Business Development Case Study

Form(s)ula One: Finding Profitability in the Auto Tag & Title Business

Chase is settling in as President of Runkles, a notary, tag, and title service provider in rural SoutheasternPennsylvania. The transition has been smooth: a cooperative former owner and a staff excited about employee ownership have ensured operational stability and Chases firm place as leader of the company. However, he faces real challenges in growing the business. The auto title industry is low-margin, generally offers non- differentiable products, and suffers from high employee turnover. What is his path to increased profitability?

About Runkles

Founded in 1949, Runkles provides a wide variety of registration and legal services for vehicle owners at its three locations in York, Red Lion, and Hanover, PA. These locations are about 30 minutes apart and provide roughly equal shares of company revenue. Each location offers:

Title Transfers	Drivers License Renewals	Dealer Services
Vehicle Registrations	DL Photo Center (York Location)	CDL License & Permits
Apportion Tags	ATV, RV, Snowmobile, Boat	Notary, Birth Certificates,

Registrations

Address Changes

For all these services, Runkles acts as an intermediary between the customer and the relevant Government agency, almost always the Pennsylvania Department of Transportation (PennDOT). Customers choose toreceive auto legal & licensing services at Runkles locations (rather than their local DMV) for speed, convenience, and better customer service. In addition to the standard PennDOT fees, they pay a Runkles service fee for performing the work. Almost all vehicle tasks, including those for commercial vehicles and interstate trucking, can be completed at Runkles (though only the York location can issue new photo ID). For much of the companys history, employees would literally courier customer paperwork to and from PennDOT facilities.

Now, Runkles staff can complete much of that work instantly and electronically.

There are several businesses doing similar work to Runkles in the area. This competition keeps marginslow, as they all offer to process the same set of government services in the same way.

Product & Market Overview The bulk of Runkles customers are individuals and small car dealerships.

This includes standard personal tasks

(renewing a license, registering an RV) as well as facilitating person-to-person car sales through titletransfers and more. While customer retention is high for individual users, they need Runkles servicesinfrequently: PA drivers licenses only need to be renewed once every 4 years, and consumers only change vehicles an average of once every 8 years. Furthermore, the length that Americans hold their cars has increased 60% in the last 10 years, reducing turnover and the need of an individual for auto legal services. This is a key challenge to finding growth in the personal use market.

Service	Portion of Transactions
Title	23.764%
Renewal	16.386%
Notary	9.789%
Renew DL	6.286%
Reissue	2.367%
Address Change	1.929%
Apportioned	0.45%

Apportioned transactions represent 0.45% of transaction counts, but 1.5% of revenue.

Higher margins and higher volumes are available in the dealership and apportioned plates markets. Runkles provides registration and title services to a base of small dealerships who lack the in-house TitleClerks to complete the work themselves. This is currently a very small portion of the business, providing only 0.5% of the transactions, with each dealership processing about 150-200 a year. These are principally used car or out of state dealerships transferring a plate for a PA customer. Larger ones could bring thousands of additional transactions. However, many of these large new car dealers or chains have brought title & registration work in-house to increase their own margins.

Attracting more of the market in apportioned license plate services (a special licensure used by interstate truckers) also offers high margins and repeat business. Without a service like Runkles, Truckers face the inconvenience of bringing their big rigs to the state capitol (Harrisburg) to complete their transactions.

The final Runkles market is other PennDOT agents in Pennsylvania. State law requires the roughly 2,000 agents handling auto documents to be re-certified every two years.

Runkles has developed a PennDOT-approved online course for agents that it provides for $99 per certification. The gross margins are huge (93%) but make up less than 1% of revenue: they sell roughly 200 of these courses a year.

Product Opportunities

From 1998-2016, Runkles also operated an insurance business. It is common in PA for tag, title & notary providers to also offer insurance because they are well positioned for customer acquisition. Auto insurance is required to register a vehicle, so customer service reps can sell an auto policy to uninsured owners of a new vehicle or offer a quote to match their existing policy. Once converted to an auto insurance customer, they can be cross sold to other kinds of insurance. Using this method, the former owner built a base of 3,500 policy holders paying $4 MM annually in premiums, resulting in

$500,000 commission for Runkles. This business was sold to a local insurance company in 2016 when the previous owner decided to cash-in on the solid customer base with his retirement approaching. but all noncompete agreements have expired. Runkles could enter this market again; however, no existing expertise in the area has been retained in the company. Staff, skills, and partnerships in insurance wouldhave to be built from the ground up.

Runkles could also integrate new technologies into its notarization business to expand its services. Online Notarization, whereby a notary uses special software to notarize digital documents (but still in the physical presence of the signers) is one area for expansion. And because of a new PA law, Chase could now offer Remote Online Notarization, where the signers appear for the notary over video conferencing. This would both increase convenience for Runkles existing customers and allow the business to serve customers beyond their geographic area. However, large, national players already exist in the Remote OnlineNotarization field (notarize.com, NotaryCam, etc). Could Runkles compete?

Staffing

Chases senior team consists of an operations manager (the guru who knows the complexities of theirbusiness inside and out), a procurement manager, and a controller. The rest of his team is customer facing. Roughly equal numbers of supervisors and customer service reps (each with three levels of seniority) alldirectly provide services at Runkles locations. Some members of his team specialize in specific types of transactions or customers, such as the Dealer Rep currently on his team.

Every employee at Runkles, including management is paid hourly (with the exception of Chase); he inherited this system from the previous owner. Employees (especially specialized or senior ones) often clock overtime and varying amounts of hours. While these employees have come to rely on this additional income and flexibility, it creates huge variability in Chases labor costs. As their wages are the only real contributor to Runkles Cost of Goods Sold, this presents a real challenge to Chases consistent profitability.

However, members of his team see the flexibility and overtime as compensation for the toll of the job. Youve probably been to the DMV, or heard horror stories customers are often not on their best behavior! Stafffrequently deal with stressed, angry, confused, and impatient customers. Physical brawls have even broken out in the Runkles parking lot. Thus, turnover in frontline roles (reps & supervisors) is very high, all in an industry requiring significant training in a diverse range of complex government processes.

When Chase arrived, starting wages were as low as $12/hour, which he quickly raised in an effort to boost retention. However, this problem persists, driving up his costs.

Competitive Landscape

There are several other title & tag companies in Runkles service area offering very similar services. Inaddition, customers can always go to a local DMV branch (there are locations in York & Harrisburg), where they will face longer wait times and potentially worse service, but not have to pay the additional fees charged by Runkles or a competitor. Runkles advertises via a few billboards and an organic social media presence to compete with these options.

(Blue pins = Runkles locations; Green pins = private competitors or DMV locations)