LLOYDMINSTER, SK -- June 9, 2008 -- Although not unique to this industry, across the board, as collision repair shops are caught in the cost squeeze they constantly seek additional profit generating techniques. Among others, this raises the question of whether it is better to own or lease one’s shop space. 

Jerry Gagnon of Lloydminster’s City Center Auto Body is adamant that owning is the only way to go. On the other hand, the big-box stores and industrial warehouses lease. They say this provides greater flexibility and makes them more money by investing in salable merchandise rather than bricks and mortar. Maybe they are telling us something.

Still, a collision repair facility is not a  Wal-Mart or a Home Depot. Your profit is increased by repairing more vehicles at a lower per unit cost, not by stocking more parts and supplies than you need, or by having a bunch of hulks in the back to cannibalize for spare parts.

The buying vs. leasing equation can only be resolved when weighing the optimum use of available capital. Money is not made by owning an asset, but by the use made of it. Gagnon says that the average collision repair shop is in the range of 10,000 sq. ft and requires about one acre of land. This suggests an investment in the $1 million range.

If mortgaging, say $800,000 at 7.5 per cent for 15 years, the annual debt service would be approximately $88,500.

When leasing, the annual net rent (meaning taxes, insurance, utilities and maintenance are in addition to this, and must be calculated separately) could be up to $120,000, and perhaps even more. 

Assuming that the equity capital to buy is available - or even if borrowing all of it from the bank - with buying, you could still be ahead in terms of money.

This suggests that owning is the best way to go.  Yet when adding the required equipment, we are now up to a total capital investment in excess of $1.5 million!

It could be that the equity capital is not there, or maybe the bank says no when it comes to borrowing. If yes, the repayment period might be short, making the occupancy cost higher than leasing, thus distorting your cash flow. 

For more on what kind of deal is best for you, please read the next issue of Collision Repair magazine.

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