When the Kwik Kar garage opened last year, Jeffrey and Linda Whecler believed they had identified a very profitable market niche. Kwik Kar is designed to provide general vehicle maintenance in less than 30 minutes. The most common service is an oil change and lubrication generally done in 10 to 15 minutes. When the garage first opened, the Wheelers were amazed at the demand. Although they advertised that they could provide an "oil and lube" job in 15 minutes, heir claim was based on no more than five cars being serviced at the same time. Demand was so strong, however, that they had to encourage some people to come back later in the day or at a prearranged time so that they could guarantee 15-minute service. Most individuals were happy to comply, and the garage proved to be highly profitable. The Wheelers invested $80,000 in equipment and another $20,000 in inventory, including oil supplies, belts, batteries, and mufflers. They also were thinking about adding tires, but something happened six months ago that had a radical effect on their business. Three competi- result, the Wheelers' basiness dropped dramat- ically, and, in each of the past four months, they have lost more than $8,500. At present they have $12,500 in cash and $23,500 in inventory. Their accountant has estimated that they will tors opened up in the same neighborhood. As a be able to survive only two more months unless a turnaround in business oocurs. In an effort to create more demand, Jeffrey went to see the bead of the transportatsion de partment of a very large company in the arca. This firm has more than 500 salespoople and 1.350 other employees who drive company-owned cars. These cars curreatly are being ser- viced in-house, but the firm has decided it would be more economical to have an outside com- orm routine maintenance. Yesterday, Jeffrey received a call from the company and leamed that Kwik Kar has been awarded a ooc-year contract for this general maintenance. The will pay Kwik Kar $20 per ser- vice, for a total annual payment of $220,000 ($20 x6 X 1,850), Regardless of how many cars are serviced cach mouth, the firm will pay $18,333 (220,000/12) on the first of every mouth firm wants cach car serviced an average of six times a year and Jeffrey was delighted with the news. As be told Linda, "This contract arrived just in time." The contract will go into effect in 45 days. In the interim, Jeffrey and Linda plan to get the necessary funds to tide them over aud to purchase additional supplies so that they will be ready to begin servicing the firm's autos. 1. Should a bank be willing to advance Jeffrey and Linda funds based on their contract with the firm? Explain. 2. What type of loan would a bank be most likely to consider: short, intermediate, or long term? Why? 3. If no bank will lend them money, what would you recommend the Wheelers do? 9
