Ace Repair Case Study

Cost of Capital

4B

ACE REPAIR, INC.

Directed

In 1978, while he was taking a course on entrepreneurship as a business student at a large state university,

Peter Vanderhein wrote a term paper on the management of auto repair shops. Peter’s

uncle owned a repair shop, and Peter had worked for him as well as for several other body shops

when he was in high school and college. Once he began taking business courses, Peter came to recognize

that most shops were inefficient, especially in the way they managed their inventories and

receivables. This inefficiency resulted in excessive stocks of some items, shortages of others, frequent

stock-outs, late payments, bad debt losses, and many dissatisfied customers. Still, in spite of

their inefficiency, the average repair shop appeared to be fairly profitable. Peter concluded that an

opportunity existed to buy inefficient auto repair shops, consolidate them into a concern that was

large enough to use computers to manage inventories and receivables, and thereby increase profitability

sharply. He also felt that volume discounts, improved training, and other economies of scale,

would give a further boost to profits.

With encouragement from his family and professors, Vanderhein decided to put his theory to

the test, and in 1979 he started Ace Repair, Inc. Ed Adams, Peter’s uncle, wanted to retire, and