Considering buying automotive repair shops
I would appreciate anyone who cares to contribute their thoughts on the viability and potential hurdles of purchasing or starting automotive repair shops in the greater Chicago area.
The genesis of this particular business idea came from me still driving my beater from college and constantly having it repaired with parts purchased on Amazon. Although the repairs have been fairly frequent, I've managed to keep the part cost low (by purchasing Chinese parts on Amazon) and having a local mechanic looking for extra cash do the work on the side. This has made more economic sense then purchasing a new vehicle and having to part with a large some of cash or deal with a monthly payment.
Based on what I know, this particular business is fairly recession proof, has low barriers to entry, solid margins, and the competition (non-corporate) is mostly blue collar guys with limited financial and operational experience. It also seems ripe for disruption as Amazon develops it's one day delivery services creating an opportunity to undercut competitors like Autozone, O'reilly's, etc,.
Obviously I would need a team of trustworthy and knowledgeable mechanics, but I feel these folks could be poached for a few more bucks an hour from nearby shops. I'm also considering incorporating electric vehicle repair into the shop as well, because I've heard that the backlog for getting a car in for repair at Tesla is substantial.
Thanks in advance for your feedback -
How do you plan to identify these people? Why would you be better at doing this than the family mechanic that's been working on cars for generations? Why are you in better shape to compete if your starting point is higher labor costs than your competitors?
Not following how this represents an opportunity for you. Autozone and O'Reilly's are Amazon's competitors, not yours. You're not going to show up on day one and have some sort of supply chain advantage over established competitors because you're in on some secret. Everyone's heard of Amazon. If other mechanics aren't sourcing from them yet, there's a reason. Once it's viable, everyone else will be in on it too.
Does the Tesla platform allow for third party shops to repair their vehicles? Do you have to purchase a proprietary diagnostics system?
Not trying to s**t on your parade, but from what you've presented this sounds pretty half-baked.
How do you plan to identify these people? Why would you be better at doing this than the family mechanic that's been working on cars for generations? Why are you in better shape to compete if your starting point is higher labor costs than your competitors?
*** I already have a senior mechanic lined up who could run the shop. Your comment about coming out of the gate with higher labor costs is spot on, but I believe I could offset these labor costs with improved margins on parts.. more on this later.
Not following how this represents an opportunity for you. Autozone and O'Reilly's are Amazon's competitors, not yours. You're not going to show up on day one and have some sort of supply chain advantage over established competitors because you're in on some secret. Everyone's heard of Amazon. If other mechanics aren't sourcing from them yet, there's a reason. Once it's viable, everyone else will be in on it too.
*** I did a poor job articulating this point. To answer your question: yes and no. Will Amazon inevitably be adopted industry wide? Yes. However, it's my belief that this particular industry will be slow to adopt given the general pedigree of the mom and pops running local shops. My mechanic specifically has developed relationships with local part suppliers in the area and based on conversations I've had with him, he's not actively seeking out opportunities to buy parts at a lower price, he's just working on cars.
Does the Tesla platform allow for third party shops to repair their vehicles? Do you have to purchase a proprietary diagnostics system?
***Truthfully, I don't know the answer to this question. I am aware of a couple guys (former Tesla mechanics) who have started their own EV shop in California where they perform 50,000 mile tune-ups and other general repairs. So I know it's being done.
Not trying to s**t on your parade, but from what you've presented this sounds pretty half-baked.
*** You made some great points - I appreciate your thoughts.
My apologies to those still reading, as I don't know how to use the quote feature correctly.
I understand your thought process better now. Still, I'm not so convinced that Amazon will necessarily eat into a huge share of this market. And if I'm hearing you right, I'm not sure others will be slow to adopt because they're unsophisticated. There's value in the relationships that mechanics have developed with their local suppliers. Will Amazon stand by the cheap Chinese part it sold you when it fails and you need to do a free replacement for your customer? Can you get any advice/service from them whatsoever? What will the perception of your quality be if a customer shops around and talks the mechanic down the street about how you're able to charge less for parts? If you actually do develop a winning strategy using Amazon, how long do you really expect to enjoy that advantage before others wise up? Your competition is experienced and maybe smarter than you think. They've probably tried to improve the way they buy dozens of times over and learned lessons the hard way about what they really value from their relationships. If you've never been in the business, don't assume you know what's important. Price can be a very small part of the equation.
FWIW, to me, Amazon seems better positioned to compete with auto parts suppliers for the do-it-yourself crowd. I think they'd have to really focus on developing a specific b2b model if they want to sell to the do-it-for-me crowd that buys parts through mechanics.
I have a bit of familiarity with the automotive retail/bodyshop sector, so hopefully I can give some advice. First off, I understand that sourcing parts through amazon might be cheaper on a retail basis, but I'm not quite sure if this holds true on the wholesale end of the business, especially when you take into account quality. Also, what do you do if Amazon is out of stock for a part needed for a repair or does not carry it at all? I think at the very least you need to supplement ordering the bulk of your parts through Amazon with a parts wholesaler. Also the reason that most people go to independent mechanics instead of a dealership is because they believe the quality is higher, if you use shitty aftermarket parts, I'm not really seeing why people would come to you instead of a dealership or any other repair shop.
On the mechanic front, there is a huge shortage of mechanics across the country, so finding good mechanics you can poach without destroying your margins might be difficult, but this is very dependent on your local economy. Most mechanics are paid under the flat-rate system, which is based on how long the job should take, not how long it does, but a lot of them dislike it. If you want to attract high quality mechanics without compressing your margins too much, I'd also look into using a different pay system. Also as far as I now electric cars require a lot less maintenance and look like they will be less profitable on the repair front, so I am not sure if investing in having this capability is worth the capex/time needed to set up the infrastructure.
Overall, I think you should probably do a lot more research into the auto repair shop industry if this is something you're seriously considering. While it's not a particularly complex business, I'd definitely put some more time into understanding the nuances. I hope this was helpful and gave you some things to think about
I've been thinking about your comment regarding sourcing of parts and how much savings are realized by repair shops that have developed relationships with an Autozone type supplier. If I had to bet.. total savings are driven by total purchases e.g. if you spend 15k with us in Q1 you can save 20% against our retail pricing. I need to do some due diligence on this topic to understand Amazon pricing v. a local supplier. Your point about the shortage of mechanics is also something I need to think through. Appreciate your thoughts.
To me, as your potential customer living in Illinois, trust is a huge hurdle here - specifically whomever the guy operating it is and, just as importantly, whoever is interfacing with customers. As a customer, I hate taking my car into the shop - there is always something 'wrong' and I just don't know whether it's real, not real, or otherwise.
My best experiences have been those that will take the time to call, explain the issues and then give me a fair estimate - in fact, one that I used to use back home encouraged me to get other quotes from around the area. I've found those are few and far between, with most of those being guys who've been doing it forever and I'd have to imagine are hard to replace - and, at worst, extremely expensive given their knowledge and the trust they've built via their book of business.
Since I'm here - I'd also make sure that you are really solid on the margins, parts, etc. you are talking about.. you know this, but I cannot stress this enough. You are walking into a scenario where you are, at day one, useful only as a business manager. You'll be dealing with managing the cash flow, purchasing, those relationships he has need to transfer to you - will they hold up if you are squeezing them for margin or threatening to purchase around them - and you'll need to be sourcing business outside of whatever he has in place. That's a tall task, even if this is full time. Those margins on labor you mentioned earlier - that 20% (or whatever number it really is) higher labor cost really, really sticky - it's hard to negotiate that back.
On the sales and marketing front - i'd imagine that customers are pretty sticky to places they trust and have done a good job for them. Acquiring them, I'd guess, is either rolled into the people you hire (bringing a book) or has to be built into the margins elsewhere for marketing/advertising.
One thing I do think could be interesting, would be to look at all those mom and pops that are out there and consider their exit strategy - maybe you can buy one, get it up and running (with cash flows stable) and then consolidate a few more around the area giving older operators a chance to retire, younger mechanics an opportunity to take over and operate their own franchises... etc. I don't know the market but the more I think about it that's probably the route you'll have to go eventually either way for scale.
You're focusing on the wrong things, and haven't even mentioned customer cost of acquisition in one of the most trust and relationship focused industries.
Enjoy spending six figures on local ads and social media marketing to steal long-time customers from Autozone or O'Reilly. They're gaining share vs. exactly your biz model, read the transcripts. They have trust, and you don't. There's no way I stop in at "random 22 year old mechanic store" vs. an established brand. You'll have to advertise like crazy while cutting your own margins so you can undercut your competition.
There's a reason the main thing for sale right now on shady broker sites and buybizsell are gas stations (secular decline), auto repair shops, and failed restaurants.
Your "edge" using Amazon isn't real, talk to your "seasoned mechanic" about that and I'm pretty sure he'll laugh in your face.
I agree with your comment on CAC, as Addinator eluded to, buying an existing shop with a book of business and steady cash flows makes the most sense here to combat that issue.
Not following you on the part about "stealing customers from Autozone and O'Reilly" as I would be on the repair side, not the supplier side - that's more of an issue for Amazon.
Anyway - thanks for your response
I think his point is that if you read through their annual reports, they note that they've made gains in commercial sales to service providers (like yourself) which, to me, says that they are cognizant of pricing and competitive vs. say going on Amazon to source parts. I have to assume that, once again, As you've described it, your 'competitive advantage' isn't really service - it's part sourcing and capitalizing on either A. relationships with local providers or B. inefficiencies in the pricing of parts for whatever reason online vs. one of these big guys.
Thus, you are literally competing with them in the ability to source parts cheaper than they can, to increase your margin when you re-sell - or, pick up the major by doing the repair faster and incurring less labor costs (which will be hard if you are paying up for labor).
To be clear, if you've already done the research - taken a catalog - and compared vs. what you can get on amazon or similar - I'd get going today! But I'd just take a hard look at what you are really in the business of.
Is the idea that you're building your own better locations to compete with existing shops? Or alternatively is it a roll-up, i.e. you're buying out the owners of existing shops and then leaving them in place while you improve costs/ops/procurement etc.
Or is it both . . first you compete well and then buy up weaker competitors.
Personally the roll-up sounds good to me, address a lot of CAC issues because each neighborhood will have the shop everyone knows is good.
How many air inflated hand wavers will you need. smile
take the email spam pill
Sounds pretty good how will you handle the subprime auto loan bubble? Something that has been growing lately so you think it will affect you?
I think you are grossly underestimating how difficult it is to find "good" mechanics in this environment, let alone ones that are trust worthy. Finding and retaining talent will make or break your business model
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