JACKSONVILLE, Fla.-Chalk up another tire store chain that has fallen victim to that age-old nemesis: lack of profitability. ServiceMax Tire & Auto Centers, a rather unique Michigan dealership that, for the most part, operated alongside gas station/convenience store locations,
closed the last of its outlets in June and went out of business.
A wholly owned subsidiary of Jacksonville-based Acorn Venture Capital Corp., which also owns Automotive Industries Inc. (AI), ServiceMax at one time had 28 stores. But after a checkered history fraught with lackluster performance, the beginning of the end came when Acorn figuratively pulled the plug on the struggling company last Dec. 31, reducing its book value from $250,000 to zero.
That followed a $6 million investment over more than three years to open new stores and finance operations since Acorn purchased controlling interest in the chain in April 1994.
In a two-phase struggle to remain viable, ServiceMax signed an agreement with its landlord, Total Petroleum Inc., operator of gas station/convenience stores, then closed about a dozen of its worst-performing outlets last December. However, it was then forced to shutter the remainder in June.
Meanwhile, Automotive Industries-which is ServiceMax's biggest creditor, to the tune of $1.43 million-continues to operate a total of 31 stores. Those include 17 Jim Martin Tire, eight Wall Tire and four Mott Tire outlets in Florida, and two Kehoe Tire stores in Savannah, Ga., according to Bill King, AI's senior vice president and CFO. AI's former Daytona Discount Tire has been renamed, joining the Jim Martin family.
Last year at this time, based on a total of 57 retail outlets (including those of Service Max), TIRE BUSINESS had ranked AI among North America's largest independent retail dealerships.
With virtually no profitability in its troubled past and Acorn's board predicting none for its future, ServiceMax folded, though the legacy it leaves may eventually precipitate a court battle.
In its most recent 10-K report filed with the Securities and Exchange Commission (SEC), Acorn cryptically referred to the reduction of ServiceMax's valuation ``due to a significant liability and the uncertainty of successfully seeking indemnification for any and all the liability from involved third parties.''
Mr. King would not discuss that liability, only saying it deals with ``some tax problems'' and a former officer of the company.
But earlier this year Acorn Chairman and CEO Stephen A. Ollendorff told the Business Journal in Jacksonville that ServiceMax ``lost a lot of money'' under management by a 25 percent owner before Acorn bought the dealership. Then this year Acorn found what he called a ``hidden liability'' not disclosed by previous management nor found by Acorn's auditors.
He said he was not sure why the company and its accountant, Ernst & Young, had not caught the hidden cost, and that Acorn was considering legal action against the accounting firm, which it has since replaced.
Mr. Ollendorff referred calls from TIRE BUSINESS to Mr. King.
A business development company, publicly traded Acorn acquired AI from General Tire in December 1993 for $2.4 million. AI President Orland Wolford also is a vice president of Acorn.
Having a number of poorly performing locations was ``not necessarily'' the only reason ServiceMax flopped, noted Mr. King. ``The first phase was to close the bad stores, but it didn't generate enough sales to warrant investing additional funds. When you've got a parent company that has put in significant money over several years, they get to the point where they don't want to invest any more.''
Asked if the dealership ever was profitable, he said: ``We weren't involved from the very beginning, but I don't think so.''
ServiceMax failed ``because they had more expenses than they had gross profits. It just never worked.''
Although the company had some stand-alone outlets, he said by virtue of its gas/convenience store sites, it was ``very unique.'' And Acorn fully expected that ``if a customer buys 85 percent of his gas from the same station, and if that's not an unpleasant experience, when you need service or tires, you'll think about ServiceMax.''
But, he admitted, ``people are not going to buy 10 gallons of gas, a quart of milk and four tires. . . .It just didn't generate enough business to warrant the overhead.''
While the dealership sold Dayton, Firestone, Bridgestone, Falken and some Uniroyal tires, it was somewhat unusual, as its service offerings included tune-ups, transmission overhauls, and even some heavy engine work, which Mr. King said ``was never very popular with the senior management.''
He would not address what has become of ServiceMax's property and equipment, but added that some 100 employees who worked at the stores were provided by an employee leasing service, not AI.
Acorn's 10-K revealed Automotive Industries ended 1995 with a net loss of $1.5 million on sales of $19.3 million, after establishing a $1.4 million reserve for the receivable due from ServiceMax. AI had finished 1994 with profits of $30,250 on sales of $19 million.