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CARSTAR Conundrum

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Trey and Cheryl Perdue’s shop has a long, storied history. Trey’s father had owned Bear Creek Collision Specialists Inc. (Bear Creek CSI) in Houston for 20 years before the couple took over as owners in 2008 and poured nearly $1.5 million into renovations.

They built a new 28,000-square-foot facility and revamped the business completely, partnering with other auto companies, investing in waterborne paint and staying committed to remaining an independent shop. They also opted to avoid involvement in direct repair programs (DRPs), so they wouldn’t compete head-to-head with some of the larger multi-shop operations (MSOs) in the area.

In recent years, those MSOs, such as Service King Collision Repair Centers and Caliber Collision Centers, started ramping up acquisitions in the area, and CARSTAR Auto Body Repair Experts began expanding its franchise network in the market. Surrounded by big competition, the Perdues started to wonder whether they could continue to grow as an independent facility. 

THE BACKSTORY

Houston, like many cities, has been a hotbed for collision industry consolidation in recent years. Service King, for example, first opened a store there in 2009 and had 12 locations by 2012.

Business has been good for the Perdues. Their 20-employee shop did $3.5 million in sales in 2011, and gross profit margins reached 43 percent, up from 34 percent the year before. Their plan to run without DRPs and partner with auto businesses nearby seemed to be working.

The Perdues were proud to be an independent business, but they felt uneasy watching large corporations consume the market.

THE PROBLEM

The couple had many discussions at the shop about what their future looked like. As they watched big repair chains swallow up their peers, they wondered whether they would have to sell to a large corporation.

Cheryl says that, at the right price, she would have considered selling the business to a large company. Joining a franchise was another option she was open to. Trey, however, didn’t agree. He wanted to remain true to the business his father had started and that he and Cheryl had successfully continued.

Then, in May 2012, CARSTAR came knocking on the Perdues’ door. The company was interested in what the Perdues had built and wanted the shop to join its network.

“They knew we were a well-known shop in the area,” Cheryl says. “We’ve invested a lot of money into making our shop look nice with the proper equipment and the right education.”

The couple was cautious, but intrigued by CARSTAR because they could remain operators, keep their staff and still reap the benefits of being part of a large company.

But after all the time and money they spent revamping their business and building a successful independent model, they worried about abandoning their roots and whether joining a franchise—and paying the required fees to do so—would actually help them compete and grow as they wanted to. 

Shops that join CARSTAR pay a one-time joining fee ranging from $5,000 to $15,000, and then pay a percentage of sales each month, according to former CARSTAR CEO Dan Bailey. Typical monthly royalty fees are .75 percent to 2 percent of sales.

“It [would be a] risk to pay out more money to be part of something when we were already making money,” Cheryl says.

THE OPTIONS

The Perdues had a big decision in front of them, and some homework to do—as well as some soul searching.

“It didn’t happen overnight,” Cheryl says.

The Perdues took about three months to talk with CARSTAR executives, evaluate their budget, talk with each other about the pros and cons, and called about 30 other CARSTAR shops to find out what they thought about being part of the network.

CARSTAR encourages potential franchisees to call around, and they give out a list of contacts. But the Perdues say they wandered from the list so they could get a true sense for how people really feel about being part of the company. They wanted to know if people were happy and what benefits they saw after switching over.

“I just wanted to hear whether it was a big waste of time,” Cheryl says.

They thought hard about what the change would mean for them. They had operated profitably as an independent shop for 25 years and wondered what would happen to their bottom line and reputation if they signed a contract with a franchisor. They were already repairing 120 cars per month. They weighed whether they would get an increase in business that was worth the change and initial costs associated with joining the company.

THE DECISION

On Aug. 1, the Perdues joined the CARSTAR network.

“The future is in the MSOs and insurance companies wanting that one-contact [company],” Cheryl says.

The Perdues liked that they could maintain their operation with minimal changes. “You still have that family-oriented feeling when you come in,” Cheryl says. “It’s still being manned by an owner, not by an employee. That sets it apart from some of the other MSOs that are corporately owned.”

Perhaps the biggest benefit they saw was the marketing opportunity with CARSTAR, she says. Aside from an LED sign on the front of the building, a website, tow trucks displaying their name and uniforms, the Perdues didn’t do much marketing.

“They handle it for you, and they are better at marketing than I would ever be,” Cheryl says.

The Perdues would also get vendor rebates for being part of the network. Between that and the potential for increased business because of the boost in marketing, they figured the investment was worth it. They estimated that by becoming part of CARSTAR, they would get at least five new customers per week.

“The only big thing is incurring extra costs,” Cheryl says. “And being independent as long as we have been, to play by someone else’s rules is a bit of a scary thought after playing by yours only. It’s not so strict that you don’t have your own sense of self, but you have certain parameters to abide by.”

Some of those parameters include attending monthly and annual business meetings, adhering to requirements for continuing education, participating in certain CARSTAR initiatives, and adding CARSTAR to the shop’s name. Bear Creek CSI is now CSI CARSTAR.

THE AFTERMATH

The Perdues took in a lot of new information at the beginning of the transition, such as how CARSTAR handles warranties and customer service best practices, among other online training. Thankfully, Cheryl says, they already use a management system, keep organized repair order files, and follow up with customers after a repair to see how their experience was.

In that sense, the transition was not a difficult one to make, because their processes and practices were similar to CARSTAR’s.

“I don’t think the day-to-day operations are going to change,” she says. “It’s not going to be too hard of a leap for us. We’ve already been doing it.”

Trey says his father remains indifferent about the franchise decision. He’s retired now and mainly operates as a landlord. And the staff has taken the change well, mostly because they haven’t felt any major effects.

“They’re basically letting us lead them in this situation,” Cheryl says.

So far, they have seen an increase in traffic. They’ve also seen a savings of roughly $300 per month in vendor rebates, Trey says.

Business at the shop is going well enough that the Perdues are even thinking they could open a second location.

“If we continue on the trajectory we are on, we definitely are considering doing something like that,” Cheryl says.

THE TAKEAWAY

So far, the Perdues have no regrets about their decision.

“I feel good about the education and how they get everyone on the same page,” Cheryl says. “It’s a uniform approach.”

So far, the marketing and branding efforts in Houston are huge, she says. For example, she had wanted to work with the American Cancer Society and other charities, but the amount of work required to arrange such partnerships was daunting for a small and busy shop like theirs, she says.

Also, they realized they like being part of a large organization that pushes continuous improvement. For example, they are encouraged to continue their education with I-CAR.

“Sometimes you need that extra hand to help you keep going for the goals you want,” she says.

Cheryl says change is inevitable. For them, the change of becoming part of a franchise has been a good one.

“That’s how we’ve stayed in business this long,” she says. “We’ve adjusted with the times.”

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