Tuning Up a Charity Business

Nonprofit group’s repair shop anticipates brisk sales

At first glance, nothing seems out of the ordinary about the garage. But when Gary Dalton starts talking about his work — describing

himself as a “social worker/mechanic” — it becomes very clear this is not a typical repair shop.

Mr. Dalton is general manager of a repair business created by a charity here, Dakota Area Resources and Transportation for Seniors, or Darts. The shop fixes the specialized vans and minibuses, often equipped with wheelchair lifts, that Darts and other nonprofit groups use to transport clients.

As Mr. Dalton builds the business, he is keenly aware that the shop’s profits will help the charity pay for a wide range of services for the elderly and disabled. But he is also determined to help his customers, other charities and churches, expand their services to the needy. He gets excited, in a low-key, Midwestern kind of way, when he talks about simple measures the groups can take — like covering the condenser in the fall or coating vulnerable aluminum splices — to prevent costly vehicle damage brought on by Minnesota’s punishing winters.

“If I save these organizations a dollar, that might be the dollar that takes their clients to the state fair,” Mr. Dalton says.

A Growing Need

For many charities, especially social-service groups, transportation is becoming an increasingly important part of what they do. In addition to scheduling and providing rides, these groups also face the challenge of maintaining their fleets, often without the benefit of employees with transportation expertise. They struggle to find affordable repair shops that they trust to fix their vehicles.

Darts was in the same position for many years. The organization scrambled to deal with breakdowns, repairs that required multiple trips to the shop, and garages that didn’t have the group’s buses ready when they said they would. Out of that experience came the business: Vehicle Maintenance Services.

The venture has yet to break even, but it expects to do so next year — and by 2008 Darts expects the repair service to produce at least $90,000 a year for the organization to add to its $5-million annual budget.

Like any business venture run by a charity, Vehicle Maintenance Services is a risky undertaking. But as the ranks of the elderly multiply and jobs continue to move to the suburbs, the group anticipates that the number of charities that provide transportation will grow and so too will demand for vehicle repairs. Besides, Dick Graham, president of Darts, believes that coming out of the same social-service background as its charity customers gives Vehicle Maintenance Services an edge over other repair shops competing for the same accounts.

“We know their business,” he says. “We know what their lives are like. Nobody else can do that.”

Six Service Bays

The garage in which Vehicle Maintenance Services makes its repairs is impressive. Six service bays stretch out in a row — several with vehicles raised on hydraulic lifts. Shiny hand tools line the back wall. Tire-pressure gauges, a brake lathe, and other equipment stand at the ready.

Vehicle Maintenance Services, or VMS, currently fixes and maintains 510 vehicles for 94 nonprofit organizations and a handful of municipal agencies. The business employs Mr. Dalton, seven other mechanics, an administrative assistant, a part-time accountant, and two “bus runners” who pick up and deliver vehicles that need to come in for service.

Darts estimates the venture will break even when it hits 600 vehicles, which the organization expects will happen sometime in the second half of next year.

Cash is already flowing back to the parent organization as Vehicle Maintenance Services pays to lease the garage and for services that Darts employees provide, such as the time the organization’s chief financial officer spent setting up the business’s accounting system. To get the business started, Darts extended a letter of credit of up to $350,000 to Vehicle Maintenance Services, and is charging market rates for the money that the business borrows.

Service on the Side

Darts’s ability to maintain its vehicles on its own — let alone anyone else’s — was a long time coming. Founded in 1974, it wasn’t until the organization moved to its current location in 1992 that it was even able to park all of its vehicles in one place.

The new building happened to be across the street from an ice company, whose lead mechanic was looking for some extra work. That mechanic, Mr. Dalton, started doing light maintenance work, like changing tires and bulbs, on Darts vehicles in the evenings and on weekends. As other local charities heard about the arrangement, they asked if they could bring their vehicles in for service as well.

Over the years the complexity and number of repairs that Darts was doing on its own and other charities’ vehicles increased. By 2001, Darts had built the garage that Vehicle Maintenance Services now uses. Mr. Dalton had become a full-time employee and, with the help of other mechanics from the ice company, was taking care of 300 vehicles.

Because vehicle maintenance and repair fell outside Darts’s charitable mission, the money that other charities paid for the organization’s services was classified as unrelated business income, and thus subject to taxes. As the amount of unrelated business income grew, the organization’s executives and board members worried that Darts might be risking scrutiny by the Internal Revenue Service.

So the organization decided that Vehicle Maintenance Services should become a separate organization that will provide revenue to Darts when the business becomes profitable. The business plan that Darts developed took top honors — which came with a $100,000 grant — at last year’s National Business Plan Competition for Nonprofit Organizations, which was sponsored by the Yale School of Management, the Goldman Sachs Foundation, and the Pew Charitable Trusts.

While Darts has been able to maintain its fleet of 40 minibuses largely on its own since building the garage, the organization remembers all too well the challenges of working with outside repair shops, says Mark Hoisser, the charity’s executive vice president and the executive who oversees the business.

He says finding service stations that the group trusted to work on its specialized vehicles was difficult. Too often repairs were not done right the first time and required multiple trips to the garage. And the organization never knew when a garage would be late making a promised repair and send its transit schedule into a tailspin.

“We were at the mercy of the providers,” says Mr. Hoisser.

The organization drew on those and other frustrations as it designed the business. Vehicle Maintenance Services offers free pickup and delivery, so groups don’t have to tie up two drivers to drop off and pick up vehicles. The business keeps detailed records on the vehicles it has worked on, and reminds organizations when they need to come in for routine maintenance. And in the case of serious repairs, VMS has state-certified vehicles that customers can borrow to transport clients while their vehicle is in the shop.

No ‘Other Options’

Darts is expanding its repair business at a time when transportation is becoming a larger part of what many social-service organizations do, whether they want to or not.

“We got into the transportation business — I wouldn’t want to say by accident — but because we didn’t have other options,” says Lyth Hartz, president of Midwest Special Services, a charity in St. Paul that helps adults with disabilities learn job skills, find employment, and participate in recreational activities. The group has been a Darts Vehicle Maintenance Services customer since 2003.

For many years, Midwest Special Services hired a local school-bus company to transport clients to and from its programs. But eventually the organization began to expand its services to the larger, less densely populated counties outside St. Paul. At the same time, large residential institutions for the disabled were giving way to smaller group homes. As a result, many of its clients were spread too far apart for the bus company to create routes that the charity could afford. So the group decided to take over most of the transportation duties itself.

Midwest Special Services is not alone. The Greater Twin Cities United Way, which has been looking at the issues social-service groups face in transportation for several years, says that of the 210 nonprofit organizations it supports, between 160 and 170 of them run some type of transportation program. Together, 138 of those groups own or lease more than 900 vehicles to transport clients. Some of them also offer bus tokens or passes, rides in employees’ personal vehicles, and taxi service or vouchers.

Mr. Hartz, of Midwest Special Services, says that he has been happy with the work Vehicle Maintenance Services has done on his organization’s fleet of 28 vehicles. He says the mechanics don’t make unnecessary repairs — which he suspects was happening with some of the shops the organization used in the past. Instead, he says, they take the time to find the cause of the problem.

The work has also been affordable, says Mr. Hartz. He says the hourly rate of $69.20 is at the lower end of rates other repair shops charge. And getting the vehicles on a regular preventive-maintenance schedule has helped Midwest Special Services get a handle on its transportation budget.

“We’re not as surprised by spikes in vehicle costs as often as we used to be,” says Mr. Hartz. “We feel like it has smoothed the waters some so that they’re not quite as wavy.”

Avoiding Trouble

Wilderness Inquiry, a charity in Minneapolis that organizes adventure trips that make the outdoors accessible to people with disabilities and others, also has been a customer for two years. Greg Lais, the organization’s executive director, says that the comprehensive maintenance program that VMS has designed for his group’s vans and trailers has helped reduce breakdowns.

“Every year we had one or two vans or trailers break down somewhere, in Nebraska or whatever,” says Mr. Lais. “Last year we had zero. And this is with a fleet that was one year older.”

Darts officials say that they knew the business would have to compete on price and quality, but what they were less sure about was whether the fact the repair business was owned by a fellow nonprofit group would be a significant selling point.

Mr. Lais says that while the fact that Darts was a nonprofit organization may have helped open the door, that’s not why Wilderness Inquiry stays.

“At the end of the day, we’re looking at the money — we have to,” says Mr. Lais. “And we’re looking at the quality of service and evaluating it strictly on that. We’re doing this for selfish reasons.”

Concern About Quality

The Greater Twin Cities United Way was an early champion of Vehicle Maintenance Services.

The United Way gave Darts a grant to study the feasibility of starting the repair business. And after raising concerns that Darts’s location at the southeast corner of the Twin Cities metropolitan area could be a drawback, the United Way arranged for the donation of a 15-passenger van, one of the four vehicles the organization lends to charities when their own cars, buses, and vans need repairs that take a long time.

Byron Laher, director of public policy at the Twin Cities United Way, thinks that at first, Vehicle Maintenance Services’ origins in the nonprofit world had as much potential to hold the business back as it did to help. “Agencies are used to going to a private, for-profit garage to get their servicing done,” says Mr. Laher. “There’s probably some hesitancy on the part of agencies who may not know Darts to say, ‘Well, do they really know what they’re doing?’”

To find out whether the business’s nonprofit ties mattered to customers and potential customers, the organization conducted in-depth market research.

Darts’s leaders learned that they needed to tailor their sales pitch depending on the position of the person with whom they were talking, says Mr. Hoisser, the organization’s executive vice president. “You have the line staff who are charged with keeping the vehicles fixed today, tomorrow, and the next day,” says Mr. Hoisser. “We asked them whether it made a difference that we were a nonprofit. They said no.”

“But then you go talk to the CEO,” Mr.Hoisser says, “and it makes a big difference.”

He says that tackling new challenges, like market research and developing a business plan, has changed the outlook of the entire organization, not just the people involved with starting the business. Darts, for example, has begun to study whether other business opportunities could be developed by its community-services division, which offers homemaking, grocery-shopping, respite, and other services for the elderly and people who take care of them.

But he says that while the organization has in some ways developed a more businesslike mindset, it is always with an eye toward the charitable mission.

Says Mr. Hoisser: “I don’t think we could have done it all with nonprofit minds, nor could we have done it with all for-profit minds.”