Why aren't there more MSOs in mechanical repair?

Many questions came to mind. Could the collision shop owners know something we mechanical guys don’t know? Do they have a better business plan? Are they smarter than us? Are they better business men and women than us?  Could the insurance providers be facilitating a MSO structure? Is a collision shop easier to open? Is a collision shop more profitable?  What’s the secret to successfully owning multiple shops? I decided to ask a few of my friends who own MSO collision repair shops and found one main difference in our business plans; however, we did have many similarities.

The main difference between collision and mechanical repair shops has to do with the difference in our client base. The collision side of the business has 80% to 95% of their business funneled and supplied to them by the insurance companies; the balance is customer pay. The mechanical group has almost all unique customer pay clients, no insurance work and only 10% to 15% of their business from wholesale accounts. Therefore, it is much easier for the collision shop owner to expand into a territory if he/she has a relationship with one or a few insurance companies who will supply them with the vast majority of their work on day one. This difference alone may be the reason the two entities are so different.

Advertising is another area where the collision side of the business has the upper hand. For mechanical repair shops, the first 45 day start-up marketing and advertising costs can range from $35K to over $50K to get the word out and open a new facility. Ongoing marketing and advertising to successfully breach a new market and make it through your first year can eat up another $6K to $10k a month or 8% to 10% of gross sales. The mechanical side of the business has very high client retention costs (upwards of $150K for the first 12 months), whereas the collision side has almost none. After finding the right location, retrofitting or constructing a building and equipping it with all of the needed tools and equipment to have a successful shop, the added cost of marketing and advertising is a large deterrent to the mechanical side of the business; and almost non-existent for the collision shops.      

Nonetheless, this relationship between the collision shops and insurance companies can be a two edged sword. Even though you can have a great relationship with insurance companies, things sometimes change and the collision shops are at the mercy of the insurance providers when they do. Additionally, the collision side of the business is much more regulated by both the insurance providers and the government agencies in general. In my State of Ohio, collision shops are strictly regulated by both the federal and state EPA and have to register and be monitored by The Ohio Motor Vehicle Repair board. The mechanical group has very little regulation, no registration, and no monitoring process in place. You would think that with little to no regulation, the mechanical side guys would be jumping at the chance to open multiple shops; however, that is not the case.   

So the question at hand still is, if mechanical shops are easier to open and less regulated, why are there still very few MSO owners on the mechanical side of the business? For the most part, I can only answer for myself. First of all, I’m the eldest son of six children, and you know what they say about the first born in a large family. Since our beginning forty years ago, I have always been driven to be the best automotive repair shop in the area. I started at the early age of six helping my father perform side jobs to make a better life for his family. My grandfather was a cabinet maker and carpenter and dad was a diesel truck technician. Both taught me to only do things the right way and to take pride in my work. This drive has manifested itself into twelve shops and we are poised to open a few more shops if we can hire and train the right people.

We started to expand and opened our second location because there was a need to make room for my growing staff. I realized that if I didn’t expand and create opportunity for my staff to flourish, they would outgrow me and seek employment elsewhere. Our employee growth led to shops two and three and then I realized that not only was I creating opportunities for my staff, we were also seeing many other benefits to being a MSO.

I can tell you that having 12 shops and 54 staff members is a challenge; however, one I love. It’s kind of like having and raising 54 children; we cherish and respect every one of them. I’m lucky to have a workplace with a family-like environment. However, finding, keeping and training staff is the number one problem we face today. This is where being a MSO really is helpful for many reasons.

First, it is easier to attract staff when you have multiple shops with a reputation as a great place to work, and can pay well. Secondly, we always have staff on-hand we can move from shop to shop to fill in for sick days, vacations and temporary staff shortfalls. Furthermore, since everyone in the entire organization operates from the same operations manual, the transitions for team members to move between shops is stress-free and we can keep our quality in check at the same time.

Another benefit to having 54 technicians on staff is the vast amount of knowledge we have in the organization. No matter what the problem is, we will have someone on staff who has the answer, the knowledge or experience to help out the team and fix any problem that may come into the shop. This is especially true when training apprentices and entry level technicians.  We partner and rotate our entry level technicians with master technicians to train on an individual basis. This allows the young tech the ability to learn the best traits from multiple master technicians and accelerates their training.  Under this plan, they can learn the best procedures and habits from four to five master technicians over a two year period and become an experienced near master level technician. I use the term “near” here because a true master technician will need about 10 years’ experience before he or she can be qualified enough to be called a master technician in my book. Nonetheless, this program educates our technicians much quicker than any other program I know of and would not be possible without being a MSO operation.

Lowering the cost of educating our staff is another benefit to being a MSO, and having a large staff. We hire the best trainers in the industry to come to us and educate our staff on our individual needs. It is far less expensive to bring in one trainer for a week and update our entire staff then to send 50+ technicians out on the road for a few days at a time. Not only do we reduce overall training expenses, we have the benefit of not having the staff miss valuable shop time to travel to and from events.

Nonetheless, sharing advertising and marketing expenses between multiple shops may very well be the number one benefit to being a MSO. As a MSO we have a full time website, internet and social media manager. As all of you are experiencing, the new franchised vehicle dealer network along with the big box franchised operators are coming after our client base.  Firestone, Ford, GM, Midas, Meineke, NTB, Pep-Boys, Toyota and all other national and local larger operators are outspending us by an astronomical margin on print media, radio, and TV advertising. This makes it very difficult at best for a SSO (single-shop operator) to land new clients through traditional advertising mediums.  Now I’m not going to tell you that being a MSO will let you stand toe-to-toe with the big boys; but it allows you to make a much larger and better impact than being a SSO if you spend your dollars wisely.

Everything else. I have found that the larger we get the better the deals we can make on just about everything else. Advertising, health-care, building and vehicle insurance, printing costs, parts purchases (with better warranty coverages), shop supplies, uniforms, utilities and everything in-between is much less costly if you leverage your MSO in your purchases. 

As I researched this topic, I assumed that clear cut reason(s) would emerge and explain the differences between the SSO and MSO ownership structures of the two sides of our industry. As you can read, there appears to be just as many good reasons for the mechanical operator to be a MSO, as there are on the collision side. Nonetheless, having a client base available on day one and no need to have a large advertising and marketing war-chest on hand makes opening a collision shop much less risky and most likely the real reasons there are so many more MSOs on the collision side of the equation. It’s all about risk and reward. And in this case, a collision shop is clearly less risky to open.  

As for me, we will continue to build our brand one day at a time as time and good fortune allows us; however, does anyone know of a good body shop for sale in the North-East Ohio Market? I would be interested!