ravi autoclub

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Pre-Feasibility Study

Small and Medium Enterprise Development Authority

Government of Pakistan

www.smeda.org.pk

HEAD OFFICE

Waheed Trade Complex, 1

st

Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore

Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756

[email protected]

REGIONAL OFFICE

PUNJAB

REGIONAL OFFICE

SINDH

REGIONAL OFFICE

NWFP

REGIONAL OFFICE

BALOCHISTAN

Waheed Trade Complex,

1

st

Floor, 36-Commercial Zone,

Phase III, Sector XX,

Khayaban-e-Iqbal, DHA Lahore.

Tel: (042) 111-111-456

Fax: (042) 5896619, 5899756

[email protected]


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5

TH

Floor, Bahria

Complex II, M.T. Khan Road,

Karachi.

Tel: (021) 111-111-456

Fax: (021) 5610572

[email protected]

Ground Floor

State Life Building

The Mall, Peshawar.

Tel: (091) 9213046-47

Fax: (091) 286908

[email protected]

Bungalow No. 15-A

Chaman Housing Scheme

Airport Road, Quetta.

Tel: (081) 831623, 831702

Fax: (081) 831922

[email protected]

September, 2004Pre-Feasibility Study Auto Repair & Service Workshop

PREF-4/September, 2004/Rev1

DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject matter

and provide a general idea and information on the said area. All the material included in

this document is based on data/information gathered from various sources and is based on

certain assumptions. Although, due care and diligence has been taken to compile this


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document, the contained information may vary due to any change in any of the concerned

factors, and the actual results may differ substantially from the presented information.

SMEDA does not assume any liability for any financial or other loss resulting from this

memorandum in consequence of undertaking this activity. Therefore, the content of this

memorandum should not be relied upon for making any decision, investment or otherwise.

The prospective user of this memorandum is encouraged to carry out his/her own due

diligence and gather any information he/she considers necessary for making an informed

decision.

The content of the information memorandum does not bind SMEDA in any legal or other

form.

DOCUMENT CONTROL

Document No. PREF-4

Revision 1

Prepared by SMEDA-Sindh

Approved by Provincial Chief - Sindh

Issue Date September, 2004

Issued by Library OfficerPre-Feasibility Study Auto Repair & Service Workshop


This document is developed to provide the entrepreneur with potential investment

opportunity in setting up and operating a Auto Repair & Service Workshop offering

various services. This pre-feasibility gives insight into various aspects of a Workshop setup

including both technical and general information for each particular service offered. The

document is designed to provide all relevant details to facilitate the entrepreneur in making

the correct decision providing various technological as well as business alternatives. The

document also allows flexibility in change of various parameters to suit the customized

needs of the entrepreneur.

The Auto Repair market has a lot of competition, almost all offer repair and service


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features. Very few have fully stocked parts owing to the problem of tied up capital in case

of non-utilization of these parts. However, quick availability of parts supports the service

and repair departments by allowing them to turnaround jobs at a faster rate than the

competition. Wheel alignment and balancing facilities are also provided by many large

scale workshops along with their primary services.

The proposed pre-feasibility addresses the unmet need of having a quality auto repair

workshop that provides:

(i) Quick and quality repair & maintenance services;

(ii) Wheel Alignment and Balancing Facilities

(iii) High Pressure Cleaning Services; and

(iv) Easy access to new and used retail parts to meet the demands of the customer.

The Auto Repair & Service Workshop business is a viable business provided that it is

operated with a good business acumen that involves having a thorough knowledge and

experience of the repair and service operations and also managing the jobs with the right

type of skilled manpower. When these factors combine with good customer relationship

management and effective business development skills, the business is expected to give

considerable profits which are expected to grow over the years.

1.3.1 Market Entry Timing

The Pakistani automobile industry has registered a considerable growth over the past

couple of years. It was further estimated that the car industry experienced a growth rate of Pre-Feasibility Study Auto Repair & Service Workshop


51.4% during July 02 to April 03

1

signifying an increasing demand for cars which is

expected to continue in the future (albeit at a lesser rate).

Furthermore, increasing competition between leasing companies have caused the lease

rates to decline considerably which have made car an affordable commodity for a majority


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of the middle-income class which constitutes a considerable segment of the population of

Pakistan. These factors coupled together reflect on the growing need for quality repair and

service facilities.

Unlike many countries, the Pakistani car industry is unique in the sense that once the car

comes on the road it is expected to run for an indefinite period requiring major repair and

maintenance services throughout its operational life. Moreover there is a considerable

demand for wheel alignment and wheel balancing services, which is required by almost

every car, whether new or old. The roughness of the roads and continuous friction causes a

continuous disruption to the alignment and balancing of the wheels which require adjusting

at least once every two weeks for proper upkeep and maintenance.

Conclusively it can be said that there exists an ample demand for quality repair and service

workshops in Pakistan and also that the existing scenario provides conducive opportunities

for entry into this business venture.

The three main critical success factors that affect the decision to invest in the proposed

business setup are:

i) Hands on Experience

Having a thorough knowledge and hands on experience of all the relevant technical

details is a must for entry into this business. Relevant work experience is the most

important pre-requisite because it has a direct impact on the successful

management of the business.

ii) Marketing Skill

Another critical factor is that the entrepreneur must have effective PR & marketing

skills. These marketing skills should enable the entrepreneur to carryout business

development activities to target his potential customers and also to maintain his

existing client base.

1


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Auto Industry in Pakistan, A research Publication by Capital One Securities, February 2004Pre-Feasibility Study Auto Repair & Service Workshop


iii) Technical Skill

The third critical factor relates mostly to technical skills required especially for

operating computerized Wheel Alignment & Balancing machines and high pressure

cleaning equipment. The machine operators should be properly trained in order to

completely inspect steering and suspension systems, take computer measurements,

make factory adjustments to restore alignment specifications. In case of unskilled

workers handling these equipment, there will be loss of time, equipment and most

important of all unsatisfactory service leading to customer dissatisfaction.

Although the legal status of business tends to play an important role in any setup, the

proposed Auto Repair & Service Workshop is assumed to operate on a sole proprietorship

basis which may extend to partnership in case of addition of new services that might add

significant business to the existing setup.

This section will provide the total cost of the project.

ITEM COST (RS.)

Construction Office / Store 675,000

Construction Service Stations 850,000

Masonry Work 120,000

Mechanical Repairs Equipment 90,000

Denting Equipment 100,000

Painting Equipment 30,000

Wheel Alignment Machine 1,000,000

Wheel Balancing Machine 650,000

High Pressure Cleaning Equipment 550,000

Piston Pump 250,000

Spare Parts Purchases 125,000


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(ii) Major Repairs mainly related to repair and replacement services that require

comparatively greater job turnaround time and include activities like engine Pre-Feasibility StudyAuto Repair & Service Workshop


overhaul (3 weeks), gearbox repair & replacement, steering box repair &

replacement, suspension replacement (3 5 days) etc.

The main denting and painting services provided to the customers would be as follows:

(i) Cosmetic Repairs which are also known as touching services where minor

body defacements (like scratches, dents, paint shrouding etc.) are repaired.

(ii) Accidental Repairs which constitute chassis, mudguard, bumper, bonnet

repairs / replacement services etc. Most of the cars coming for denting &

painting services come under this category.

(iii) Body Restoration Services which include complete restoration of vehicle body

for example restoration of decayed body, completely destroyed accidental body

restoration etc.

(i) Wheel Alignment which consists of adjusting the angles of the wheels so that

they are perpendicular to the ground and parallel to each other. The purpose of

these adjustments is to maximize tires life and ensure a vehicle that tracks

straight and true when driving along a straight and level road.

(ii) Wheel Balancing refers to the proper distribution of weight around a revolving

tire and wheel assembly. Poor wheel balance can have a marked impact on both

the car and safety. Proper wheel balance ensures that the wheels, while

spinning, do not have a heavy spot that can cause vibration and premature wear

of tires, struts, shocks and other steering and suspension components. When

combined with proper wheel alignment, balanced wheels ensure smooth and

enjoyable driving.

High Pressure Cleaning mainly involves the cleaning of the outer body of the car through

high pressure water spray which contains a car body detergent and then a little wax to


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smoothen the car paint.Pre-Feasibility Study Auto Repair & Service Workshop


Sublet services are those ancillary services that are outsourced to other specialized

workshops / personnel that are not a part of the service mix offered by the Auto Repair

workshop. These sublet services include items like Air Conditioner Repair & Coolant

Replenishment, Machine Shop Items, Radiator Repairs, Silencer Repairs, Road Spring

Repairs, Upholstery Items (seats, bumpers, plastic repairs etc.), Wheel Alignment /

Balancing, Axle End / Tire Rod Repair & replacement etc.

These sublet services usually form a part of the total job order of the Auto Repair

Workshop and are usually a portion of the lump sum amount charged to the customer by

the Auto Repair Workshop.

Capacity Human Resource Equipment Location

867 Cars / Month

5 (Management)

20 (Technical Staff)

Local / Eurpoean /

Chinese

High Income

Locality

Financial Summary

Project Cost IRR NPV Payback Period

Cost of Capital

(WACC)

6,047,000 33% Rs. 4,099,801 3 Years & 5 months 17.5%

The Auto Workshop business is very much dependent on the location of its setup. Auto

Workshops located on main roads or prime locations usually depend on walk-in customers

while those that are based on off-road locations have their business coming in from


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contacts, referrals and companies. The main factors to consider for deciding on the location

are:

Anticipated Source of Business:

If the Auto Workshop owner has contacts and a good referral network he can setup

up the workshop in an off road locality which would cost him much lower than

locating himself on the main road. On the other hand if the entrepreneur wants to

bank his business on walk in customers then he needs to be on main roads to

provide easy access to the walk in customers but will have to comparatively pay a

higher rent. This becomes more critical for wheel alignment & balancing and high

pressure cleaning services.Pre-Feasibility Study Auto Repair & Service Workshop


Accessibility of Sublet Services

As discussed earlier, most of the workshops do not offer all the services hence

some services are outsourced to other specialized workshops / personnel. Quick

and easy accessibility to these services would minimize job turnaround time thus

the location needs to be in close proximity to these service providers.

Existing Competition

Concentration of similar types of workshops can give difficult competition, which

increases if the competitors are well established and famous for their service.

Therefore it is advisable to choose such locations only when the owner is expected

to have considerable amount contacts and referrals.

Quick Accessibility to Parts Market

Maintaining a spare parts inventory is crucial for reducing the job turnaround time.

However many auto workshops prefer to be located within close proximity to the

spare parts markets to ensure ready availability of desired spare parts. Therefore

less money is tied up in maintaining an adequate spare parts inventory.

The main objective for an Auto Repair Workshop is to offer a hassle free quality repair and


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service operations that eliminate waiting on part of the customer and help to offer value

added services to the customer who need their cars fixed right away. The following factors

need a continuous focus for making the proposed setup a successful business venture:

Growing and Maintaining a Referral Network of Customers

The main factor is to attract and maintain a loyal customer base through a

customer-oriented focus on business rather than concentrating on volume and

losing out old customers. All the workers at the workshop need to be trained and

held responsible for providing superior service and developing long lasting trust

bond with the customers. This is very important in this industry, where trust and

honesty reflect on the image of repair and service facilities. This would help in

maintaining a consistent revenue base, to ensure stability of business on the longrun.

Expedient and Convenient Auto Repair & Service Facilities

This business is very unique in the sense that switching costs are almost negligible

for the customer hence the main effort required is to maintain and enhance Pre-Feasibility StudyAuto Repair & Service Workshop


customer loyalty by providing quick and quality services. Otherwise, the customer

would not take time to move to other workshops.

Skilled & Experienced Manpower

The knowledge and experience of the entrepreneur is not sufficient to run the

business smoothly. Provision of quality repair and service facilities solicits skilled

and experienced workmen which are an integral component of this business. It is

important that the manpower hired should have the required technical capability

and customer relationship management skills. Unless the entrepreneur is not skilled

and does not possess the required know-how he would not be able to properly hire

and manage the manpower.

Auto Parts Inventory

An adequate auto parts inventory based on prior experience and business volume


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needs to be maintained in order to give quick service and prevent any

inconvenience caused to the customer. Moreover, quick accessibility to used / new

auto parts is another important factor that enables to provide hassle-free service to

the customers. However, the entrepreneur needs to carefully manage the auto parts

inventory to ensure that minimal working capital is tied up. Some workshops

usually keep auto parts for the most common car brands while parts of less

common / unpopular brand are usually made available on call basis.

Specialized Skills

Some Auto Workshops become famous due to their expertise in particular area /

field or brand. These workshops develop their expertise over a period of years and

become famous for specialized areas like Denting & Painting, Axle Repair &

Maintenance etc. Some workshops are known experts for specific car brands like

Suzuki, Toyota etc. These specialized skills draw the attention of car owners of

particular brands or those who are facing specific problems, hence consistent

quality needs to be maintained to develop such skills. Another specific issue that

relates to specialized skills is the proper use of alignment and balancing equipment

such that the customer is properly satisfied. This can be achieved only when the

workers operating these machines are properly trained and knowledgeable about

the processes.Pre-Feasibility Study Auto Repair & Service Workshop


The Auto Workshop that provides mechanical and denting & painting services follows a

basic process flow as follows:

The above diagram illustrates the basic process flow for mechanical repairs. The customer

comes in with the mechanical problem wherein a job card is prepared based on the

problems faced by the customer. The foreman then checks the car to check for any

additional problems. The customer is then provided with time and cost estimates

depending on the whether the parts need to be repaired or replaced. On agreement of the


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customer the job is allocated by the foreman. It is necessary to test run the car before it is

finally delivered to the client.

The above diagram illustrates the basic process flow for denting and painting. After the

estimation of time and cost the car is given to the Head Denter who reshapes the car back

into form and hands it over to the painter. Initially the reshaped body is prepared for

painting by applying coating and then patches are filled which are then smoothened by

rubbing. The body is then painted and left for drying after which finishing touches and

BODY FILLING

ON PATCHES

BODY

PREPARATION

FOR PAINT

PAINTING RUBBING

DELIVERY TO

CUSTOMER

TEST TRIAL

CAR JOB ORDER TIME / COST

ESTIMATE

REPAIR /

REPLACEMENT

CAR JOB ORDER TIME / COST

ESTIMATE

DENTING /

RESHAPING

DRYING

PART

REPLACEMENT


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(IF ANY)

FINISHING

FINAL

DELIVERY TO

CUSTOMERPre-Feasibility Study Auto Repair & Service Workshop


waxing is done to ensure proper shine. In case of accidents, irreparable parts are replaced

before making the final delivery to the customer. However subletting activities can also

take place during this process on need basis.

With the development of computerized alignment machines the wheel alignment process

has been very much simplified. However there are two types of wheel alignments that are

widely practiced:

Two Wheel Alignment:

The term Two Wheel Alignment is a process where both front wheels are aligned

to provide the best Toe in, Caster and Camber settings to provide the best all

around handling and tire wear under normal driving conditions.

Four Wheel Alignment:

The term Four Wheel Alignment is a process where both front and rear wheels are

aligned. In a typical Four Wheel Alignment, the rear wheels are checked for toe and

tracking.

In a typical situation the Rear wheel "Toe" is adjusted by adding or removing small shims

between the rear wheel hub and the rear axle. Tracking is checked with the computerized

software and the rear axle is checked to make sure that it "tracks" properly behind the front

wheels. On a Four Wheel Alignment, the adjustments are first made to true up the rear

alignment, then the front is adjusted. Therefore a full Four Wheel Alignment will cost

more because there is a lot more work involved.

For a general overview the


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above diagram presents an

illustration of a car where the

front wheels are not aligned to

the rear thrust line. This can

happen from normal wear

and stress, whether the vehicle

has adjustable or non-adjustable rear suspension. To steer straight ahead, the driver would

have to steer the front wheels slightly to the right. A common result would be that the

vehicle would possibly pull to the side. Wheel alignment requires a lot of accuracy because

it takes only a small misalignment to create problems.

Front

Rear Pre-Feasibility Study Auto Repair & Service Workshop


Stage 1: The first stage involves the following steps:

1. Placement of the car accurately on the alignment frame ensuring that Toe, Camber

and Casters are in a proper visible position.

2. Angle readings are measured at all four wheels as indicated on the screen

3. The steering wheel is centered.

4. Front wheels are referenced to rear thrust line and set to specifications.

5. A continuous series of alignment iteration would be required unless the computer

shows zero angle deviation.

At the end this would result in all four wheels being parallel when the steering would be

centered. This is illustrated as follows:

Stage Two: The second stage involves the following steps:

1. Angle readings are measured at all four wheels.

2. Rear wheels are set to specification. (Rear thrust line corresponds to vehicle

centerline.)


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3. Steering wheel is centered.

4. Front wheels are referenced to the rear thrust line and set to specification.

Excessive or uneven tire wear.

Steering wheel pulls to the left or right.

Feeling of looseness or wandering.

Steering wheel vibration or shimmy.

Steering wheel is not centered when car is moving straight ahead.

Front Rear Pre-Feasibility Study Auto Repair & Service Workshop


Most of the customers shy away from getting rear wheels aligned because of the cost and /

or their lack of knowledge of the workshops offering such services. The following are

some of the benefits of a four wheel alignment the importance of which should be

communicated to the customer by the Workshop employees:

Reduced Tire Wear

Improper alignment is a major cause of premature tire wear. Over the years, a properly

aligned vehicle can add thousands of miles to tire life.

Better Mileage

Mileage increases as rolling resistance decreases. Total alignment sets all four wheel

parallel which, along with proper inflation, minimizes rolling resistance.

Improved Handling

Most of the time the cars pull to one side and the steering wheel vibrates. The driver

has to constantly move the steering wheel to keep the car traveling straight ahead.

Many handling problems can be corrected by total 4 wheel alignment. With all the

system components aligned properly, road shock is more efficiently absorbed for a

smoother ride.

Safer Driving

A suspension system inspection should be made part of the alignment procedure. This


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allows for spotting worn parts before they cause costly problems.

Properly balanced tires help minimize uneven wear and extend their life. When tires are

balanced, small lead weights are attached to the wheels to limit vibration of the tire and

wheels as they turn. Tires and wheels should be balanced when the tires are rotated

(normally every 6,000 miles), after putting on new tires, after fixing a flat tire, and any

other time a tire is removed from its rim.

There are two "planes" on which a wheel / tire assembly can be balanced: Pre-Feasibility StudyAuto Repair & Service Workshop


1. The radial or static plane. Imbalance on the static plane can be described as wheel

"bounce" or wheel hopping, up and down.

2. The lateral or dynamic plane. Imbalance on the dynamic plane can be described as

side to side shake of the tire and wheel assembly, "shimmy" or "wobble".

The radial and lateral balancing wheel procedure is very simple wherein the wheel are

removed from the car and mounted onto the balancing machine one at a time. The

computer screen shows the angular deviations between the rim and the wheel (rubber) and

with the help of the machine the operator tries to balance the wheel horizontally and

vertically at best.

The most common signs of unbalanced tires are vibration and noise problems. When

driving with an out-of-balance wheel, the wheel literally bounces down the road rather than

spinning smoothly. This can affect the speed, handling and mileage of the car.

Most new models have lightweight suspension systems and are therefore, more sensitive to

imbalance than older cars. It is advised that the workshop employees recommend their

customers to have their car s wheels balanced when rotating the tires, about every 6,000

miles, etc. It is not uncommon for wheels to lose a wheel weight from time to time; so

periodic balancing minimizes the impact of unbalanced wheels on the car.

Radial or Static Plane

(Bounce)


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Lateral or Dynamic

Plane (Wobble)Pre-Feasibility Study Auto Repair & Service Workshop


High Pressure Cleaning & service mainly involves the cleaning of the outer body of the car

through a diesel driven pressure pump machine which ejects water at a very high pressure

from the hoses. The car is parked on a ramp after which it is lifted into the air by a Pressure

Piston Pump. The water slightly mixed with detergents for proper cleaning is sprayed from

the spray guns after which dry air is also used to remove any water drops left on the body.

Some Service stations also spray dry air slightly mixed with wax to give a shiny finish

which increases the life of the body paint. However most of the service stations manually

remove the water droplets with cleaning clothes.

The equipment required for running an Auto Workshop would relate to the activities that

the workshop tends to undertake. In this case, the equipment required would be as follows:

MECHANICAL REPAIRS & MAINTENANCE

Equipment Number Estimated Cost (Rs.)

Complete Mechanical Toolbox 2 26,000

Work Bench 2 5,000

Vice 2 9,000

Tool Box Cupboard 1 5,000

Voltmeter / Ammeter 2 5,000

Timing Light 2 12,000

Battery Charger 1 7,000

Compression Gauge 1 6,000

Others - 15,000

Total 90,000

DENTING

Equipment Number Estimated Cost (Rs.)Pre-Feasibility Study Auto Repair & Service Workshop


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Denting Toolbox 2 20,000

Mechanical Toolbox 1 13,000

Pressure Jack (Large) 1 30,000

Gas Cylinder 1 6,000

Carbide Tank 1 3,000

Welding Kits 2 6,000

Drill Machine (Hand) 2 3,000

Puller Jack 1 4,000

Others - 15,000

Total 100,000

PAINTING


Painting Compressor (2 hp; 1k lbs) 1 15,000

Spray Gun (Small) 1 3,000

Spray Gun (Large) 1 4,000

Pipe 1 1,000

Others - 7,000

Total - 30,000

HIGH PRESSURE CLEANING


High Pressure Cleaner (including

Piston Pump)

1 550,000

Piston Pump 1 250,000

Total - 800,000

WHEEL ALIGNMENT & BALANCING


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Equipment Number Estimated Cost (Rs.)Pre-Feasibility Study Auto Repair & Service Workshop


Complete Computerized Alignment

Equipment (Including Heads, Disc

plates etc.) A Class

1 1,000,000

Computerized Wheel Balancing

Machine

1 650,000

Total - 1,650,000

As is practiced widely, the proposed workshop would maintain an estimated inventory of

Rs. 125,000 for spare parts & lubricants.

This would mainly include items for general repairs like bush, break shoes, filter,

points, clutch plates, spark plugs, nuts / bolts etc. for about 8 to 10 models of most

common car brands like Suzuki, Toyota and Honda. These purchases would also

include daily consumables items like carbide, sand papers etc. that are required for

denting & painting services.

It is estimated that initial purchases for spare parts & consumables would amount to

Rs. 125,000 which would subsequently average to purchases of Rs. 3,200 on a

daily basis (Rs. 80,000 for 25 day month) after commencing of operations.

The workshop would also be required to keep a minimum inventory of lubricants to

meet the immediate requirements of the customer. Usually lubricants are expensive

and many workshops don t find it affordable to keep a large inventory of such

items.

It is estimated that an initial inventory of Rs. 25,000 would be required for

lubricants and the monthly purchases would amount to Rs. 10,000 per month after

resuming of operations.


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TPre-Feasibility Study Auto Repair & Service Workshop


The procedure of wheel alignment was traditionally carried out based on manual iterations

which was largely dependent on the skill of the worker. The system was totally manual

where the angles and the alignment deviations were brought into conformity through

guesswork. Through the subsequent introduction of technology, alignment machines

were introduced which later developed in totally computerized and automated alignment

packages in which the alignment can now be done by sitting on a computer.

Majority of the wheel alignment machinery in the market is computer operated with

software based operating system. Some machines have electronic panels that only show the

deviations while the newer ones have a computer interface having more features. While

buying the alignment equipment, its important features need to be considered like

o User friendly interface of the software. Nowadays most machines are based on

XP based alignment software offering a very easy interface for the worker.

o The features of the software is also another important factor wherein the depth

and extent of alignment procedures and aspects are considered

o The features of the machine / alignment equipment need to be considered

especially the alignment time. Most of the newly automated machines require

only 5 minutes for complete alignment while the others which are possessed by

a majority of the alignment shops usually take 20 30 minutes for complete

alignment.

The prices of wheel alignment machines are based on two factors (i) Condition and (ii)

Make or Brand. Wheel alignment machines have a very long life lasting for over 15 20

years with very little depreciation. Because of this many machine suppliers in local

markets are refurbishing old / used machinery by repainting them and selling them in the

market.

There are two main makes of the machinery (i) of European Origin of famous brands like


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LAUNCH, RAV, BIESRBERTH, HOFFMAN etc. and (ii) of Chinese Origin. However

since China is relatively new in this technology many people prefer to opt for European

brands because of their quality of features and brand establishment.

Brand new European machines cost around Rs. 850,000 1,000,000 (A Class) while the

others cost around Rs. 650,000 750,000 (B Class). Brand new Chinese machinery with A

Class features also costs around Rs. 650,000 750,000 but despite the low cost people

prefer to opt for European brands since Chinese Machinery are still in the testing stages. Pre-Feasibility Study Auto Repair & Service Workshop


For the purpose of this study we have assumed procurement of a new European branded

machinery costing around Rs. 1,000,000 having the latest features and easy to operate

facilities.

The Wheel balancing Machinery is available on similar brands and makes as those of

alignment machines. However the price variation of these electronically operated machines

is greater where used machines cost around Rs. 200,000 while new ones cost around Rs.

1,200,000.

For the purpose of this study we have assumed purchase of a wheel balancing machinery

containing good features and costing around Rs. 650,000. The wheel balancing equipment

similar to alignment equipment has a very long life but requires more maintenance as

compared to alignment machinery.

High pressure cleaning equipment is relatively delicate machinery which has a lot of

deprecation such that it needs to be replaced after every 3 years. Usually the water tank and

the pressure valves and hoses loose their durability within this time period and need to be

completely replaced. For some service stations the replacement time period ranges around

2 years depending on the continuous use of the product.

High pressure cleaning equipment is available in local markets ranging from Rs. 750,000

to 800,000 of various European Brands like ITM ITALIA, EUROCLEAN, KRENZELEY

etc. Due to its high depreciation the high pressure equipment requires a lot maintenance


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costs on a monthly basis which even amounts to one fourth of its original cost per month.

For the purpose of this study we are assuming a quality pressure cleaning equipment

costing around Rs. 550,000 having life of 3 years with a maintenance cost of

approximately 25 % of its written down value. An additional Rs. 250,000 will be required

for the purchase and installation of Piston Pressure Lift.

Since the machines require diesel fuel for operation, it is assumed that the fuel cost would

be Rs. 5,000 per month. Pre-Feasibility Study Auto Repair & Service Workshop


The proposed Auto Workshop setup is assumed to operate in 1,000 sq. yards that allows

ample space for Denting & Painting and Mechanical services and also for general parking

services for walk-in customers.

The workshop is assumed to be totally covered with around 95% of the total area catering

to technical works and the remaining 5% for General Office and Stores. It is recommended

that minimum space be utilized for office and store setup to allow maximum number of

cars within the workshop vicinity.

The covered area for workshop operations would be divided between the proposed services

and would assume the following break up (including parking for standby / waiting

customers):

Mechanical Works 350 Sq. Yards

Denting & Painting 300 Sq. Yards

Wheel Balancing & Alignment 150 Sq. Yards

High Pressure Cleaning 150 Sq. Yards

The proposed land will be acquired on a rental basis with 3 month deposit and 3 months

advance rent after which rent will be payable on a monthly basis.

A total of Rs 80,000 is required for purchase of office furniture and related equipment. The

following table gives an assumed breakup:

OFFICE FURNITURE


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Item Number Estimated Cost (Rs.)

Table & Chair Set (Owner) 1 10,000

Table & Chair Set (Customer Service) 1 5,000

Air Conditioner (Split Unit) 1 30,000

Waiting Chairs 10 10,000Pre-Feasibility Study Auto Repair & Service Workshop


Sofa Set for Customers 1 15,000

Curtains / Interior Dcor - 10,000

Total 80,000

The Office Furniture & Equipment will be depreciated at the rate of 10% per annum

according to the diminishing balance method for the projected period.

The proposed location for an Auto Workshop considering the factors mentioned earlier

would be in a medium high income locality area where almost all of the nearby residents

are expected to have at least one car.

The Auto Workshop is a labor intensive industry where the labor cost constitutes a

considerable portion of the cost of sales. The following table gives a breakup of the total

administrative manpower required to operate the proposed setup.

GENERAL MANAGEMENT

Designation / Type Number Monthly Salary (Rs.)

Owner 1 -

Accountant 1 2,500 (10-12 hours)

Purchaser 1 5,000

Office Assistant / Store Keeper 1 2,500

Guard 1 2,000 (Night Duty Only)

Considering the size of the proposed establishment it is assumed that the owner would be

managing the overall affairs of the workshop. A part-time accountant is required to process

and check bills, invoices, job orders etc. The accountant is required to come at least once a


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week with a minimum duration of 3 hours per each visit.

The purchaser would be primarily responsible for making daily purchases; spare parts

inventory purchases and other purchases as and when required. The office assistant would

be responsible for handling customers & complaints, following-up on bills and managing Pre-Feasibility Study Auto Repair & Service Workshop


all activities related to spare-parts store keeping. A security guard would be required for

ensuring safe custody of customer cars during the night.

The following table gives the details for the proposed technical labor that forms the

integral part of the cost of sales:

JOB / DUTY ALLOCATION


Foreman

1

8,500

MECHANICAL REPAIRS & MAINTENANCE


Mechanics (Ustad) 2 12,000

Assistant Mechanics 2 8,000

Helpers 2 3,000

DENTING


Head Denter (Ustad) 1 8,000

Denters 2 12,000

Assistant Denter 1 4,000

Helper 1 2,000

PAINTING



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Painter Ustad 1 8,000

Assistant Painters 2 10,000

Helper 1 2,000

Total 16 122,500

The foreman would be responsible for checking and diagnosing the customer s car to

ascertain any additional repairs / replacements that might not have been identified by the

customer. Once the estimates and repair / replacement work is agreed with the customer Pre-Feasibility Study Auto Repair & Service Workshop


the foreman would then allocate the job and ensure its timely completion. The foreman

would also be required to check the cars (trial run) before delivering them to the customers.

WHEEL ALIGNMENT & BALANCING


Operator (Incharge) 1 8,000

Assistant Operator 1 4,000

HIGH PRESSURE CLEANING


Cleaner (Incharge) 1 8,000

Assistant Cleaner 1 4,000

Total 4 24,000

The total monthly salary of the technical staff would amount to Rs. 146,500 and is

assumed to increase by 10% per annum.

The project cost estimates for the proposed Auto Workshop have been formulated on the

basis of discussions with relevant stakeholders and experts. The cost projections cover the

cost of land, building, inventory, equipment including office furniture etc. The specific

assumptions relating to individual cost components are given as under:

Revenue projections for this Auto Workshop include sales streams from two main sources

i.e. Denting & Painting and Mechanical Repairs & Maintenance. The Sales are expected to


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grow at a real rate of 12% per annum which reflects on the anticipated growth in the

number of cars on the road hence the business is expected to increase based on volume

rather than increased service charges.

The following table gives the Gross Margins for the proposed services:

SERVICE GROSS MARGIN

Denting & Painting 27 %Pre-Feasibility Study Auto Repair & Service Workshop


SERVICE GROSS MARGIN

Cosmetic Touchups

Accidental Repairs

Full Body Restoration

14 %

29 %

30 %

Mechanical Repairs & Maintenance 29 %

Maintenance Services

Major Repairs

33 %

14 %

Wheel Alignment & Balancing 90 %

Alignment

Balancing

91 %

89 %

High Pressure Cleaning 76 %

Overall 56 %

The Auto Workshop being a service oriented setup charges a margin on each of the


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products it uses and services it provides. The following table presents the breakdown of the

margin:

SERVICE MARGIN

Spare Parts 10.0 %

Lubricants 12.5 %

Subletting 25.0 %

It is assumed that the cost of parts, lubricants and sublet service is expected to increase at

the rate of 10 % per annum for the projected period.

The rent for the assumed premises will be Rs. 150,000/- per month. It is assumed that Rs.

900,000 will be given in advance before possession of premises. This will include 3

months deposit and 3 month advance rent. The rent would be payable on a monthly a basis

and is expected to increase at the rate of 10% per annum for the projected period. Pre-FeasibilityStudy Auto Repair & Service Workshop


The Auto Workshop involves construction cost which translates into three main

components as follows:

Office / Store Construction which involves a two storey building in which the ground

floor would accommodate the owner s office and administration while the first storey

would serve as a store for spare parts and other items. The office and store construction

cost is taken to be as Rs. 750 per square feet which comes to a total of Rs. 675,000 for

the two storey structure (450 sq. ft. x 2). This cost is inclusive of all accessories and

fittings except for AC and Office Furniture.

Masonry work would be required in the area allocated for Denting & Painting and

Mechanical Works. It is assumed that the proposed workshop would be able to

accommodate 6 cars for mechanical repairs and around 8 cars for denting & painting at

one time. This would require a total of 14 bay areas to be constructed with

underground ducts and ramps in 6 of the bay areas for mechanical repairs. The cost for

masonry will be as follows:


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MASONRY WORK FOR BAY AREAS

Item Bay Areas Estimated Cost (Rs.)

Mechanical Work (Duct & Ramp) 6 60,000

Denting 4 30,000

Painting 4 30,000

Total 14 120,000

The third main construction would be required for making two separate sections for (i)

Wheel Alignment & Balancing and (ii) High Pressure Cleaning. The cost of

construction for these would be approximately

o Wheel Alignment & Balancing (Rs. 400 per Sq. Feet x 1000 Sq. Feet)

o High Pressure Cleaning (Rs. 400 per Sq. Feet x 1000 Sq. Feet) requiring high

ceiling for piston pump car lift. Pre-Feasibility Study Auto Repair & Service Workshop


CONSTRUCTION COST FOR WHEEL ALIGNMENT / BALANCING

& PRESSURE CLEANING

Item Estimated Cost (Rs.)

Wheel Alignment & Balancing 400,000

Ramp for Alignment 50,000

High Pressure Cleaning 400,000

Total 850,000

(Note: For wheel alignment there should be at least a minimum space of 5 feet from the

front & back end of the car and a space of 2 feet at the sides for flexibility in operating the

machine)

The following table presents the assumed breakup of utilities on a monthly basis:

UTILITY MONTHLY CHARGES (RS.)

Electricity 12,000

Water 10,000


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Telephone 2,500

Entertainment 1,000

Total 25,500

It is assumed that utilities expenses will increase by 10% every year.

Depreciation on Building, Technical Equipment, Alignment & Balancing Equipment and

Office Furniture & Fixtures is assumed to be at the rate of 10% per annum based on the

diminishing balance method for the projected period. Depreciation on High Pressure

Cleaning Equipment will be calculated on a straight-line basis with no salvage value at the

end of 3

rd

year; hence it has been assumed that this equipment will be replaced after every

three years at a cost which will be 10% greater than the acquisition cost of the previous

equipment. Pre-Feasibility Study Auto Repair & Service Workshop


The technical labor costs form an integral part of the cost of sales for the proposed Auto

Workshop. This makes it difficult to trace the labor costs specifically to the services

offered since a person can work on more than one function at one time. For the purpose of

this study the following breakup of labor costs are considered according to the workload

based on the number of cars for a particular type of service:

Labor Cost per Car (Rs.)

Denting & Painting Mechanical Repairs

Monthly pay Cosmetic Accident Restoration Minor Major

Mechanical 46,000 - - - 23,000 23,000

Denting 38,000 - 28,500 9,500 - -

Painting 30,000 18,000 4,500 7,500 - -

Foreman 8,500 1,700 1,700 1,700 1,700 1,700

Total 122,500 19,700 34,700 18,700 24,700 24,700


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Cars (Estimated) 6 7 2 100 2

Labor Costs 3,283 4,957 9,350 247 12,350

It is estimated that an additional amount of approximately Rs. 516,000 will be required as

cash in hand to meet the working capital requirements / contingency cash for the initial

stages. The requirement is based on the utilities and salaries expenses for at least three

months. The following table gives the break up.

ITEM 3 MONTHS COST (RS.)

Utilities 76,500

Salaries 475,500

Total 552,000

The provision for pre operating costs is assumed to be Rs. 50,000 which will be amortized

equally over a 5 year period. Pre-Feasibility Study Auto Repair & Service Workshop


A collection period of 45 days is assumed for sales. Further provision for bad debts has

been assumed equivalent to 10% of Gross receivables.

A monthly figure of Rs. 5,000 (200 per day) is assumed to be incurred for traveling

expenses and office purchases which are expected to increase at the rate of 10% per annum

for the projected period.

It is assumed that long-term financing for 5 years will be obtained in order to finance the

Auto Workshop setup which would mainly include Construction of Building, Masonry

work, Purchase of Equipment etc. This facility would be required at a rate of 15%

(including 1% insurance premium) per annum with 60 monthly installments over a period

of five years. The installments are assumed to be paid at the end of every month.

The tax rate applicable to sole proprietorship is the same as that of the salaried individual.

Therefore, we are assuming that the tax rate would be the same for the proposed photo lab

setup.

The cost of capital is explained in the following table:


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Particulars Rate

Required return on equity 20.0 %

Cost of finance 15.0 %

Weighted average cost of capital 17.5 %

The weighted average cost of capital is based on the debt/equity ratio of 50:50.

It is assumed that the owner with withdraw from the business once the desired profitability

is reached from the start of operations. The amount would depend on business

sustainability and availability of funds for future growth. Pre-Feasibility Study Auto Repair & ServiceWorkshop


Item Assumption(s)

Sales Increase 12 % per year

Increase in Cost of Sales 10 % per year

Increase in Staff Salaries 10 % per year

Increase in Utilities (Electricity / Water /

Gas)

10 % per year

Increase in Rent 10 % per year

Increase in Office Expenses 10 % per year

Debt / Equity Ratio 50 : 50

Depreciation

o Building & Masonry Work 10 % per annum (Diminishing Balance)

o Technical Equipment 10 % per annum (Diminishing Balance)

o Office Furniture & Equipment 10 % per annum (Diminishing Balance)

o Wheel Alignment & Balancing 10 % per annum (Diminishing Balance)

o Piston Pump Car Lift 10 % per annum (Diminishing Balance)

o High Pressure Cleaning Straight Line 33 % per year

High Pressure Cleaning Maintenance Cost 25 % of Cost Price


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High Pressure Cleaning Replacement 3 years

Lease Period 5 Years

Lease Installments Monthly

Financial Charges (Lease Rate) 15 % per annum

Tax Rate Income Tax on Salaried IndividualsPre-Feasibility Study Auto Repair & Service Workshop


6.15.a Revenue & Cost

MONTHLY REVENUE / COST SCHEDULE

Item Revenue / Fee Charged (Rs.) Cost of Sales (Rs.)

Gross

Margin

(%)

Fee

Charged

(Rs.)

Estimated

Cars

Revenue Material Labor

Spare

Parts

Lubricants Subletting Total Cost

Denting & Painting 181,000 132,271 27%

Cosmetic Touchup

(3 Piece Patching &

Paint)

5,000 6 30,000 1,000 3283 - - - 25,698 14%

Accidental Repairs 13,000 7 91,000 3,000 4,957 591 116 520 64,285 29%


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Full Body Restoration 30,000 2 60,000 6,000 9,350 2,727 667 2,400 42,288 30%

Mechnical Repairs 190,000 135,556 29%

General Repairs 1,500 100 150,000 - 247 614 67 84 101,130 33%

Major Repairs 20,000 2 40,000 - 12,350 3,636 427 800 34,426 14%

TOTAL 371,000 267,827 28%Pre-Feasibility Study Auto Repair & Service Workshop


ASSUMPTIONS ASSUMPTIONS

Full Body Restoration % age of Revenue

General

Repairs

% age of

Revenue

Spare Parts 10% Sublet 7%

Subletting 10% Parts 45%

Lubricant 2.5% Lubricant 5%

ASSUMPTIONS ASSUMPTIONS

Accidental Repairs % age of Revenue Major Repairs

% age of

Revenue

Spare Parts 5% Parts 20%

Subletting 5% Lubricant 2.5%

Lubricant 1% Subletting 5.0%Pre-Feasibility Study Auto Repair & Service Workshop


6.15.b Revenue & Cost

MONTHLY REVENUE / COST SCHEDULE

Item Revenue / Fee Charged (Rs.) Cost of Sales (Rs.)

Gross


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Margin

(%)

Fee Charged

(Rs.)

Estimated

Cars

Revenue Material Labor

Spare

Parts

Lubricants Subletting

Total

Cost

125,000 12,000 90%

Wheel Alignment /

Balancing

Wheel Alignment 350 250 87,500 - 32 - - - 8,000 91%

Wheel Balancing 150 250 37,500 - 16 - - - 4,000 89%

High Pressure Cleaning 62,500 17,000 73%

High Pressure Cleaning 250 250 62,500 20 48 - - - 17,000 73%

TOTAL 187,500 29,000 85%Pre-Feasibility Study Auto Repair & Service Workshop


6.16 Projected Income Statement

AUTO WORKSHOP

Projected Income Statement (Rs.) Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10

Revenue 6,702,000 7,506,240 8,406,989 9,415,827 10,545,727 11,811,214 13,228,560 14,815,98716,593,905 18,585,174

Denting & Painting 2,172,000 2,432,640 2,724,557 3,051,504 3,417,684 3,827,806 4,287,1434,801,600 5,377,792 6,023,127


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Genera l Repairs / Maintenance 2,280,000 2,553,600 2,860,032 3,203,236 3,587,624 4,018,1394,500,316 5,040,354 5,645,196 6,322,620

Wheel Alignment & Balancing 1,500,000 1,680,000 1,881,600 2,107,392 2,360,279 2,643,5132,960,734 3,316,022 3,713,945 4,159,618

High Pressure Cleaning 750,000 840,000 940,800 1,053,696 1,180,140 1,321,756 1,480,3671,658,011 1,856,972 2,079,809

Net Sales 6,618,225 7,412,412 8,301,901 9,298,130 10,413,905 11,663,574 13,063,203 14,630,78716,386,481 18,352,859

Cost of Sales 3,561,930 3,918,123 4,309,935 4,740,929 5,215,022 5,736,524 6,310,176 6,941,1947,635,313 8,398,844

Gross Profit 3,140,070 3,588,117 4,097,054 4,674,899 5,330,705 6,074,690 6,918,383 7,874,7938,958,592 10,186,329

Gross Profit Margin 46% 47% 48% 49% 50% 51% 52% 53% 53% 54%

General Administrative & Selling Expenses

Salaries 144,000 158,400 174,240 191,664 210,830 231,913 255,105 280,615 308,677 339,544

Utilities Expense 306,000 336,600 370,260 407,286 448,015 492,816 542,098 596,307 655,938721,532

Rent Expense 900,000 990,000 1,089,000 1,197,900 1,317,690 1,449,459 1,594,405 1,753,8451,929,230 2,122,153

Office Miscellaneous & Traveling Expenses 60,000 66,000 72,600 79,860 87,846 96,631 106,294116,923 128,615 141,477

Amortization of Preliminary Expenses 10,000 10,000 10,000 10,000 10,000 - - - - -

Maintenance Expense 91,667 45,833 - 100,833 50,417 - 110,917 55,458 - 122,008

Depreciation Expense 567,833 529,383 494,778 481,967 453,937 428,710 426,172 405,738 387,348392,980

- - - -

Subtotal 2,079,500 2,136,217 2,210,878 2,469,511 2,578,735 2,699,529 3,034,990 3,208,8883,409,808 3,839,694

Operating Income 1,060,570 1,451,900 1,886,175 2,205,388 2,751,970 3,375,161 3,883,3934,665,905 5,548,784 6,346,635

Financial Charges(15%PerAnnum) 424,156 353,587 271,673 176,591 66,224 - - - - -

Earnings Before Taxes 636,414 1,098,314 1,614,502 2,028,797 2,685,746 3,375,161 3,883,3934,665,905 5,548,784 6,346,635


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Tax 101,603 256,910 437,576 582,579 812,511 1,053,806 1,231,688 1,505,567 1,814,574 2, 093,822

Net Profit 534,810 841,404 1,176,927 1,446,218 1,873,235 2,321,355 2,651,706 3,160,338 3,734,2104,252,813

Monthly Profit After Tax 44,568 70,117 98,077 120,518 156,103 193,446 220,975 263,362 311,184

354,401Pre-Feasibility Study Auto Repair & Service Workshop


6.17 Projected Balance Sheet

AUTO WORKSHOP

Projected Balance Sheet (Rs.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9Year 10

Assets

Current Assets

Cash & Bank Balance 552,000 826,879 1,371,554 2,032,376 2,146,430 3,100,595 4,960,6846,328,771 8,595,775 11,162,954 13,266,437

Accounts Receivable (Net) 0 83,775 93,828 105,087 117,698 131,822 147,640 165,357 185,200207,424 232,315

Lubricants & Spare Parts Inventory 150,000 165,000 181,500 199,650 219,615 241,577 265,734292,308 321,538 353,692 389,061

Prepaid Rent 900,000 900,000 900,000 900,000 900,000 900,000 900,000 900,000 900,000900,000 900,000

Total Current Assets 1,602,000 1,975,654 2,546,882 3,237,113 3,383,743 4,373,993 6,274,0587,686,436 10,002,513 12,624,070 14,787,813

Fixed Assets

Building & Workshop 1,645,000 1,480,500 1,332,450 1,199,205 1,079,285 971,356 874,220786,798 708,119 637,307 573,576

Technical Equipment 220,000 198,000 178,200 160,380 144,342 129,908 116,917 105,22594,703 85,233 76,709

Office Furniture 80,000 72,000 64,800 58,320 52,488 47,239 42,515 38,264 34,437 30,99427,894

Machinery 2,200,000 1,851,667 1,519,833 1,202,850 1,485,898 1,175,975 876,878 1,232,857932,104 639,244 1,063,353

Total Fixed Assets 4,145,000 3,602,167 3,095,283 2,620,755 2,762,013 2,324,478 1,910,5302,163,144 1,769,363 1,392,777 1,741,532


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Intangible Assets

Pre Operating Costs 50,000 40,000 30,000 20,000 10,000 0 0 0 0 0 0

Total Assets 5,797,000 5,617,820 5,672,165 5,877,868 6,155,756 6,698,471 8,184,588 9,849,58011,771,876 14,016,847 16,529,345

Owner's Equity 3,023,500 3,258,310 3,799,714 4,576,640 5,522,8596,846,094 8,317,448 9,969,15411,879,492 14,113,702 16,616,515

Long Term Liability 3,023,500 2,584,510 2,074,951 1,483,478 796,922 0 0 0 0 0 0

Total Equity & Liabilities 6,047,000 5,842,820 5,874,665 6,060,118 6,319,781 6,846,094 8,317,4489,969,154 11,879,492 14,113,702 16,616,515Pre-Feasibility Study Auto Repair & Service Workshop


6.18 Projected Statement of Cash Flows

AUTO WORKSHOP

Projected Statement of Cash Flows (Rs.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year8 Year 9 Year10

Cash Flow From Operating Activities

Net Profit 0 534,810 841,404 1,176,927 1,446,218 1,873,235 2,321,355 2,651,706 3,160,3383,734,210 4,252,813

Add: Depreciation Expense 0 567,833 529,383 494,778 481,967 453,937 428,710 426,172 405,738387,348 392,980

Amortization Expense 0 10,000 10,000 10,000 10,000 10,000 0 0 0 0 0

(Increase) / decrease in receivables (83,775) (10,053) (11,259) (12,610) (14,124) (15,819) (17,717)(19,843) (22,224) (24,891)

(Increase) / decrease in inventory (15,000) (16,500) (18,150) (19,965) (21,962) (24,158) (26,573)(29,231) (32,154) (35,369)

Net Cash Flow From Operations 0 1,013,869 1,354,234 1,652,295 1,905,610 2,301,087 2,710,0883,033,588 3,517,003 4,067,180 4,585,532

Cash Flow From Financing Activities

Receipt of Long Term Debt 3,023,500

Repayment of Long Term Debt (438,990) (509,559) (591,473) (686,555) (796,922)

Owner's Equity 3,023,500 (300,000) (300,000) (400,000) (500,000) (550,000) (850,000) (1,000,000)(1,250,000) (1,500,000) (1,750,000)


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