your leaders are and who to invest in or replace, and it must be handled aggressively with a development plan to grow them.”
Many shop owners also say they don’t have the money required to expand into an additional location, he said.
“If you want to get to retirement with the financial numbers you need to live, you might not get there with a single store and build a sellable business.”
Many shop owners don’t want to grow unless they can also own the real estate, he said, but it will slow them down. “There’s no right or wrong, but money required for property could be used as down payments on two or three acquisitions.”
Resources must also be maximized, such as banking relationships, which should be expanded every six months. “Borrow when times are good. Obtain a credit line when you don’t need it, it’s the perfect time for it. Contact your credit card company, too, and ask for extended credit — they often say yes.”
All of Bunch’s shop tool and equipment purchases are made with credit cards that are paid off monthly. “I have hundreds of thousands of points on those strategic credit cards that be used for other purchases.”
He also advises aligning with regional banks, rather than big-box institutions, because stronger relationships can be developed.
Despite having heard it many times, shop owners must also always budget their money and reinvest it in the business, he said.
“Do you have a household budget? Are you willing to live below your means to have a larger income in the future — an important principle to being a multi-shop owner? Do you create monthly, quarterly and annual shop budgets? It’s amazing how many owners don’t do that in order to know what it takes to grow.”
Owners should be comfortable with their current shop net profit and, if not, examine how to change it. “I don’t recommend to people that they jump into multi-shop ownership without a solid net profit from their present business, because it will often be the shop that helps support the next one,” he said. “They must also have several months of operating capital saved.