Towing and recovery: family fleets meet big business

Fleet Owner has begun a series of profiles that 'popcorns' the trends and issues specific to various vocational niches. This month we look at what's happening in the towing and recovery business.Today's prevailing business wisdom is that bigger is better, so it should come as no surprise that these days the hot issue in the towing and recovery industry is consolidation.There is one significant difference,

Fleet Owner has begun a series of profiles that 'popcorns' the trends and issues specific to various vocational niches. This month we look at what's happening in the towing and recovery business.

Today's prevailing business wisdom is that bigger is better, so it should come as no surprise that these days the hot issue in the towing and recovery industry is consolidation.

There is one significant difference, though. Mobil/Exxon, Chrysler/Daimler-Benz, and the other high-profile mergers of recent months involve two large partners joining to form a single, gigantic corporation. So while jobs may be lost as operations are merged, the general big-business corporate culture remains.

For the towing industry, however, consolidation not only means bigger businesses, but it also represents a major shift away from the dominant 'mom and pop' operations that have defined that industry since its inception. And that shift is causing more than a bit of turmoil within the towing community as it struggles to come to terms with its future.

Current estimates put annual revenues for the towing industry somewhere between $12 million and $15 million, generated by approximately 36,000 fleets with an average size of only five or six vehicles. Obviously, the combination of a small average fleet size and a large number of businesses is fertile ground for companies with the money and desire to build a national towing and recovery business.

RoadOne, the first consolidator in the market and a subsidiary of a major towing equipment manufacturer, has acquired 104 towing companies and signed up another 1,400 affiliates in just two years. Last year, at least four or five other companies, including United Road Service, Centerline Towing, and 1-800-AutoTow, began acquiring small to mid-sized towing operations as well as related auto-hauling fleets. Clearly, 1999 will see a lot of acquisition activity in the towing and recovery industry.

Mike Holland is the owner of Holland's Wrecker in Gainesville, Ga. Started by his family in 1968, the fleet has had as many as 13 trucks but now operates 6, towing everything from automobiles to heavy trucks within a 50-mile radius. 'Insurance cost is the determining factor in our fleet size,' says Holland, who is also first vice president of the Towing and Recovery Assn. of America (TRAA).

Like other trucking businesses, the main problem facing the towing industry is attracting qualified drivers, according to Holland. The towing association has established a certification process with three skill levels in an attempt to provide drivers with an attractive career path. 'That's helping a lot,' says Holland, especially as this traditionally 'mom and pop industry is feeling the pressure to become a professional business instead of just a sideline.'

As for consolidation, Holland believes it's a good sign for the entire industry. 'If consolidators are interested, that's a sign that it's a growing business,' he says. 'They're buying up a lot of good companies. I probably won't be one of them, but if it makes the industry better, then that's great for everyone. Of course, they'll be my competition ' but nobody can pull them all, so I'll get my share.'

One formerly independent tower that has joined the consolidators is Bill Giorgis. His fleet, now operated as Mike's RoadOne in central Michigan, was started by Giorgis' father in 1956. With a fleet of 36 tow trucks, 3 tractors, and 3 lowboy trailers, Mike's Towing was one of the original 18 companies that were merged in 1997 to found RoadOne.

The move to build larger towing operations through merger and acquisition solves a lot of problems, especially for midsized operations like Mike's, says Giorgis, who also serves as president of the Michigan towing association and vice president of TRAA.

It addresses the succession and estate-planning issues specific to a family business, while also removing what Giorgis calls 'the family ceiling' for other qualified and ambitious employees, he says.

'Locating qualified employees and keeping them is always difficult, but the increased buying power (of consolidation) has allowed us to offer additional benefits like extended health care, dental care, stock options, and even paid holidays for drivers, which is extremely rare in this 24-hour/7-day-a-week business,' he explains.

Consolidation also helps towing fleets like his address the issue of fixed asset costs, which along with labor are the largest costs they face. As a subsidiary of Miller Industries, the country's largest supplier of towing and recovery equipment, RoadOne fleets get preferred volume prices on new equipment. More importantly, says Giorgis, is access to capital for investment in productivity enhancing technology such as mobile data networks and computerized dispatch systems. Given the heavy investment required in fixed assets, he explains, 'maximizing utilization has become critical to our continued profitability.'

The other benefit consolidators bring is uniform service levels and costs throughout the country, which allows them to pursue national or regional fleet business. 'Towing is a fragmented business with a wide variation in capabilities and service levels, not to mention the extreme variations between quoted rates and actual charges,' says Evan Roberts, director of sales and marketing for RoadOne. 'That's especially important for the heavy truck fleets.'

When over-the-road fleets call for service, they need to know that the right equipment is available, that the operator knows how to handle a heavy truck recovery properly, and that the tow provider will be sensitive to the fact that there's cargo involved and a customer waiting for that cargo, he points out.

Centralized invoicing and uniform pricing are also valuable, as is centralized dispatch with reliable service response estimate, Roberts says.

Last October, RoadOne initiated such a program under an agreement with the truckload carrier U.S. Xpress, and this month it expects to roll out its heavy-truck towing service on an expanded national basis.

Following a slightly different business model, 1-800-AutoTow intends to build regional hub-and-spoke operations that provide complete coverage throughout a wide service area, eventually building up to national coverage marketed under a strong brand name.

Each hub will handle all the equipment maintenance and computerized dispatch for that area, says Joshua Konigsberg, vice president of sales and marketing. 'That will allow us to provide the higher level of service required by commercial accounts.'

For example, a utility company can have tens of thousands of trucks operating in a wide geographical area, he says. Having a single vendor with uniform rates and centralized billing would be very attractive to that fleet.

Although 1-800-AutoTow has only acquired three towing companies (two in Tampa and one in Pittsburgh) in its first six months of active consolidation, its plans for 1999 call for acquiring 15 per quarter, according to Konigsberg.

While the very smallest towing fleets should continue servicing local communities, midsize and larger towing companies are going to find it increasingly difficult to remain competitive, says Konigsberg.

'Of the 36,000 towing companies operating now, 6,000 to 8,000 represent $9.5 billion of the industry's $12-billion to $15-billion annual revenue,' he says. 'The bulk of those companies will have to either consolidate or downsize to local operations. They won't be able to afford the technology needed to provide the level of service commercial accounts are going to require.'

In fact, the pressure on those fleets will be so strong, predicts Konigsberg, that the towing and recovery industry, now the stronghold of mom-and-pop businesses, will support as many as ten consolidators within the next five years.

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