- The Washington Times - Wednesday, February 25, 2004

They can’t change the headlights in their cars or perform a simple tuneup, but Lou Brown and Robert Falconi have helped turn around Precision Auto Care Inc. from near bankruptcy to earning profits in three years.

When the friends and company-turnaround experts came to the Leesburg, Va., auto-repair shop franchiser in 2000, Precision had a debt of $22 million, not including the $12 million the company owed in other expenses.

There were lawsuits, low morale and discontent from franchise owners and shareholders.

Several unprofitable operations in the United States and Mexico had to be sold before Mr. Brown, chairman and chief executive officer, and Mr. Falconi, president and chief operating officer, could concentrate on the company’s core business: the 440 repair centers worldwide.

But Mr. Brown said it was just another challenge when he signed on with the company, parent of Precision Tune Auto Care, in August 2000. Mr. Falconi joined a month later.

“I had helped sell another company to Boeing when this opportunity arose. It was a nightmare at first, and I knew I would need Rob’s help,” Mr. Brown said recently in his office sitting next to Mr. Falconi.

The new management first sold all unprofitable operations, which included seven carwash centers, three manufacturing operations, and a franchising subsidiary in Mexico.

The branch businesses were part of Precision’s aggressive growth plan after it became a public company in 1997, but they ended up becoming “open chest wounds,” Mr. Brown said.

“It was a huge relief for us when the last unit was sold in May because it finally allowed us to focus on the franchising of the auto repair shops,” he said.

The company managed to sell off the carwash centers and manufacturers, making $3.4 million on the sale of its Mexican business to Royal/Dutch Shell Group.

After the units were sold, Mr. Brown and Mr. Falconi concentrated on improving the quality of the existing repair shops, attracting new area developers and franchisees and increasing the value of the Precision brand.

The company’s five-year strategy is to add 270 locations in the United States while raising average annual sales at each center from $480,000 to $750,000. The company has seven Washington-area locations.

Precision, which was founded in 1976 as a tuneup specialist center in Beaumont, Texas, works on a three-tier system in which the corporate team sets goals for its area developers, who own at least one center. Area developers act as direct supervisors for the franchisees, who have shops in the developer’s territory.

While several franchisees shut down their operations in the wake of the financial troubles, the 16 area developers in the United States were prepared to buy the company in 2000, said Gary Marsiglia, a Precision developer in Maryland and Delaware who serves as treasurer for Precision Tune Area Developer Association, a membership group for the developers.

“We’re glad it didn’t come to that because we are now in a position to sell the franchise as something that has real value,” said Mr. Marsiglia, who owns two shops in Owings Mills and Randallstown, Md.

Manassas shop owner Joe Harris, who has been with Precision Auto since 1996, said the tone from other franchisees is positive, but more work is needed to regain their trust.

“At least the questions at our meetings are more geared to how do we grow our business instead of how do we stay alive,” he said, because most franchisees now feel secure about the company’s future.

Precision’s current fiscal year, which ends June 30, is the first in which the company will report financial results that do not include losses from the failed units, Mr. Falconi said. The company’s debt is just under $1 million and its outstanding expenses are down to $2.5 million.

In fiscal 2003, the company posted profits of $10.9 million (72 cents per share) compared with a loss of $7.7 million (69 cents) in fiscal 2002. However, the most recent quarterly results show a 96 percent drop in earnings to $266,000 (1 cent) from $6.6 million (44 cents) a year earlier.

Mr. Falconi said two of Precision’s creditors converted a sizable amount of debt into equity in the second quarter of 2002.

Mr. Falconi has no financial forecasts for fiscal 2004, saying the company will continue its path of gradual revenue growth. “We try to stay away from making bold predictions. Besides, our shareholders seem comfortable with our growth rate,” he said.

Precision’s stock on the OTC Bulletin Board is trading around 90 cents and has ranged in price from a low of 23 cents to a high of $1.25 in the last year.

Mr. Brown and Mr. Falconi most recently worked together at Planning Systems Inc., a Reston information-technology and engineering company. Mr. Falconi served as chief financial officer from 1995 to 1999, and Mr. Brown has been the company’s chairman since 1990.

Mr. Brown and Mr. Falconi say they plan to stay with Precision indefinitely. “We joke with the franchisees that we’ve gone through the really rough times, so we might as well stick around for the good years,” Mr. Brown said.

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