Start-up makes brisk business out of car wrecks

As you walk through the gates of the building housing Haji Motors, behind Vision Plaza on Mombasa Road, a heap of stalled cars and cars wrecked in road accidents lie outside the garage, waiting on the technical team to attend to them.

Inside the 12 godowns sprawled across the property, more vehicles are being serviced. A breakdown vehicle delivers yet another wrecked car.

Mr Mark Okumu, the CEO of Haji Motors, started repairing cars from his home in 2002, with Sh100,000 in capital saved from his accounting job.

“I operated from home for a while and as orders increased, I moved to Kijabe Street where I had six employees. We used to repair two vehicles in a month.”

As the business grew, the need for cash to expand became more urgent and the company started scouring for financiers, with little success.

Just before he gave up, Fina Bank, an SME-focused financial institution came to the rescue.

The bank has since remained a partner of the business.

To date, Haji Motors has received loans amounting to a total of Sh12 million from the bank, part of which it is still servicing.

The company specialises in the repair of cars involved in car accidents, from minor repairs to rectifying severe damages.

“We became successful once insurance companies recognised the quality of our work. A large proportion of our business now comes from insurance companies,” Okumu said.

According to 2008 statistics released by Kenya Association of Insurers (AKI), private motor vehicles had the highest net claims of Sh4.5 billion against net premiums of Sh5.4 billion, representing a loss ratio of 83.5 per cent.

Rapid growth has seen the company move from its Kijabe Street outpost to its current premises located behind Vision Plaza that were previously owned by Hyundai Motors Kenya.

It now employs 48 technical staff that carry out mechanical and other repair-related jobs like spray painting.

The company also employs six people in their administration department.

Haji Motors now services an average of 100 cars in a month and its revenues have risen to Sh10 million per month.

Despite the growth, the garage has had to grapple with the classic SME problem—cash flow.

“It is not easy to budget for operations in the vehicle repair business. One day you may have Sh500,000 and a car is brought in for servicing that will cost over Sh1 million to service,” said Okumu. “The problem has been compounded by customers being slow in settling their debts, sometimes taking as long as four months pay.”

Management experts have pointed out that failure to maintain a positive cash flow can ruin a business that is otherwise strong.

“The three most important things you need to measure in a business are customer satisfaction, employee satisfaction, and cash flow,” said Jack Welch, a management guru.

Vital signs

“If you’re growing customer satisfaction, your global market share is sure to grow, too. Employee satisfaction gets you productivity, qualtiy, pride, and creativity. And cash flow is the impulse the key vital sign of a company.”

Haji Motors, like other SMEs that compete on price, are particularly vulnerable to cash flow problems.

Analysts say that SMEs should be more assertive in asking for payments, arguing that any receivables above 120 days should be classified as doubtful debt.

Last week, the garage signed a deal with local paint manufacturer Crown Berger.

Under the agreement, Crown Berger will supply the garage with Nexa Autocolour Automotive paints—manufactured by France’s PPG Industries— for use in spray jobs, an inevitable part of car repairs.

Crown Berger is the local exclusive distributor of the car spray paints that are touted as superior in car coating technology.

Of late, Crown Berger has been keen on its car paint side of business, wooing garages and motor dealers to accept its supply of the paints.

In its deal with Haji motors, the company met the initial cost of setting up a Sh500,000 state-of-the-art computerised paint mixing machine at the garage’s premises.

“We realised that such small businesses cannot cover the full cost at once, so we have spread out the repayments over a few years,” said John Hadley, marketing manager Crown Berger.

Mr Okumu was upbeat about the deal, saying that it will serve to entrench the garage’s reputation for quality.

“By using the colour code from a car’s manufacturer, we can reproduce a paint that matches the original colour of the car, unlike some garages that approximate different aspects of colour.”

Crown Berger has similar arrangements with other garages.

It has also managed to bag General Motors, a major motor dealer.

Analysts say that the company’s traditional house paint business that is tied to the construction industry appears to have matured while competition has intensified, forcing the company to diversify its operations to expand revenue and market base.

Due to the difficult business environment in the wake of post-election violence and the global cash crunch, Crown Berger posted a pre-tax profit of Sh77.7 million for the year ending December 31, 2008, a 45 per cent shrink from Sh140.22 million recorded in 2007.

The company has expanded to Uganda and Rwanda, and diversified into the properties market.

The CEO, Rakesh Rao, told a press briefing that he is optimistic the new investments will help in turning around Crown Berger’s fortunes.