Caution: Snake Pit Ahead
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Caution: Snake Pit Ahead

Unfortunately, poor business ventures aren’t as obvious as road signs flanked by flashing yellow lights and orange cones warning you of impending danger. (If only it were that easy.) How can you avoid such pitfalls? By learning from those who’ve already fallen prey.

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Southern Colorado shop owner Ed Grose was swimming in customers. For five years, Grose’s Auto Collision did body repairs for a wide area of the state that served as the gateway to coal mining properties. The mines, owned and operated by an industrial giant, employed hundreds of workers of nearby towns and some from as far away as 150 miles.

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To provide even more service to the mining personnel and other local residents and to attract more highway traffic to the shop, Grose decided to invest in two tow trucks. A decision that would result disaster.

“The people who towed for us before we [purchased the wreckers] decided to tow the vehicles they picked up from outlying areas to another shop,” says Grose. “This other shop wasn’t interested in getting into the wrecker business, effectively not wanting to rock the boat, so to speak, or compete with the wrecker specialists.”

Grose tried to mend the fences as soon as he realized the trouble with owning his own wreckers, but he was met with more opposition than he could deal with. And since he couldn’t afford to run a tow truck schedule like the other guys, the area he pulled customers from was literally cut in half.

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Because he couldn’t mend the fences and because local law enforcement was accustomed to calling the other guys for the bulk of their tows, Grose saw his business fade to just the mining personnel and the few company jobs he was fortunate to get from time to time. To make matters worse, the wreckers he’d purchased were used and Grose was constantly required to pour money into their operation – money that should’ve been earmarked for the body shop for training, upgrading equipment and employee raises.

After about a year, Grose found himself working with just one helper. Then bad turned to worse. The mines, which had been in operation for 70 years, closed.

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“It devastated the towns around the area and put me out of business,” says Grose. “I sold out for less than 50 cents on the dollar. I never had the chance to build any kind of reserve, and the wrecker business took everything I had to keep it going right from the start.”

What went wrong with Grose’s supposedly sound business decision? It’s been said that “fools rush in where angels fear to tread.” I firmly believe this may be the case when a shop owner decides to get involved with a project that’s ill-timed, poorly conceived or, worse yet, the result of doing the wrong thing for the right reasons.

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I’ve spoken with several people like Grose who thought everything was on the right track when they began their business ventures – but things ultimately led to disaster. Somehow the plan just got out of hand and a “money pit” was the end result. In most of these cases, the calamity didn’t destroy the shop. In Grose’s case, however, the shop went out of business.

How can you avoid falling into such desperate situations and losing money – and maybe your shop? Realize it can happen to anyone and learn from those who’ve already made the mistakes.

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Bigger Isn’t Always Better

For 16 years, Donnie Bailey worked with his father in a leased body shop located on the main drag in Harrison, Ark. When I showed up on his doorstep for this interview, I was impressed with his workload. Because of a month of blizzard conditions and one brutal ice storm during the holidays, Bailey had written more than $152,000 in estimates on all kinds of cars from all over the country. Even without the blizzard, Bailey would’ve been backlogged; Harrison is on the way to the Country Music Capital of the World – Branson, Mo. – so Bailey’s Ozark Auto Body sees customers from all over the nation who were just passing through when they hit something.

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With all that clientele for the taking, Bailey decided a few years ago to open a second facility only a short distance from his Main Street location. The building he purchased had plenty of extra room, which was a big plus since his Main Street facility was too cramped for the workload Bailey had at the time. “The whole thing,” says Bailey, “was too good a deal to pass on.”

Or was it?

The first sign that Bailey was in over his head was when he realized he wouldn’t be able to divide services between the two shops as he’d hoped – for example, doing frame work at the Main Street shop and full paint jobs at the new facility. What he discovered was that the shops were just far enough away from each other to require an almost complete duplication of resources – including separate tools, equipment, technicians and management personnel. When he looked into purchasing a second frame machine for the new shop, he realized it was just too costly for the business at that time.

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Initially, Bailey attempted to shift employees around between shops, but he was afraid the inconvenience would eventually wear on them. “It was a major hassle,” he says “I was constantly going back and forth between the facilities trying to put out fires.”

As a result, both of Bailey’s shops began to run behind. He even tried re-staffing and changing the complexion of the repairs (doing only fender dent repair and partial paint jobs) at the Main Street location. “I was so confident the endeavor would eventually succeed that I continued to pour time and money into the project for four years,” he says.

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Finally – and before things could get worse – he gave up out of frustration.

Today, with only the Main Street location, Bailey is making more money and doing better work with an even stronger client base. “I wish I could’ve foreseen the problems [the wrong business venture] would’ve created for me,” he says. “Instead, I had to learn [myself].”

Bailey’s Main Street location has since been remodeled to accommodate the workload, and more upgrading is in the works. “If something works well, you should stick to it,” he says. With experience now on his side, Bailey advises new shop owners to run a condensed operation for several years. “Build your business slow,” he says.

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Out In the Cold

Bob Dunkin, owner/operator of Dunkin Auto Body in Harrison, Ark., runs a premier shop outfitted with a huge investment in equipment, people and time. Not one to rest on his laurels, Dunkin is always looking for ways to improve his business. In his 40 years of industry experience, he’s had only one perceived profit center go really, really wrong.

“The idea of air-conditioning service came to me because the shop already had the EPA-required recovery, recycle and re-charge equipment,” says Dunkin. “So a more [earnest attempt] at the service seemed like a good idea.”

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The problem, says Dunkin, was that he and his techs were unable to convince local customers that a vehicle that was a few years old would need an expensive replacement air compressor. In addition, he found flushing and other required operations difficult, if not impossible, to sell to his customers – who believed that the simple addition of freon would fix most anything.

“We tried [air conditioning service] for about six months, measured the bottom line and got out right away,” he says.

With a more well-rounded crew and a higher level of training in place at Dunkin’s Auto Body today, Dunkin believes a second go at air conditioning service could prove profitable, provided he had a consumer education pamphlet about A/C service options on hand to help convince his customers.

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Still, Dunkin isn’t ready to try again. Instead, with experience behind him, Dunkin and his son, Phil, are focusing their energy and money on more sound investments, like a frame rack designed to handle the large extended-cab trucks so popular with today’s consumers.

“We just spent $50,000 on the new frame rack,” says Dunkin. “We know this equipment will bring customers to our door, not drive them away like the air conditioning operation seemed to do.”

Despite the difficulties, understanding why the venture failed has made Dunkin a better businessman. In fact, his shop just completed its first $1 million year.

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Waterlogged

Harold Downey, owner of Downey’s Collision Center in the La Mesa area of New Mexico, almost sank his business.

Downey had repaired several flood-damaged cars for an area dealership and decided afterward the profit margin would be a lot better if he got into the flood-damaged car business himself. He knew the cars were plentiful because of heavy rains that had rivers running high and every other creek at flood stage. He also knew several business associates who’d purchased and restored flood-damaged vehicles and then sold them at a handsome profit.

Downey – and his banker – thought they’d be swimming in profits in no time. To set their plan in motion, they purchased 23 soggy vehicles, hoping to recoup their cost and triple the original investment.

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Open the flood gates.

The first few cars Downey bought had water lines above the hood, and the drying out and cleanup time was so immense that four of the vehicles ended up relegated as “parts” cars. And the troubles kept flowing. Five of the vehicles they purchased needed speedo clusters, engine computers and other expensive electronics replaced.

Meanwhile, as the cost to properly restore the flood-damaged vehicles escalated, word got out around the area that many car lots were peddling sub-standard automobiles that had been cosmetically brushed up – but were truly junk. Downey knew that while his restored vehicles fell nowhere near that category, he’d be dragged down into the mire before long anyway. He had to cut his loses.

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After a hasty meeting with his banker and a dozen phone calls, Downey sold the cars to salvage yards in the southern part of the state for just what he’d paid. He came out slightly in the red because he was forced to deliver the vehicles with his own flat-bed trucks.

“I was looking for the easy buck,” says Downey, who knows now to do more research before jumping into any new project. “Luckily, my business survived the ordeal.”

Caution: Snake Pit Ahead

Poor business ventures aren’t as obvious as road signs with flashing yellow lights and orange cones surrounding them warning you of impending danger. (If only it were that easy.)

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Instead of jumping in and hoping for the best, use your local and state associations, as well as other industry and business groups, to help you in the information-gathering process before you commit to a project or idea. Thinking there’s an opportunity to make more money and knowing there’s one are two very different things.

Writer Bob Leone, a retired shop owner and contributing editor to BodyShop Business, is ASE three-way Master Certified and is a licensed secondary and post-secondary automotive instructor in the vocational school system in Missouri. He’s also a former NAPA ASE Technician of the Year.

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