Breaking Up with a Business Partner

Feb. 1, 2010
After four years as partners and a tough-but-amicable split, dealer shop Mercedes Collision Center and indy repairer Valley Paint & Body are taking steps to grow their businesses on their own terms.

In business as in love, it often takes time to sort out differences, learn the art of compromise and build trust. And although many unions are successful, sometimes no matter how hard both parties try, a split is inevitable. That’s the lesson learned late last year by the owners of Valley Paint & Body Inc. in Amelia, Ohio. After four years as the on-site, sponsored collision shop of Mercedes-Benz of West Chester, Ohio, Valley Paint’s management decided they were better suited for the single life and cut ties with the dealership. The separation was amicable, but nevertheless hard to bear. Both sides came away with a new understanding of the pros and cons of joining forces.

Ties that Bind

Operating with an independent, mom-and-pop spirit has always been important to Tom Justice, an Ohio native who started Valley Paint & Body in the early 1960s. After purchasing the shop from a paint representative he worked for, Justice successfully expanded the enterprise from a small, three-bay shop to today’s 18-bay, 12,000-square-foot facility in Amelia, a community located about 20 miles southeast of Cincinnati. Justice’s daughter, Jennifer Justice-Haley, joined the business in 1984, and now serves as operations manager.

Though the shop has always attracted a variety of makes and models, Justice focused on luxury vehicles early on, and quickly became known for his work on Mercedes-Benz. Justice attracted a high-end clientele, says Justice-Haley, and at one point during the 1970s, had a two-year backlog of business. At that time, the shop didn’t even have a sign; it was simply known by word-of-mouth as “that Mercedes shop in Amelia,” Justice-Haley recalls.

It was Valley Paint’s reputation for excellence that led to the first dealer partnership in 2000. That venture was a baby step of sorts, an agreement with Mercedes-Benz of Cincinnati to become their dedicated repair center. Valley Paint was able to stay in its shop while also gaining an influx of customers referred by the dealership. “We had specialized in Mercedes anyway, since the late ’60s and early ’70s, and we already had the equipment,” Justice-Haley says. “It didn’t take much for us to gear up and partner with them. And at the time, it seemed like an honor.”

The deal with Cincinnati did require some up-front investment, however. The CL215 Mercedes model has aluminum parts, so Valley Paint had to purchase some hefty new equipment to be able to work on the vehicles. “They needed an approved aluminum collision repair facility,” Justice-Haley says, adding that the dealership helped with the investments. “And we had to have a separate work bay, totally separate from the rest of the shop.” She converted a storage building into the new aluminum shop, complete with a compression and heating system. With the cost of welders and other equipment specific to aluminum, and it added up to a hefty price tag.

A Proposal

But the gamble paid off. Justice-Haley says both sides were happy with the resulting partnership: Workflow increased at Valley Paint, and Cincinnati had a trustworthy collision repair center where they could direct customers. So in 2005, when the prospect of a partnership with a new dealership, Mercedes-Benz of West Chester, Ohio, arose, Justice and Justice-Haley were intrigued. “West Chester has the same dealer principle as the Cincinnati store,” Justice-Haley explains. “They were doing a second location and wanted a collision center that was physically attached to the building, so they asked us to partner with them and put in that center together.”

Pros and Cons

Dealership partnerships have advantages and disadvantages for independent shops, says Darrell Amberson, president of Lehman’s Garage, a group of six collision repair facilities in the Minneapolis-St. Paul area. The company has been in business since 1917, and Lehman’s employs 99 workers. (The shops do light mechanical work in addition to the 600 to 800 collision customers they serve every month.) Each of Lehman’s shops has different relationships with dealerships—for good reason. “There are lots of ways to make an arrangement with a dealership,” Amberson says. “More often than not, the dealership is going to be looking for something out of it. If they’re going to be referring customers to you, they’re going to want you to reciprocate in some way.”

Amberson, who managed dealership body shops for more than 20 years, says that many dealerships mandate that their collision centers buy their parts from the dealership—whether or not they’re the cheapest vendor. In addition, on-site shops are often asked to recondition used vehicles on the lot. While this makes sense for the dealership, who can profit from used car sales, it’s rarely profitable for the collision center to do this kind of work. “[Dealership management] is extremely price-conscious about that,” he says. “There are those out there that market to dealerships that frankly offer some bargain-basement prices—many of those types of businesses operate in very modest circumstances, sometimes as modest as working out of someone’s garage. So it’s very hard to be competitive with them,” he says. He also mentions situations where the dealership may have damaged the car. “In that case,” he says, “they’re looking to avoid turning it over to an insurance claim and therefore hoping that you’re going to do it for them for nothing or next to nothing.” With all of these factors combined, he concludes, “It can be challenging to please them in all these different areas.”

Ron Nagy, who owns Nagy Collision Specialists in Wooster, Ohio, along with his brother Dan, oversees five shops that work on approximately 300 vehicles a month. Like Amberson, Nagy makes dealership partnerships on a shop-to-shop basis. He has four independent shops outside of dealerships and one inside a dealership. The independent shops also do work for three other dealers without on-site collision centers. Nagy says it’s nice to have parts and repair information nearby when working in a dealership shop. However, politics between sales, service, parts and administration can be tricky. “Sales and service departments make promises that we are supposed to meet and keep,” he laments, adding that it can be hard to meet all those expectations.

So with all of the potential drawbacks, why join up with a dealership? The answer is simple, says Amberson: “The ideal scenario for the collision shop, what we’re really looking for, is that direct referral. That’s the nicest work that we can get.”

The Independent Shop Situation: Reclaiming A Prized Brand

After last year’s split with a Mercedes dealership, Valley Paint & Body Inc. is once again standing on its own. Now, the independent shop is drawing in not only Mercedes, but also Porsches and Audis, and averaging about 30 to 40 vehicles per month. They plan to return to top form in the coming year. Here’s what they’re planning to do:
Expand Marketing Efforts:
“We’re doing a lot more advertising and promotion,” says operations manager Jennifer Justice-Haley. The twist? They’re moving beyond traditional print, radio and television to experiment with various forms of social networking and one-on-one education. “We have a Facebook fan page, a Merchant Circle page and a Linked-In page,” she says. And to get themselves out in the community, they recently participated in a local car show to promote their products.
Emphasize Maintenance:
Since the recession is causing customers to hold on to their vehicles for longer periods of time, Justice-Haley is aiming to increase the shop’s maintenance work—performing repeat services such as oil changes keeps customers coming back and builds loyalty.
Stay Active in the Automotive and Business Community:
Both Justice-Haley and her father, Tom Justice, who founded Valley Paint, are entrenched in Ohio business circles. That helps them build contacts and gain referrals. Justice has held positions with the Affiliated Societies Council in Ohio, and his daughter was appointed to the Repair Board of the state of Ohio. That board oversees collision repair business registration in the state. The duo has other industry ties: Justice was the first I-CAR treasurer when that organization came to Ohio. Justice-Haley serves on the board of the Women’s Industry Network and the panel of experts.
Move Beyond Mercedes:
Now that the Mercedes sign has been removed, Justice-Haley aims to service a more diverse range of cars. One potential source of new customers is a nearby Porsche racing club. The group had been sending its wrecks to Wisconsin, but recently discovered that Valley Paint had much of the equipment necessary for Porsche repair. The shop is interested in becoming Porsche certified, which would require more investment in alignment equipment and paint and bench systems, and could require more I-CAR traning. Still, the additional business would likely make the expense worthwhile.
Focus on Aftermarket Products:
Justice-Haley is enthusiastic about the prospects of ArmorCoat, a thick, polymer-based clear coat. “It’s definitely something we’re working on selling to our customers for further protecting their investment,” she says. “Some of our customers do outdoor-type road rallies, and it saves the car from the stone chips and sandblasting when you’re driving fast and crazy through the country.” It’s not just for high-octane driving, either—they’ve been selling the coating to drivers who want to protect their investments from daily wear-and-tear.
Cater to Luxury Owners:
Throughout its nearly 50-year history, Valley Paint has been attuned to the needs of luxury car owners, and now that they’re once again operating independently, they intend to emphasize the unique needs of these customers. “They’re usually more demanding,” says Justice-Haley, “and we’ve taught our technicians to understand that they expect the best. You shouldn’t be able to tell that your car has ever been worked on. These owners know that.” To provide vehicle owners a visual history of their repairs, Valley Paint emails them photos or burns CDs to give them. “They can use that to show their friends,” she says. “‘Hey, look what my car looked like!’ and they can really see [and appreciate the difference in] how it looks after [the repairs are complete].”

The Union

Justice and Justice-Haley were willing to bet that the advantages of working with Mercedes-Benz of West Chester would outweigh any drawbacks. The community of West Chester was booming, and Valley Paint wanted to capitalize on the customer base in the growing area of town. The two groups agreed upon a deal that involved a stock purchase and start-up cash. “But as far as all the major equipment,” explains Justice-Haley, “the dealership made the initial investment.” Since the new shop was on the dealership site, it just made sense, she says: “They’re the ones with the property. You can’t really move a collision business.” The up-front expenditures were built into the lease agreement, and a partnership was born.

Because of Justice-Haley’s experience, she helped with designing the shop while Justice was in charge of determining equipment needs. The 14,000-square-foot shop had room for 18 bays (though it currently operates with 10), and included a painting and cleanup area as well as a dedicated aluminum station.

Justice and Justice-Haley hired a host of employees to staff the new location, including two body specialists, a painter and a general manager. They also hired office manager Sharon Cassidy, who remained with the dealership after the split. “I liked the idea of working for a family-owned, family-run business. It’s just more personal,” Cassidy says of her decision to join Mercedes Collision under Justice-Haley. “There’s more of a close-knit atmosphere when you’re working with the owner directly. And because it was attached to the dealership, I pretty much knew that we would be busy.”

Justice-Haley says that the dealership was extremely respectful of the shop’s independent spirit, allowing them to run things as they saw fit. “We already had the reputation for a clean, safe operating facility,” she says. “We didn’t have to do a lot of adapting for that. And really, we ran it the way we wanted to run it.”

Cassidy says the Valley Paint owners modeled excellent service to their employees. “I learned a lot from them, about what it takes to make sure that repairs are correct, and how to deal with customers, and, basically, how to ensure that everything is just right.”
Valley Paint agreed to give up their name as part of the deal, and operated the location as Mercedes Collision, a decision Justice-Haley says she came to regret. “You’re a brand, you know?” she says. “It’s like when you get married; do you really want to give up your name?” The problem was compounded by strict zoning regulations that prohibited the shop from posting any signage near the dealership, which meant it was difficult to attract customers. “It’s not on a main street,” she says. “You have to know that it’s there to even know to go back there.”

In addition, the agreement with Mercedes of Cincinnati mandated that Valley Paint install a Mercedes-Benz sign outside of its Amelia location, which Justice-Haley thinks drove some customers away. “We were typecast that that’s all we did, and people thought we wouldn’t work on their car,” she says. “It’s really a hard sell when you’ve got that brand out there.”
But there were advantages to the partnership, Justice-Haley acknowledges, one of which was being able to work on cars that were referred on-site. The partnership with Cincinnati (which continued after the union with West Chester) involved a lot of shuttling back and forth between Cincinnati and Amelia. “We would go to Cincinnati to do estimates and deal with customers out there a couple times a week,” she says. “The West Chester shop was easier in terms of direct referrals. If they had a car that was damaged, they’d just say ‘Hey, can you come up here to the service bay and look at this car?’”

The employees at both locations also received free certification and corporate education, a major coup. “We had brand-specific training,” says Justice-Haley. “[Our staff] went to Mercedes-Benz school whenever it became available and [the dealership] paid expenses for that. Whenever a new model year comes out or a new body style, they would have specific classes and specific tools that you had to learn to be able to work on them.”

Amberson vouches for the value of the additional training a dealership can provide: “The one nice thing about certification is that it’s a higher level of insurance that you’re going to get those referrals. There are those repairs that the dealership almost has to send your way because they’d have some requirements about certain types of repairs.”

However, even the bonus of free education doesn’t come without strings, he says. “It’s great that there is this level of referrals coming your way, but when you’ve got a relationship like that, others control your destiny to some extent,” Amberson cautions. “If all of a sudden they decide you’re done, that pipeline can be shut off. That’s the risk that you take. You have to go into it with your eyes open and know that if this works out, it’s great, but you are dependent on the decisions of some others.”

The Dealer Shop Situation: Seeking Continued Growth

From 2005 to 2009, Mercedes Collision was partnered with industry veteran Valley Paint & Body Inc. Now that their union has dissolved, the dealership shop is developing its plans to expand its business.
Focus on Employees:
After the split, the shop manager left, but office manager Sharon Cassidy kept the shop running for six weeks before new manager Tony Mason was hired. No other employee turnover occurred after the split, so the core of trained, capable staff remains. One of their stars is a painter who trained with Rolls-Royce in England, whose skills Cassidy dubs “awesome.” Cassidy credits the staff’s willingness to work hard and get the job done right the first time with maintaining the shop’s reputation throughout the transition.
Keep the Doors Open:
The dealership and collision center hold an annual open house for both sales and service customers, and attendees can tour the collision center and see the equipment. The rationale? Once people feel comfortable with the shop and its staff, they’re more likely to return for service. Cassidy says that most people don’t know the detail work involved in collision repair, and they always learn a lot from a shop tour. The dealership also hosts free car washes on select Saturday mornings to bring new customers into the fold.
Get Personal: In order to build consumer trust, every customer is assigned to a specific advisor when they bring in a vehicle for service. The advisor acts as the customer’s advocate in making sure the repairs are on track, and they’re the one who answers questions the customer might have during the repair process.
Maintain Relationships with Insurers:
Adjusters visit the shop frequently, Cassidy notes, so the shop strives to keep them educated about the unique requirements of Mercedes. Any new adjusters are given a lengthy tour of the shop, and Cassidy takes pains to help them understand why costs might be slightly higher than they are for many American-made vehicles. Cassidy explains to adjusters that having Mercedes-certified technicians and equipment adds to overhead costs, which adds to the cost of the repair.
Embrace Expansion:
The shop has 10 stalls and works on approximately 40 cars a month. Now that Valley Paint is no longer in the picture, Mercedes Collision is the sole beneficiary of the referrals from the Cincinnati dealership, and Cassidy has high hopes for the coming year. “I’m confident that our work load will double in 2010,” she says. “Hopefully we’ll expand a little bit more, bring another technician into the shop, and get more training.”

The Split

Looking back, there might’ve been subtle hints about future woes. “Every now and then you’d hear some feedback, I guess, but it didn’t really apply to us because we were a separate business. And maybe sometimes they liked that and sometimes they didn’t,” Justice-Haley says.

Clear signs that the partnership was weakening started appearing early last year, and on Sept. 1, 2009, Valley Paint parted ways with both the Cincinnati and West Chester dealerships. Justice-Haley says there isn’t one factor that led to the split, but acknowledges the economic downturn played a big part. “We needed to diversify,” she says. To offset the high overhead for the West Chester shop, they were sending cars out to the dealership from the Amelia location, and as business slumped, they didn’t have enough vehicles to justify the added overhead. And that pesky mandated Mercedes sign was definitely not helping. “We had traffic [going by the Amelia location] that we weren’t capitalizing on. We were locked into the brand name,” she says.

Once the partnership dissolved, the sign came down. Valley Paint is once again operating as an independent shop. Justice-Haley says the biggest lesson she’s learned is to hold on to your identity. “We were a brand, and they capitalized on that when we partnered with them.” she says. “I think they saw the huge advantage that they had with us being their collision center because we already had an established reputation. And they fed off that for a long time.”

After every breakup comes a moment when you dust yourself off and move on. Although Justice-Haley admits at first “it was kind of scary,” she says the shop is already looking forward. “We’re just trying to re-brand ourselves the way we were before.”

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