THE WOODLANDS, Texas—JoeAuto Inc., a hybrid blend of Internet-based technology along with brick-and-mortar auto repair shops, has received a multi-million-dollar shot in the arm from a company some might consider a competitor.
Ford Motor Co., on Feb. 13, provided the major share of a $13.5 million round of financing that will help JoeAuto along in its ambitious plans to transform how consumers procure auto service. In turn, the auto manufacturer has gained a major piece—though not majority ownership—of the automotive service provider based in The Woodlands, a suburb north of Houston.
Lynn Graham, JoeAuto president and CEO the past 14 months, told Tire Business the company's deal with Ford will provide certain "synergies" for both, and he called the auto maker "a very good partner."
JoeAuto recently purchased a three-acre parcel and broke ground in Houston for a prototypical 25,000-sq.-ft., 28-bay service center that is scheduled to open in late June or early July. Like JoeAuto's prototype shop—an eight-bay version that opened in April 2000 in a Houston suburb—the new outlet will feature Web cameras in each bay, allowing off-site customers to log onto the Internet and watch their vehicles being repaired.
The company is in the process of putting contracts out on additional sites, and plans to focus first on Houston with the goal of building five to six shops there over the next 18 months, Mr. Graham said. JoeAuto then will, within 24 months, move on to Dallas and Austin, Texas, Atlanta and Denver and continue its nationwide expansion from there.
Within five years it expects to have 140 "big box" service centers in the nation's top 50 metropolitan markets.
This year it hopes to establish two large so-called "supercenters," and open from a dozen to 15 sites next year before "going into hypergrowth from there," he said. A seven-bay prototype shop that JoeAuto opened in February 2000 in Phoenix was sold in order for the company to first focus on growing in Texas.
JoeAuto offers service in several ways: A consumer can go to the actual repair shop, or visit the company's Web site (www.joeauto.com) to schedule an appointment, receive a diagnosis and review price options—all on-line. After the job is booked, the customer can either drop the vehicle at the shop—and get a ride home or to work—or let JoeAuto pick it up and return it. Mr. Graham said about 25-30 percent of its customers use the company's pick-up and delivery service. Outlets are open 24 hours a day, seven days a week.
Also, through an arrangement with Hertz—which will have a rental counter in each outlet—loaner cars are availaible for $5 an hour or $35 per day.
In Houston, the company has begun testing an outsourcing relationship with NAPA in which the auto parts supplier will set up and manage an operation—with inventory, personnel and telecommunication lines—at each JoeAuto site. Mr. Graham said NAPA will not receive a share of profits or ownership stake in JoeAuto, but will get cost plus markup on its parts.
Although the company intends, whenever possible, to build from scratch, Mr. Graham anticipates that in some cities—especially in the Northeast, where real estate is at a premium—JoeAuto's "fall-back option" may be to do some "refabrication and remodeling." And that could mean buying out an existing repair shop "if it's in the right location."
Asked how much JoeAuto has budgeted for expansion this year, Mr. Graham said that Primus, Ford's financial arm, is providing financing for JoeAuto's land acquisition and building projects, and the company also is getting help from Ford's Rotunda tool and equipment division.
"We believe we can launch one of these facilities—between our portion of land and building costs, pre-opening costs, marketing and opening losses—for about $1.5 million each," he said.
At its eight-bay site, the firm is annualizing revenue of $1.5 million, he noted. "Based on 1999 Automotive Service Association data, that puts us in the top 5 percent of all aftermarket repair facilities, since very few places average more than one million annually. So our revenue per service bay is extremely high."
JoeAuto is currently working with the Six Sigma Qualtec Institute to redesign what it determined are 35 "critical" automotive service processes. Those, according to Mr. Graham, include air-conditioning, heating, electrical, brakes, alignment, lubrication and oil.
"We've asked Six Sigma to examine them and see if there are more economical ways to perform those services."
The company also is currently talking with a number of strategic investors, he said, and is entering the second phase of a fund-raising effort it hopes will raise $25 million by June.
Mr. Graham described his company's relationship with Ford as a collaborative one, noting: "Since we don't rebuild engines or transmissions, or do body work, we can refer that type of work to car dealerships."
While automotive service will be JoeAuto's mainstay, Mr. Graham said the company "fully intends to sell tires." However, no supply agreements have been negotiated yet "so there's an opportunity available there for someone.
"But we'd prefer to not have to store all brands, makes and models of tires on site, and instead would like a one- or two-hour `hotshot' delivery arrangement."
He's anticipating that tires will be "a big part of our business, and have built into our operating model that they could be up to 15 percent of sales."