I-Team: The American Dream or Financial Nightmare?

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    NEWSLETTERS

    It's the promise of the American Dream: Starting and owning your own business. But the News4 I-Team continues its investigation into the nationwide auto repair chain AAMCO to show you why some franchise owners say they're now stuck in a financial nightmare.

    There are more than 700 AAMCO stations across the country.

    Nearly all are owned by independent franchisees, people who spent tens of thousands of dollars for the right to put an AAMCO sign on their storefront.

    But some owners told the News4 I-Team they're unhappy.

    Under the Hood: The AAMCO Investigation

    [DC] Under the Hood: The AAMCO Investigation
    One of the largest car repair companies in the country pulls a popular promotion because of our News4 I-Team investigation.

    "I'm talking to you because I'm desperate."

    One owner is so afraid of retaliation from the company, we agreed to hide his identity. "I'm scared because of the threats I get. You know, I was told if we break contract, they'll sue us for everything we have."

    He said to start the business, he paid about $40,000 down and another $20,000 for AAMCO's required training program. "Everything was positive from AAMCO. What they do for you, their business model has been proven, you don't need to know anything about transmissions to be in the transmission business because their model eliminates that. All you have to do is follow the model."

    He told us he spent most of the month-long training course practicing how to use telephone scripts, line-by-line dialogue employees read to hesitant customers, telling them, for example, "Your transmission has an internal problem and it needs to be rebuilt."

    He said AAMCO insisted every store use these scripts to convince customers to pull the transmissions out of their cars. "The training is nothing about how to market your business. Really, it's all about the telephone sales and getting the car."

    But he and other owners told the News4 I-Team they quickly discovered the scripts didn't work and they started to lose money.

    They all blamed the mandatory fees AAMCO charges for things like advertising, as well as a percentage of every sale.

    "I don't think we were given all the information we should have been given," the franchise owner told us. “I think we got duped."

    Mike Johnson worked for AAMCO corporate headquarters from 2010 until last year.

    “Where I have a problem is so many of these new franchisees have no automotive background," he said. “I think they're selling, you know, the hope of the American dream. And they're setting these people up. A lot of people don't have the knowledge and experience, and I think a lot of them fail."

    Why does he believe it? Because he was one of the guys AAMCO hired to take over failing franchises while the company tried to find a new owner.

    According to a popular franchise watchdog site, AAMCO ranked as one of the "Worst 25 Franchises" in the nation last year because almost 40 percent of its franchises fail based on a failure to repay government Small Business Administration loans.

    Johnson said he personally flipped about 18 of these failing stores in two years. "They pretty much want to get your deposit and get you through the class and sell you the store and then collect the 7, 7-and-a-half percent." He explained, “I've been in the automotive industry many, many years. You can't run a business like that and be successful."

    When asked if he would own an AAMCO franchise, he quickly replied, “Nope.”

    He then explained his reasoning. “The percentage you pay to corporate. The ads, the advertising. The control. They have ultimate control over the entire business. I would not. And I was really interested in doing it,” he said. “I'm 56 years old. I would love to retire with a couple of good stores. But not AAMCOs."

    Thirteen states, including Maryland and Virginia, require companies selling franchises like AAMCO to give potential buyers what's called a "franchise disclosure agreement," a written document outlining all of the possible fees and problems a future franchisee could face.

    The News4 I-Team uncovered AAMCO recently got in trouble for not disclosing an important detail.

    Authorities in Washington and Virginia said AAMCO never told franchisees its CEO put another auto repair chain into bankruptcy.

    AAMCO "neither admits nor denies these allegations" but did agree in June to pay Virginia a $10,000 fine as part of a settlement.

    The company declined our request for an on-camera interview but told us in a letter:

    "AAMCO places no financial pressures on its franchisees ... Franchise owners ... are responsible for setting their own financial goals. AAMCO has a robust franchisee initial training program that has been developed and refined over 50 years. We believe that our training program is superior to that of any other franchise system in the automotive repair market.

    “AAMCO makes the vast majority of its revenues from franchisee royalties ... it is normal for a small percentage of franchisees to sell their business each year and AAMCO doesn't make large revenues from these transactions ... AAMCO 'makes its real money' by supporting its franchises so that greater royalty revenue can be generated.

    “Of those relatively few AAMCO centers that close each year for a variety of reasons, there are very few where AAMCO 'resells' news franchises at these locations."

    AAMCO's corporate headquarters also provided us with statements from two Maryland locations that said, "I believe that I have achieved many of my own goals through my own effort and by abiding by the processes of AAMCO" and "There are no obligations in my franchise agreement with AAMCO that I must achieve any level of business."

    But other owners disagree and are thinking about filing a class action lawsuit against AAMCO’s corporate headquarters. As one explained, “I think it's more profitable for AAMCO corporate to sell franchises than it is to operate stores or collect franchise fees off of stores."

    He said he's never made any kind of profit and has never been able to pay himself a salary.

    "If I was to walk away, I would lose a good $300,000,” he said. “It's a nightmare. It's an American nightmare."