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It could have turned out differently. When Bob Morgan thumbed through a copy of Entrepreneur Magazine in 1984 looking for business to start, he came across a list of businesses ranked by profitability and lowest start-up costs. "Number one was dry cleaning," said Morgan, 60, "and there was no way I way going into that business. Number two was collision repair, and I figured that had possibilities."
While Morgan didn't know how to repair wrecked cars, he knew something about automotive management, having been the general manager at a Chevrolet dealership. With a $16,000 loan against his house, he found a partner who did know body repair and together they opened Diablo Auto Body in Pleasanton. The shop did well and is still operating, but the partnership didn't fare as well - "do partnerships ever work?" asked Morgan - and Morgan struck out on his own.
In 1987 he took over a closed Chevrolet dealer's body shop in Tracy and started running it as an independent operation, 14,000 sq ft Discovery Auto Body. Located in what was then an agricultural town of 32,000 and today is home to 65,000 people in the San Joaquin Valley east of San Francisco, Discovery Auto Body was to become the cornerstone of Morgan Enterprises, Inc.. The three-shop powerhouse employs 92 people, repairs over 600 vehicles a month and will gross $15 million this year.
In 1989 he looked down the road and took over a money-losing body shop from a dealer and started 12,000 sq ft Tradeway Auto Body in the small San Joaquin Valley town of Manteca.
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Diablo Auto Body, Stockton, California
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| Discovery Auto Body, Tracy, California |
In 1993, with Tradeway and Discovery up and running, Morgan looked north to the larger city of Stockton, opening Diablo Auto Body with 8,000 sq ft. "The DRP race had started around that time," said Morgan, "and I was told if I built a shop in Stockton, my insurance partners would send me business. They didn't."
Not without a struggle
Morgan struggled to build business in Stockton, slowly wooing the insurers and doing a lot of advertising. "Advertising attracts the 15% of the public that won't pay any attention to where their insurance agent says to get the car fixed. I want that business, so I advertise. Even today, with all the insurance assignments, I spend at least $100,000 a year on advertising. You've got to keep you name out there. " Morgan also kept the name of each shop different. "Each one has an identity. I don't what them thought of as a 'chain' because each shop stands on its own."
Despite its slow start, the Stockton shop not only stabilized but grew to the point that a new 23,000 sq ft shop, built to replace the old facility, opened there in 2000. "Our growth was limited by production space, and running two shifts just doesn't work - leads to too much bickering." Discovery Auto Body in Tracy also expanded, growing in 1997 to 20,000 sq ft including an Enterprise car rental office. The increased size allows Discovery to gross $400,000 - $450,000 a month.
Will sell to employees
While Morgan's entry into collision repair was not exactly a life long plan, he says the business has been good to him and he still enjoys coming to work. "There are too many shops run by tradesmen rather than businessmen. They run their business out of a check book. Now, I can't fix a car, but I can look at it and tell you if it's been done right. You need to run a body shop as a business, day to day. Stop complaining about insurance and employee problems. Every type of business has its problems. At least this is a profitable way to spend your time."
Annual profits top $1.5 million
Profitable indeed, with the corporate bottom line expected to reach $1.5 million in 2002. And that's after the cost of a management layer to keep Morgan out of day-to-day operations. General Manager Chris Johnson has worked for Morgan 13 years. He also oversees operations at the Discovery shop, while Mike West runs Stockton and Kirk Watson takes care of Manteca. Each shop also has a production manager, office staff and at least three estimators. "When I'm finally ready to let go, I'll sell the business to my employees. They can pay me out of profits," said Morgan.
Techs go to flat rate
"We recently switched pay systems. We always paid hourly, but to encourage greater efficiency we implemented a flat rate (commission) system." Morgan looks for a gross profit of 65% and the shops have a $58 labor rate (door rate). Morgan calculates that to meet overhead and profit goals, his techs need to run at 175% or more efficiency. "The goal is 200%, doing 80 (flat rate) hours in a 40 hour week, and some guys do that now but some never will. What we're working on now is a bonus system to reward the high producers of quality work. It doesn't seem fair to pay the same hourly rate to a guy who turns out 80 - 100 (flat) hours of work per week as you do somebody who turns out only 50 or 60."
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