Fixed and Focused: Johnson Talks About ATD's Long Road Back to Shareholder Value - Tire Review Magazine

Fixed and Focused: Johnson Talks About ATD’s Long Road Back to Shareholder Value

Dick Johnson of American Tire Distributors (formerly Heafner Tire Group) took on quite a task when he was named president and CEO of the Huntersville, N.C., company in February 2001. Massive debt, a highly diversified operation, upset customers and concerned ownership plagued the company and threatened its very existence. Quietly, Johnson and his team have refocused ATD, shedding its farflung retail operations, reducing operating expenses, buying back over $120 million in bonds, and renaming the company. Here, Johnson talks about ATD’s recovery and where it is headed.

Talk about ATD’s direction. Your Web site says that the company has been "expanding and growing in order to create a world-class automotive marketing and distribution company."

"We believe a distributor has a lot to offer besides just delivering tires. Our core focus is to create a stronger and more viable independent tire dealer who really has the ability to compete in today’s marketplace. In order to do that we’re going to have to not only have tires in the position where they can be delivered, we’re going to have to have equipment, supplies, custom wheels, accessories and marketing programs. Truly, we want to be a program distributor. We take all the manufacturers’ programs that come and try to enhance them for our dealers. For instance, if you look at the Michelin Alliance Program – in the form that is presented by Michelin – and compare it to our Alliance Program, we offer more services and a little more quality than the manufacturer does. That’s part of our effort to make sure we create that strong independent tire dealer and give him the ability to compete in today’s market."

How does being a distributor differ from being a private brander, wholesaler or distributor/retailer?

"You have to go back to the fundamental process of a distributor and that is to source large quantities of products and strategically warehouse those products close to the customer. From there, we provide a delivery service to those customers in the quantities that they are able to take. We were really the first to provide daily delivery to our dealer customers. That’s a strong point. Think of the reduction in inventory and capital required for these guys to stay in business by having someone there who could bring the product to them every day. There is value that comes with a pure distributor.

"By my definition, wholesalers are people who buy large quantities of products and resell them, usually at a reduced price to move them quickly. I look at wholesalers more like a brokerage business where they are buying and selling in order to turn dollars, and they provide very little value after that. Then I look at a private brander, which we are because we have proprietary brands, but a lot of the private brand competitors are more like buying groups, where different companies could gather together in a group to hopefully get a consistent supply and more fair pricing value."

ATD has spent two years reorganizing, and made the decision to get out of tire retailing businesses. Why did you decide to exit this business?

"One of the first discussion I had with CharlesBank, our majority owner, after I was asked to take over the company was about the fact that I couldn’t stand in front of a group of customers, look at them in the eye and tell them that we were going to be their champion and we were going to help them stay competitive when we were going open retail stores all over the country and compete with them and try to run them out of business.

"One of the prerequisites for me taking this job was that we would exit the retail business. I took over Feb. 1, and I’m proud to say that by May 15 we sold Winston. Then we sold the T.O. Haas stores. Fortunately, we had a group of management who were very interested in buying the stores, so we maintained that business on the distribution side. So I think I’ve lived up to everything I’ve told our independent tire dealers.

How dire was ATD’s financial position before you became CEO?

"Well, I’m glad it wasn’t all my money. We never considered anything but fixing it. Contrary to the rumors of bankruptcy and of our demise, we never discussed that. Our majority owners, CharlesBank Capital, after investing the money they did, were not going to let it go down the toilet. So we looked at all the options. We knew we needed to get out of the retail business, so we did that. We knew there were some things going on in the West that didn’t fit the most successful part of our business. So we went in there and made some changes, streamlined the business, consolidated two of the warehouses and closed two of them. We accomplished a lot, but we were still leveraged too much. The people that we dealt with were still going to be concerned.

"So one night we said, ‘What if we bought our bonds back?’ We put a plan together, and we went to CharlesBank and talked to them. We explained what we had done to fix the company, but that it was going to take us a long time to get the company in the position to create value. After a day and a half of meetings, we convinced them that it was the right thing to do. Then we had to convince the bond holders that the company was going to continue to progress little by little, that we were a great company with a bad balance sheet and we wanted to be a great company with a good balance sheet. Fortunately, they believed in what we said. We raised some money and we were able to purchase back all but $28 million in bonds of the $150 million we had out there.

What is the future for the retail tire market, especially where independent tire dealers are concerned?

"I think the biggest challenge is people. That’s been the case throughout history. The strength of the independent tire dealer is the owner/operator, the guy that walks in there everyday and puts the key in the door and unlocks it. We’ve done some radio spots that talk about independent tire dealers being the owner of their business. But how many of the kids growing up with fathers who own tire dealerships are asking themselves if they want the business or the cash? Dad has worked six-to-seven days a week, usually from seven in the morning to seven at night. I wonder where future owners are going to come from when this generation passes.

"I think there’s a big issue when you look at mass merchandisers. There is more passion in this industry than in any I have ever seen. Maybe it’s the smell of the tire that gets in your brain or something. To mass merchandiser, tires are just another dollar sale. The guy who was doing produce yesterday is putting tires on your car today. As long as they continue to grow and try to out-price everybody, that’s going to be an issue.

"Distributors who choose to compete with tire dealers are also going to be an issue. We have several competitors out there who stated that their focus is on retail and not on distribution. I think that’s going to make it tough for a small independent to compete.

How has AutoEdge progressed thus far, and what are your plans for it in the near-term?

"If we’re going to provide the right services for our independent tire dealers, in order to give them some of the same advantages that a chain has, we have to offer more. We started Auto Edge and in just over a year we have well over 200 dealers on Auto Edge. We’re looking at adding more things to Auto Edge for next year. Some of the advertisements that we’re developing right now are based around Auto Edge dealers. It’s just another way to give them the opportunity to have the same advantages that a Discount Tire has. I don’t think we’ve ever discussed the numbers we want. The quality is really what we’re looking for. We want to look at anything we can do to assist our dealers, things we can provide for some people to help them either get into business or stay in business. We’re looking at expanding the program very slowly. We have no deadline and I would rather be the best at it before we ever think about what the quantity is going to be."

What is ATD’s growth strategy for the future?

"We do want to expand our geographical coverage. I believe the central region offers us the most opportunity. I’d say that marketplace needs a distributor of our type that can get to a dealer everyday. I think we’ve got a good base out of the Nebraska area with a big facility in Lincoln. We have a 270,000-square-foot mixing center here in Lincolnton, NC, and out of that we redistribute wheels and container products. As we get those other nine centers open in the central part of the country, then we’ll be able to take Lincoln and turn that into a mixing center, doing exactly the same thing that Lincolnton does. I think that’s a tremendous opportunity for us. Quite frankly, we can grow without buying a lot of other competitors out. We’ve got a big enough base now that we can expand without having to make every expansion an acquisition. Although there are a couple of guys out there that I’d like to have as part of this company. But that’s not in the next year or so."

So you haven’t ruled out acquisitions as a way to continue growing?

"We haven’t ruled it out. We would be very selective on who it would be. There’s a couple of guys out there – they know we’re interested in them, they’re interested in us. Someday it would be a marriage made in heaven, but probably not for at least another year."

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