It’s November; the oil is changed, the snow tires are on the car, and the guy who owns the towing and auto repair business that did the work is thinking about his upcoming visit to his second home in Fort Myers, Florida.
Except he doesn’t wanna just visit. He and his wife, who handles all the bookkeeping and appointments, would like to sell the business they built from the ground up here in dreary, snow-bound Vermont and retire permanently to Fort Myers, presumably to sit under palm trees and sip drinks with paper umbrellas in them and attend Red Sox spring training games (at least as long as the price of a ticket remains cheaper than a plane ticket to watch winter ball in Havana).
He’s having trouble finding a buyer, which is fine for me and my family in the short run. We like taking our three Toyotas (a RAV, a Prius, and a 2002 Tacoma pickup) to his shop rather than enduring the certainty of being ripped off the by local Toyota dealer, whose motto is “It’s All About the People,” a phrase that can be accurately translated into English as “It’s All About the Money.”
But what about the long run? I have an idea.
What if our local car mechanic sold his neighborhood business to his employees, who operated the auto repair and towing business as a worker cooperative?
It is true, of course, that the employees could buy the place from the founders and run it as a conventional business, just as the current owners do. So why does forming a co-op make sense and, indeed, increase the likelihood of both a successful transaction and a successful future under new ownership?
Here’s a whole bunch of reasons.
1. Financing is available. The Cooperative Fund of New England (CFNE) is a community development financial institution (CDFI) with $20 million in assets, every dollar of which is intended to help grow the cooperative economy in our region. If you are not in our region, there are other like-minded CDFIs. Banks are all about “no” but CFNE is committed to helping New England’s growing network of worker co-ops in particular.
2. Help is available! You may be really good at fixing cars, and helping befuddled leaf-peepers from New Jersey when their Saabs and BMWs have flat tires on unpaved Vermont byways, but you aren’t necessarily savvy about creating and operating a business. You might be out of luck in the conventional, investor-owned economy but in the co-op sector you can turn to an organization like the Cooperative Development Institute (CDI), which exists for the precise purpose of providing technical assistance to developing and ongoing co-ops.
3. More help is available! An earnest mantra in the cooperative community these days is “P6” – a reference to the sixth of the seven Cooperative Principles, which is “cooperation among cooperatives.” And they are serious about it. At the October 2015 meeting of the board of the Hanover Consumer Cooperative Society, a $75 million-a-year business, the general manager said this: “If a coop approaches us about help we try to find where we can help. Would we give them assistance if they wanted to become efficient operators? The answer is ‘absolutely.’” He then rattled off a bunch of examples in which the Hanover Co-op did precisely that, for new or struggling food co-ops. A remarkable feature of the Hanover Co-op is that it operates a car repair business. There is no reason to suppose this co-op would be less committed to P6 in the automotive realm.
4. Even more help is available. Check out the Vermont Employee Ownership Center.
5. Workplace democracy isn’t just a means to making employees feel better because they have some control over their work lives. It’s good business. Employees who own and control the businesses in which they work are far more likely to do great work, and be really productive, than those who are working for “the man,” even if “the man” is truly beneficent. When existing employees buy out and cooperatize a business from its founders, they are especially motivated to do great work and perpetuate the founder’s legacy.
6. From the perspective of the founder who is cashing out, a conversion to a worker co-op has only positive impacts. There is no expectation that the founder will receive less than fair market value – that’s not part of the deal. The seller can in many circumstances defer capital gains taxation under Section 1042 of the Internal Revenue Code, just as with the Employee Stock Ownership Plans (ESOP) typically used in larger businesses. The founder is typically welcome – indeed, usually ardently desired – to stay on during a transition period, in contrast to turning over the keys to strangers.
The above advantages notwithstanding, for a lot of people the perceived ideology of co-ops and their prevailing culture may be off-putting. The feel shop of my car mechanic is nothing like the vibe of the local food co-op that sells only natural and organic foods (I’m talking about the Upper Valley Food Co-op here). The former is NASCAR and the latter is Woodstock.
This does not matter. Co-ops are not just for hippies. Ask the dairy farmers in Scott Walker Country (Wisconsin) who have staked their future on the Organic Valley cooperative. Or the folks from all walks of life who belong to your local credit union (which is definitely a co-op, even if this fact isn’t advertised). Better yet, ask the meat-and-potatoes folks from Deer Isle, on the coast of Maine, who in 2014 formed the Island Employee Cooperative and bought out Burnt Cove Market, V&S Variety and Pharmacy, and The Galley, thus making themselves the owner of stores selling groceries, medicine and hardware.
Actually, though, I have an even better idea. How about converting that auto repair and towing business into a solidarity co-op! Sometimes called a “multi-stakeholder” co-op, this is a cooperative that is jointly owned by more than one class of member-patrons. In this instance, imagine an auto repair shop that is jointly owned and capitalized by both its workers and its customers! Each would elect half the Board of Directors and operate the business in the best interests of both groups.
This kind of co-op seems particularly well-suited to the auto repair business. I’m like a lot of car owners; I know almost nothing about how my automobiles work and thus I am totally at the mercy of whoever I pay to maintain and repair them. How do I know I am being manipulated and exploited when I do business with every car dealership I’ve ever encountered? Because their lips are moving. That’s okay if I am buying a bottle of Diet Cherry Coke at the convenience store, but it’s troubling in relation to something so essential and valuable as my car, the second most expensive item I will ever own.
In these circumstances, consumer-ownership solves what in lawyer-ese can be called an agency problem. I want my auto repair shop to be acting on my behalf (i.e., as my agent) and not the agent of some avaricious owner or ownership group I will never meet. One need only look to the recent headlines about Volkswagen for evidence of how trustworthy the automobile industry is from a consumer standpoint. And, yet, if you tell the local auto repair shop owner you’re in need of a used car, he’ll go and find one for you from the wholesale market he frequents. I trust him to do that in a manner that is fair to me, but imagine how much more trust I’d have if I knew for sure that he’s my agent and nobody else’s. Joint ownership with the employees feels right – it’s good for the workers to have the same skin in the game that consumers do – and I am confident that if consumers have enough seats on the Board of Directors and enough savvy to do a good job of governing vigilantly, the co-op will always act in my best interests as a consumer.
And did I mention the third most expensive item I will ever own, my computer? The keyboard on which I am pounding right now is completely the source of my livelihood. It’s my connection to the outside world; I even use it as a phone. I can sort of tell when the auto guys are ripping me off, but I am 100 percent lost when it comes to information technology. Time for another solidarity co-op!
Just don’t try to convince me that the fans should own the Red Sox. That calls for a purely worker co-op. Imagine a major league team in which the useless owners are no longer around to take their cut, and the players owned the franchise. That’s a ticket to the World Series for sure.
A few potentially important disclosures: I serve on the boards of both the Cooperative Fund of New England and the Vermont Employee Ownership Center.