Diversifying Your Collision Shop
by Dee Mickey It’s that month of the year again. It’s always the same month, year after year. It seems that there is no business. Customers disappear. Suddenly it seems people stop having accidents. Or they don’t fix their cars.
You talk to your peers and hear that every shop in town is slow. Insurance adjusters’ work is slow. Your cash flow is a disaster and employee morale is low.
But you know that next month, just as mysteriously as business stopped rolling in, it will start up again. You’ve seen it year after year.
But what about this month? Is there anything you can do to correct this annual business slump and boost your bottom line? Is there a service that customers will buy when collision business is slow? Are there products you can sell to even-out the slow times? Is there a way to diversify?
Many collision repair facilities have expanded into complementary lines of business. The list is long: upholstery, accessories, car audio systems, conversion kits, restyling, handicap conversions, auto graphics, detailing, mechanical repairs, mini-warehouses and storage. Mini-warehouses? You may not think of this as auto-related, but look at your resources. If you have extra land, this is one of the options that can be profitable.
How do you diversify? How do you know what will sell? Like other business decisions, it may rely in part on your sixth sense, or an opportunity that lands at your feet. But you should evaluate diversification by looking at your resources and your talents. Also analyze the market for a new venture. Is there a lot of competition? Are your collision repair customers potential customers for a new service? Consider the options available and be open to all possibilities.
One of the basic things to consider is who will be your customers. You can market an item or service to your current customer base, or reach out to new customers. You will likely have to do both.
Marketing will likely be one of the biggest costs with a new service or side business, so don’t forget to factor in this expense. Be sure to tell your collision customers about your business. Advertising through the mass media may be necessary. Let people know what you have available. It may be that you can market another business for a relatively small cost if your collision repair business already has a considerable customer base and name recognition.
Diversification will require research into the general business climate and the potential market for a product or service. Look at the local economy, the auto industry and the auto aftermarket industry to see how strong — or weak — these are. But also go outside your normal circle of influence. Talk to peers outside of your region. See what is selling in larger markets or in markets similar to yours. Trends often filter down to smaller markets or work their way across the country.
The yellow pages are a quick way to gauge the amount of auto-related businesses in your market. Pull out the yellow pages from three years ago and see how many car audio accessory and detail businesses are still operating. Have businesses left the market because of poor management, or because the demand changed? Can you offer better service than the competition in a given niche, or is there a business in financial trouble looking for a new owner to assume an existing customer base? Even if a market seems saturated, don’t overlook it. If you have the skills, reputation or location to beat the competition, you can succeed.
Convenience is a major selling point in the ’90s. Franchise or chain mechanical shops that offer fast, inexpensive maintenance and minor repairs are doing well. Can you offer basic mechanical services that complement collision repair? Your personal attention to your customers is an important feature. Let the customers know that you, the business owner, are available to ensure their satisfaction. This is an area where independent businesses can outdo the large national chains.
Once you’ve narrowed down areas that might be good for diversification, consider how large a profit margin you could expect from a diversified service. Maybe your secondary business will have relatively small profit margins, but low overhead and steady cash flow. This may be satisfactory if the new business increases your overall customer base, thereby strengthening your collision repair business. Is this acceptable, or do you want to build a second business that stands on its own?
Diversification will likely bring additional investment in materials, employees, or in raising capital. Product inventory takes up space, and requires a person and a system to track it. You may already have someone on staff who can spend the time needed. If you invest capital, how much will you need and what will be the projected return on investment? This will vary by the type of service you have to offer, and the sales volume and pricing you can expect. You may find that some borrowing is necessary, or perhaps you can support a new venture from cash flow.
Know how long you can afford to spend money and energy on a new venture. Some businesses take several months to generate the momentum to support themselves. You may need to re-evaluate and change your game plan. Be flexible.
There could be downsides, even if your new venture turns a profit. You may find that diversification will take up too much of your time and energy as a manager, causing your collision business to suffer. Your new business lines could change your customers’ impressions of your business, muddling their perceptions of you as a collision specialist.
Diversification is not for everyone. However, with the resources and business know-how possessed by today’s collision repair professionals, there are many profitable opportunities out there for those willing to invest the effort and the risk.
Dee Mickey is a consultant to the collision repair industry who has 15 years experience as the owner of an independent, ASA-member body shop. Her specialty is profitability and efficiency in management and in facility design. She is affiliated with Robert H. Lee & Associates, a nationwide architectural firm with a focus on automotive facility design.
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AutoInc. Magazine ®, Vol. XLIV No. 8, August 1996