Should We Be Surprised? - Tire Review Magazine

Should We Be Surprised?

"The parties agree that no party ... shall make any further public statements regarding the adversary proceeding or the matters addressed herein, except in so far as any party is required to publicly disclose any information pursuant to any statutory obligation..."

Should We Be Surprised?

"The parties agree that no party … shall make any further public statements regarding the adversary proceeding or the matters addressed herein, except in so far as any party is required to publicly disclose any information pursuant to any statutory obligation…"

That was part of a 13-page binding settlement document issued by U.S. Bankruptcy Judge Susan Sonderby, closing the book on Penske Auto Centers (PAC) and the relationship between Penske Corp. and Kmart.

These former mates might have agreed to public silence after a very noisy divorce, but there is a textbook lesson here that we can all learn from. Some of you larger dealers, in particular, may want to take a few notes.

If one of your core business assumptions is that customers will come simply because of your brand name or on the strength of whatever brand you represent, think again. That assumption might bring failure before you’ve even gotten out of the gate.

Over nearly seven years, Roger Penske shed some 300 stores, pumped tens of millions of dollars into his PAC enterprise, and still enthusiastically spoke of growth and expansion. As only my colleague could put it, "it’s been like watching a sailor bailing rising waters from a sinking life boat with a teacup."

One year ago, Jim Wheat, president and CEO of PAC, spoke glowingly about Penske’s new long-term agreement with Kmart and the "unique marketing advantage" Penske enjoys by having its PACs located at Kmarts. "It certainly offers us excellent exposure to Kmart’s customer base."

Last fall, an even more enthusiastic Wheat unveils PAC’s plans to add 30-40 new stores in 2002, including a handful of stand-alone locations.

Five months later, Kmart files Chapter 11 and closes 284 of its stores, forcing PAC to close 63 of its locations. Wheat says that impact on PAC will be "minimal," and enthusiastically states that the remaining 563 PACs are "strong and performing well."

Not 30 days later, and with no warning, PAC ceases to exist. All locations are shut down, and most are gutted by the time Kmart gets an injunction the next day. By then, Judge Sonderby, who is overseeing Kmart’s bankruptcy proceedings, has little choice but to "negotiate" a divorce settlement.

Despite annual sales dropping from an estimated $400 million back in 1995 to under $300 million in 2001, Penske kept insisting that PAC would grow. But over the same span, PAC never averaged more than $500,000 in annual sales per location. In comparison, the typical tire dealer averaged $1.4 million per location in 2000, according to Tire Review’s Tire Dealer Profile Study.

Other than throwing money at the problem – and Wheat’s cheerleading – neither Kmart nor Penske did much to help the PAC cause.

Kmart’s long-rumored bankruptcy was the capstone to 15 years of lost focus and misguided assumptions about both its competition and consumers. Not to mention a series of eye-off-the-ball expansions – Builders Square, Office Max, Borders, and Sports Authority – that either failed or had to be spun off.

Roger Penske was the polar opposite. Single-minded focus brought him 11 Indy 500 wins, a profitable chassis-design business and valuable business connections. He parlayed those into a successful a truck leasing business and car dealerships, and the revival and profitable sale of Detroit Diesel.

By late 1995, when Penske came to the expected rescue with $112 million for his 64% share in PAC, Kmart had botched its auto service business so badly that it was financially draining and faced numerous well-publicized consumer lawsuits.

No matter that Roger had never been in retailing, and had never sold a single tire. Never mind that Kmart was losing relevance, and its auto service efforts brought consumer mistrust.

Everyone was convinced that Kmart’s market presence – its size and its brand – would drive millions of consumers into PAC bays.

Everyone expected Roger’s name to magically cast the blue light (sorry, I couldn’t help myself) of success on the retail tire and auto service business.

While PAC suffered from many maladies, what really did it in was blind faith in the supposed power of "brand." Because for all the work that goes into building a successful brand, even more must go into maintaining its integrity and value.

So, in this world of consolidation and contraction, if one of your core assumptions is that customers will come simply because of you – or your brand name – think again.

You May Also Like

How organizers of the first T.I.R.E. Summit plan to bridge technology with tire industry needs

The T.I.R.E. Summit will place an emphasis on technology, insights, regulations, and engagement in the industry.

WT-anyline-1400

I don't care if you've been in the tire industry for 40 years or 40 days – a lot has changed since you got started. Recently, some of the biggest changes are happening on the technology side: AI, smartphones and sophisticated software have never had such a presence on the shop floor. There's too much to wrap your head around to successfully keep the evolutions in the industry straight.

PRT launches 59 new complete strut assemblies

Extending PRT’s product portfolio in North America, the new release represents nearly 12M vehicles in new coverage.

PRT-Strut
Tire Discounters partners with the Atlanta Braves for home run promotion

For every home run hit by the Braves this year in a game, Tire Discounters will give fans discounts on Goodyear/Cooper tires.

Understanding the different types of tire customers

Understanding how to interact with different customer types can lead to loyal customers for life.

TR-Continental-customer loyalty
Michelin sponsors WWII vets’ return to Normandy for D-Day 80th anniversary

WWII vets will participate in several parades, ceremonies and celebrations during their 10-day tour of the Normandy region.

Michelin-DAL_NORMANDY

Other Posts

McCarthy Tire Service partners with Truckers Against Trafficking

McCarthy Tire Service has launched a company policy aimed at identifying and reporting potential human trafficking situations.

McCarthy-tire-TAT
GRI adds 23 SKUs across agriculture, construction tire segments

The expanded product portfolio includes tires designed for tractors, implements, and sprayers, as well as telehandlers, graders and light trucks.

GREEN-XLR-EARTH-70
The strategy for 100% sustainable tire manufacturing

Enhancing energy efficiency and the transition to green energy sources takes viewing manufacturing operations with a wide-angle lens.

michelin-sustainable-tires-1400