How do I Start a Diesel Repair Business?

Starting a Diesel Repair Shop requires a lot of hard decisions. Are you going to repair class 8 Trucks – Commercial Trucks only or Automotive Diesel Trucks, Cars or SUVs only, or both?  What kind of equipment and tooling do you need? Where should you be located to best serve your community? What are the hidden costs? And more…

Below I’ve taken a swing at laying out a lot of the things you should consider based off my own shop ownership experiences.

Location:

• Parking:
  • Consider traffic in the area and the local streets. Parking for your customer vehicles – small, medium, or large.
  • Asphalt parking lots will require maintenance. Class 8 Trucks, Heavy Equipment and leaking diesel fuel are hard on asphalt. Is the Landlord willing to pay for the required maintenance or will it be a cost that you are responsible for? A cement parking lot is preferred.
  • Also, a well-lit parking lot is required for many reasons: safety, security, and improving overall aesthetics. It will make your customers comfortable and enhance their first impression.
• Demographics: Will the local demographics support your business? For commercial, being close to large commercial fleets is always a plus. For automotive, being in a high traffic area close to a parts store or sporting goods store is a plus.
• Geographic Considerations: If the property is in a high-risk flood plain or in a high crime area your insurance costs and likelihood of building maintenance and repairs will increase. Consider a knowledgeable local, Commercial Real Estate Agent. Speaking from experience do not use a family member or a friend that is a Residential Real Estate Agent as the markets are completely different.
• City Limits: If the potential location is in the City Limits you need to budget for the extra expenses such as Insurance, Taxes, Fees, Permits and Special Permits for Petrochemical Fluid Disposal. For example, in Houston Texas if you have a grease/oil trap the city requires you to empty and clean the trap every 90 days. If you have a waiver the city will extend the cleaning to every 180 days. The cost to clean and empty the tank is $1600 per visit. If you have a waiver and fail one of the many surprise inspection visits, then the 180-day waiver will be revoked. You cannot clean the traps yourself (due to disposal considerations).
• Accessibility: Location near a major freeway is always helpful. Can your targeted customers get to you in a reasonable amount of time? Most commercial companies will travel the extra mile to their favorite shop. Diesel car and pick-up owners will consider travel time, though. However, there is always an exception. For example, if you specialize in certain types of Diesel repairs and have a known reputation the customers will not mind extra travel time and expense. More than once we have had vehicles towed to our shop from out of state.  
• Property Size:
  • Commercial and/or Automotive – The size of the property should relate to the size of your customer’s vehicles. Allow space for large trucks to either turn around or have a separate entrance and exit to the street or highway.
  • If you purchase the property and have room, you may consider subletting for additional income.
• Property for Future Growth: When purchasing property always consider room for growth in the future.
• Leasing Property: When the business grows will there be space to expand? Will the Landlord be willing to let you expand? If not, will your customers follow you to the next location?
• Class 8 Considerations:
  • If you are working on Class 8 trucks then a larger building will be required.
  • Will the cement floor (pad) be able to handle the extra weight of the larger vehicles and the necessary lifts and equipment? Plan to have this checked before leasing or purchasing your property.  
• Bay Doors: A building with tall bay doors and bay doors on both sides of the building facing North and South will help cool the building.
• Attractive Building: An attractive building and property will help attract Customers, Staff and Quality Techs. Consider your business site as an advertisement.

Budget:

You will need to lay out a budget that should include costs for:

• Startup costs
• Tools
• Projected Income
• Taxes, Fees, & Insurance
• Equipment
• Utilities
• Salaries
• Office Furniture & Supplies
• Rent or Mortgage
• Security Costs
• And More
• Always plan for Unexpected Expenses!

Startup costs will depend on the vehicles that you have chosen to repair. Light Duty, Medium Duty and Heavy Duty have their own requirements due to vehicle weight, size (length, height, width) and the required tools per classification. This also relates to Building and Property size.

For Light Duty & Medium Duty, you should have $35,000 to $45,000 budgeted for startup cost. This does not include the required budgeted three to four months for employee salaries, rent/mortgage payments, and utilities. For a Light Duty & Medium Duty shop, some of the startup costs you should budget for include:

• Specialty Tools & Shop Supplies: $10,000 – $15,000
• Lifts: $5000 – $15,000
• Diagnostic Tools & Fees: $5,000 – $10,000
• A/C Equipment: $3,500 – $4000
• Signage: $2,000
• Air Compressor: $1,500 – $2,500.
• Initial Inventory: $1,500

A Heavy-Duty shop estimate should include a 30% to 40% increase on the above startup costs. Please note, this Heavy-Duty estimate does not include purchasing the Heavy-Duty lift equipment or saving for the needed equipment as the business grows.

Leasing or Purchasing Property:

• Hire a Lawyer: Use a competent law firm to establish a type of legal entity and review initial documents such as leasing or purchasing documents. Also have the firm review items that you may need in the future as the business grows.
• Hire an Accountant: Before leasing/purchasing, have your accountant establish a type of business such as LLC or LLP for tax planning.
• Check Zoning Laws: Is your business allowed to operate in the area?
• Choose a Bank: Budget for Taxes and Fees and establish a working relationship with a local bank.
• Consider Life Insurance: In case of an unfortunate event, prepare so your family will not be burdened with the business obligations.
• Prepare with Adequate Insurance:
  • I suggest having an insurance professional look over the required insurance policies.
  • Insurance is a necessity for:
    • The Building – If you own the building you will be responsible for the coverage and if you lease you should ask about and examine the landlord’s insurance.
    • Tools & Any Improvements
    • “Garage Keeper Liability” – This type of coverage protects in the event, for example, you do a brake repair and the brakes fail during operation and people are injured.
    • Workmen’s Compensation – This type of coverage is for employee injuries. Workmen’s compensation coverage is not required in Texas if you get “accident coverage”, but you are more financially exposed if you do not maintain workmen’s compensation coverage.
  • A building fire or a major theft will cripple a business without sufficient insurance. I once lost an entire location to fire. Fortunately, we had good property insurance, but it still cost us several thousand dollars in deductibles, loss of income and replacing miscellaneous personal and business items.
• Leasing the Property: This will be the cheapest way to start your business. A lease may only require a deposit and the first month’s rent.
  • Most leases are “Gross Lease”, which will require the landlord to pay all costs related to the property and the tenant will just pay a set monthly rent payment.
  • Net Leases are basically modified Gross Leases. Net Leases transfer additional costs to you, the tenant. As an example, a Triple Net Lease will transfer most of the associated property costs to you. Depending on the negotiated Net Lease agreement, it may be necessary to assume the following property costs or a pro-rated portion:
    • Property Taxes
    • Insurance
    • Utilities
    • Property maintenance and repairs
    • Building repairs and maintenance
    • Trash collection
    • Janitorial services
  • Review the lease carefully and confirm the expenses.
  • Negotiate and set caps on the associated property cost that is your responsibility.
  • Try to negotiate a flexible rent rate that will help with the seasonal business.
  • The length of your first lease is important. You want it to be long enough to see if you will succeed, but short enough in case you are not successful as you may be responsible for the remaining lease payments. Also, consider renewal options or provisions on favorable terms.
  • Some landlords can be difficult and not on the same page as you. Make sure you and the landlord understand each other’s obligations and wants/needs. Try to think of the smallest details because missing or not understanding a detail may cost you money.
  • The Landlord most likely will raise the rent as your business grows. Are you willing to raise your labor rates and parts pricing ratio with the rent increase?
  • Will the landlord allow you to expand or does the property have room for expansion?
  • Consider if the Landlord will rebuild the property/building after a major weather event, particularly if the insurance coverage has significant deductibles or co-pays.
• Purchasing the Property: This will be the most expensive option.
  • You may have to qualify for a loan. Financing and the terms payments require cash down payments on property.
  • Shop around for financing, do you qualify for a small business loan? Go to websites like gov.texas.org for lists of Non-Profit Lenders. Also consider https://www.sba.gov/funding-programs/loans.
  • There could be an upside if your property values increase (again – another reason for a commercial real estate agent).
  • When you own the property, it is your responsibility to take on all the costs associated with the property.
  • If you cannot find a suitable place to lease, then purchasing may be the only solution.
  • Owning the property eliminates asking the landlord for permission to make changes.
  • Ownership may reduce your tax obligations and, long term, it may be cheaper than leasing. Check with your accountant as to the benefits of leasing vs. buying.
• Budget for Security: Make sure the building and property have a modern and well thought out security system. If you are leasing, review with the Landlord the system and the security firm. It will be to your advantage to call the security firm and discuss policies and procedures.
  • You should even consider doing a surprise alarm alert situation and see what occurs and the response time. You may even want to talk to the local police as to the overall security and crime rates of the community. Warning: You or the landlord may be charged for the false alarm. However, the charge is well worth it to test the security of your business.

Managers, Techs and Staff:

Ask yourself some questions:

• Are you a qualified Diesel Tech that is confident in your diagnostics and conscientious of your repairs?
• Are you eager to teach yourself and others (this includes customers) and be able to handle the unexpected?
• Are you going to spend most of your time in the shop?
• Are you going to do the diagnostic work and delegate other repairs?
• Are you going to run the front office, greet customers, repair vehicles, and sweep the floor?

An owner cannot operate the front office, repair vehicles, test drive vehicles, supervise techs, keep up with the job flow and keep customers happy. Yet, it is debatable that one Tech/Owner can create sufficient revenue to support a modern-day Diesel Repair Business. In other words, you need the billable hours and profit margins that multiple employees generate to cover the building, equipment, labor costs, etc. To do this though, you must first have work for the techs to do. If you have too many techs because you are trying to leverage their incremental revenue stream and there is not enough business, you will have to let some of them go. There is no one right answer here, but you need to understand the balancing act that will be needed.

Some roles you may want to hire for include:

• Administrative or Front-Desk Personnel: You must consider hiring administrative or front desk personnel. During the interview consider the front office staff as the face of the business. Your staff will be the first people or person your customer will meet.
• Technician(s): Hire techs that can supervise themselves and are conscientious and confident. Also consider 5 years of work experience as a minimum.
  • Factory OEM Training and Automotive Service Excellence (ASE) certificates are a plus.
  • Encourage ASE Certifications. An ASE certified Tech has taken the time, effort and expense to get the certifications and it shows the Tech is trying to be a professional in the trade.
  • Encourage, support and plan to send the techs to as many training classes as possible.
  • Do not hurry an interview with a tech. Ask basic and technical questions to find a true mechanic. Use open ended questions (not “yes” or “no” questions only) and ask if the interviewee has any questions or thoughts.
  • It is not uncommon with Diesel Training for a true mechanic with little or no diesel knowledge to become a Diesel Master.
• Trainee(s): Hire trainees and teach them well. Your training will reflect in them for years.
  • Hire from the local Diesel Tech Schools.
  • Hiring a trainee will lower your labor cost and, as the business and the trainee’s experience grow, you can increase his/her pay.
  • Plan to pay your selected technicians’ tuition and fees for local Diesel Vocational Night Classes. Of course, this is with the understanding that the technicians will remain employed at your shop for an extended amount of time. You might also want to consider asking them to sign a document that states if they leave within “X” years of taking classes (that you paid for) that they owe the money for the classes back to you. This may help with not investing in your competition or someone else’s future employee.
• Places for Diesel Tech Training (Diesel, Electronics & Diagnostics):
  • ADS – Association of Diesel Specialist (diesel.org.com)
  • Powertrain Training (powertraintraining.com)
  • ATG – Automotive Training Group (atgtraining.com)
  • Each have Webinar classes, On-Demand courses and a few have Live Training classes.
  • Also, Powertrain Training has excellent 2-to-5-day in-house Light & Medium Duty Diesel training classes.
• Use a Temporary Employment Agency: An agency will do a background check and a drug test, which will help protect your shop. The new tech will be an employee of the temp agency and it will be easier to let the tech go if they do not work out. Then, if the tech does work out you can officially “hire” them on as your employee. The expense of an agency is well spent compared to the possible cost of terminating an unsuitable employee.
• Employee Pay: Different regions of the USA have different employee pay scales and the local agency will help you with employee salaries. Your shop staff and tech salaries need to be competitive for the area and based on the individual’s experience.
  • In Houston, Texas, a well-trained commission-based Automotive Diesel/Gas Top Tech will demand $40.00 to $42.00 an hour and a salary Top Tech will demand $30.00 to $35.00 per hour.
• Prepare for Frustration:
  • If I can only use one word, hiring and keeping the “perfect tech” is Frustrating.
  • A quality tech is in high demand and learning to hire and interview will take time and patience. Plan on this. It is just part of the business.
  • Teach your techs as much as possible. If not, an untrained tech will become frustrated and leave. The confidence in a tech comes from support, training, and experience.
  • I have had techs quit after spending a year or more teaching them diesel diagnostics. Their explanation was simply, “I only hired on to learn diesel diagnostics” or “I wanted to learn diesel diagnostics so I can open my own shop”. At least they were honest. Again, it is just part of the business.
  • Losing an experienced tech will influence your shop and is not easily replaced, so be prepared.

Leasing or Purchasing New or Used Equipment:

When starting a new business, it is important to keep an eye on the overhead. Consider buying Used or Rebuilt equipment when possible and when it makes good business sense. The leasing of tools (or lease to buy) may also be an option. Make a list of the required equipment that you need to open a repair shop. Are you going to be a Light Duty, Medium Duty, Heavy Duty repair shop or all three? And what type of services will you offer?    

This will influence your basic Shop Equipment, Specialty Tools and Diagnostics Tools purchases, including but not limited to:

• Engine repairs – minor to major overhauls
  • Fuel system repairs
  • Suspension work
  • Brake repairs, Hydraulic and Air
  • Drivetrain
  • Tires repairs and Tire sales
  • Trailer repairs
  • Alignments – Automotive to Class 8 trucks

Electronic Diagnostic & Specialty Tools and Equipment:

When purchasing Scan Tools, the number one decision is “support after the sale”, not the initial selling price.

Imagine the moment your scan tool locks up during the programming of a new, non-returnable PCM or the customer is waiting and the scan tool will not hook up to their truck. These are the moments when you start thinking about the savings you received when you bought the tool based on price and not support…

When you purchase electronic scan tools always buy from a reputable source. Trust me: it’s a blessing to be able to pick up the phone for quick support. If the tool is laptop-based, they will use an app such as Team Viewer and take over your computer to correct the software problem while you wait. When you are updating a PCM or running a diagnostic and you or the tech does not know which direction to go, the seller will take over the laptop and advise you over the phone. The Technical Rep will tell you and your techs the correct procedures and demonstrate how to use them. What price do you put on that kind of support?

Most reputable dealers such as M&D Distributors, AE Tools and Alliant power will have technical support and may have the ability to take over the laptop, provide upgrades, and show you the correct procedures. This includes Aftermarket and OEM Scan Tools.

Some other considerations when purchasing diagnostic and specialty tools and equipment include:

• Financing: When purchasing equipment and the supplier offers inhouse financing, be sure to check the interest rates. Most likely they will be much higher than a bank’s financing interest rates.
• Warranty: When purchasing handheld or laptop-based scan tools, always check the warranty coverage and length of warranty.
• Processing Power: A Laptop used for diagnostics must have at least 16GB of Ram, a fast processor, and a 512GB SSD (Solid State Drive). Today’s Diagnostic Software are large and require a laptop capable of handling large programs. For example, the Cummins Insite program is a large software that is reloaded every time it is used.
• Maintenance & Repair: Electronic Diagnostic tools are expensive to maintain and repair. The most effective way to acquire these tools is through new purchases only – with good warranties.
• Specialty Tools: Specialty tools are required and will save time and money on certain repairs, especially on modern day electronic engines and fuel systems. When available, we recommend purchasing used specialty tools because most of them have little wear and are repairable if broken or have missing parts.
• The Right Tools: You must purchase the right tools. Starting a shop without the correct level of tools or with poor quality tools will frustrate yourself, the techs, and your customers.
• Lift Safety: Think safety when purchasing lifts. Try to purchase higher capacity lifts than what you will need if it fits in your budget. Remember to test the foundation (pad) to make sure it will support the lifts.
  • A 2 post, 8000 lb to 12,000 lb lift will require a minimum of 4 inches of concrete.
  • A 12,000 lb to 15,000 lb lift requires a minimum of 6 inches of concrete.
  • Check with the manufacturer. Most lifts require the correct thickness of 3500 psi and up of reinforced concrete, as well as a 30-day curing time for new concrete.
• Lift Costs:
  • Light Duty Trucks: Will cost about $5,000, depending on the brand name and installation cost.
  • Medium Duty Trucks: Brand name 12,000 lb to 16,000 lb lift costs somewhere around $8,000 to $15,000.
  • Heavy-Duty Class 8 Trucks: 40,000 lb lifts start at around $30,000.
• Name Brand Lifts: Try to purchase name brand lifts. Quality lifts have a long-life span and are easily maintained. However, do not overlook a good deal on a used brand name lift.
• Serviceability: Is the service provider a local business? Do not overlook this. Also, most shop equipment installers do not cover electrical work and a licensed electrician is required.
  • Most Shop Equipment Dealers will sell Trade ins, Rebuilt and new equipment and some will have service contracts.
• Exhaust: Due to the harmful diesel exhaust fumes a malfunctioning diesel engine emits, having an exhaust ventilation system is beneficial to your employees. Portable systems are available. If you are building a facility, consider a built-in ventilation system.
• Suspension Work: If you are considering offering suspension work, then you should purchase your own alignment machine. For safety reasons, you should also provide a separate service bay for this if possible.
• Tire Service: Tire service requires specialized safety equipment and training. Most tire distributors will offer the necessary training.
• Tool Distributor Accounts: You will need an account with a tool distributor such as Snap-On Tools, Mack Tools, Matco Tools, OTC, etc.
  • Caution! Be careful when purchasing off brand tools. A cheap tool may damage items and cost you money in the long term.

Labor Rates & Parts Mark Up:

A word of warning: Do not allow the customer to supply your parts! If you do you will lose control of your shop, lose the needed profit from the parts, and it will disrupt the shop flow!

If a customer supplies the parts, who pays the warranty labor? How long are you willing to wait for the customer to bring the warrantied part while the vehicle is occupying your service bay? The true cost of running a Diesel Repair shop in today’s business environment is staggering and requires profit from parts sales – end of discussion.

Some advice on parts pricing mark up:

• Parts should be marked up by a range of 45% to 55% over your cost.
• If needed, use a Parts Matrix Markup – You can download a Part Matrix on-line. Some examples include:
  • ratchetandwrench.com: https://www.ratchetandwrench.com/articles/3533-building-a-parts-matrix
  • affordablecarrepair.biz: http://www.affordablecarrepair.biz/pricing.htm
  • fullbay.com: https://www.fullbay.com/tools/markup/
• A Parts Matrix uses multipliers to determine the selling price of a part. It uses a sliding scale. This means that the lower your cost is, the higher the mark up should be. On the opposite end, the higher your parts cost is, the lower your markup should be.

Make sure to open an account with a dependable Diesel Parts Store such as M&D Distributors and review their warranty and return procedures. Companies such as M&D have an online store as well and live training and technical support. Picking up a phone to call your parts supplier with over 75 years of experience in parts sales, fuel system repairs, diesel engine repairs and OEM training is beneficial to you and your company. Also, in today’s business world, your parts supplier no longer needs to be local when purchasing and acquiring parts for your repair shop.

As for Labor Rates, remember a few key points:

• An experienced/seasoned Top Tech (the problem solver) demands a high level of pay.
• Labor rates are regional and based on type of repairs, vehicle type, facility overhead and business overhead.
• Always charge full labor for engine, electronic and fuel system diagnostics.
• Diagnostic time should be charged as a separate labor charge.
• The customer is bringing their vehicle/problem to you for your diagnostics expertise so charge accordingly.
• As an example, most Houston, Texas repair shop Labor Rates are over $100.00 per hour.

Marketing:

In today’s internet era, marketing your business is crucial to your success. Modern internet-focused methods must be combined with traditional methods to drive your local customers to come to you when they need help solving a problem. Such methods include:

• Website: Make sure you build a simple website for your business. You don’t have to make it fancy, but be sure to include:
  • Basic descriptions on the parts and services your business offers.
  • High quality images of you and your business to boost people’s confidence.
  • Pricing where possible.
  • Your business’s phone number, email, location, and business hours.
• Social Media:
  • Your customers are on social media. You can spend as little as $15.00 a day on Facebook Ads to show an ad to your surrounding area. Plus, you can target based on demographics and interests.
  • Social Media is less expensive and more efficient compared to traditional forms of marketing.
  • Always follow up on any social media inquiries.
• Search Engines: Google and Bing are great resources for website traffic and business exposure. Be sure to set up a “Google My Business” profile (business.google.com) and “Bing Places for Business” profile (bingplaces.com). Include your business’s basic information in these profiles so that people can easily find your business when they look you up.
• Business Branded Giveaways: Purchase branded Keychains and Pens. These are budget friendly and practical; it is one of the cheapest methods of advertising.
• Business Cards: Business cards are a necessity, inexpensive, and often get passed around to potential customers. Give them away freely. For ease and convenience, OfficeDepot.com has a large selection of business cards with competitive pricing.

Several Final Shop Tips:

• Quality Over Quantity: Do not try to be a master of all things. Strive to perform quality repairs in all levels of the business. However, pick out a couple of engine brands or fuel systems and invest in the training and tooling required to master them. This will increase your customer base through you becoming recognized as having specialized skills that others do not.
• Basic HPCR Diagnostics: Learn and teach technicians the basic fuel system diagnostics for the HPCR (High Pressure Common Rail) fuel systems. That is: “Testing for excessive fuel leakage/return in the Injector return fuel, HP Pump return leakage and Pressure limiting Valve leakage”.
• Hire a Quality Tech: If you do not have solid diesel skills then hire a quality diesel diagnostics technician. Warning: you may go through a few to get the correct one for your shop.
• Air Bleeding Procedures: Fuel system air bleeding procedures are critical in today’s diesel engines. Learn and teach each tech the OEM air bleed procedures. Forcing a HPCR engine to start after fuel system repairs without following these procedures will often significantly damage the fuel system/engine. Remember: “Think of air in the fuel as acid in the fuel.”
  • The most notable example of today’s fuel systems that are prone to air-in-fuel damage is the fuel systems that incorporate the aluminum bodied Bosch CP4 High Pressure pump.
• Keep Learning: Spend the necessary time and effort to learn Diesel Engine Theory, Diesel Emissions and the HPCR Fuel System.
• A Diagnostics Tip: Hooking up the diagnostic computer is NOT the first thing you do during diagnostics. Almost 30 years ago I was in a training class attempting to start engine diagnostics on a no-start electronic controlled diesel engine. A wise old instructor stopped me and asked why I grabbed the scan tool first; I had no answer. He asked two questions that day:
  • How do I know if the fuel tank has fuel?
  • How do I know if there is an engine under the hood?

I learned a valuable lesson that day: do not forget the engine BASICS. This is something I continue to try and demonstrate to all techs.

• Lastly: Today’s diesel engines are a marvel of modern technologies. However, let’s not forget that they are still a compression ignition internal combustion engine. Regardless of all the technology, the diesel engine still requires clean fuel, compression/heat and heated air to ignite the diesel fuel just like it did 124 years ago.

Starting a new Diesel repair shop will require long hours at the shop, so make sure your family is supportive of your goals. It can be both challenging and rewarding but imagine getting to pick the people you work with every day. Having your employees pull in the same direction and on the same bus is an excellent benefit of owning your own Diesel Repair Shop.