VENTURA, Calif.—Excess ``baggage'' left over from a 4-year-old merger now viewed as ill-conceived, and a majority stockholder that has grown impatient waiting for profitability are, in part, leading to the sale and closure of the RPJ Tire Co. The struggling dealership, which operates retail stores in California under the name Parnelli Jones Inc., currently is evaluating all its operating units and is in various stages of discussion and negotiation with at least two potential buyers, TIRE BUSINESS has learned.
Ultimately, the impetus behind the fragmentation of one of the nation's largest independent tire dealerships is, according to RPJ President and CEO Rick O'Neil, the desire of its majority stockholder, Continental General Tire Inc., to eliminate its more than 51-percent stake in the company.
No final sales agreements had been signed by Jan. 14 when TIRE BUSINESS spoke by phone with Mr. O'Neil at the company's Ventura headquarters. However, he said some RPJ stores likely would be purchased by a dealership he described as a ``multi-state player,'' and others would be bought by a newly formed dealership that he hoped to head.
He expected the deals to be completed within 30 days.
Mr. O'Neil said he believes Conti General precipitated the sale because of a ``strategic decision that they don't want to be in the retail store business. They see themselves as a manufacturer.
``Some years ago they eliminated all their company-owned retail stores and, frankly, we were an exception to an already established strategy.''
The 46-year-old executive did acknowledge that RPJ owes Conti General a ``significant'' debt, and there are other companies, as well, owed money by the dealership.
He called the sale of the business a painful decision, ``but I guess I'm accepting it as the ultimate right thing to do.''
The dismantling of RPJ began in earnest last November when it sold a number of stores it operated in the Kansas City market—under the names Parnelli Jones or Dob's Tire Centers—to Burnsville, Minn.-based Team Tires Plus Ltd.
The deal included four outlets in Kansas and three in Missouri. Several other RPJ stores were closed pending their potential sale.
Mr. O'Neil said at the time that his company had decided to leave the Midwest in order to focus on its core business in California.
At the beginning of December, RPJ had 43 retail stores and four wholesale locations operating in the Golden State. It still has a profitable business in Oklahoma that sells drag tires to racers and drag tire distributors. That venture likely will also be sold.
Since last month RPJ has closed five stores which Mr. O'Neil said had ``no potential suitors in sight.'' At least one of the dealerships negotiating to purchase some stores also is considering acquiring part of the firm's wholesale business.
As many as possible of RPJ's employees will be offered jobs with the new buyers, he added.
It's not as if the company hasn't tried to restructure itself over the last few years. In January 1997 it sold some stores in Houston—an attempt ``to exit a market where we felt we were not competing effectively and had losing operations,'' he said. The previous year it had peddled some stores in Las Vegas, again explaining it was refocusing its time and investment predominantly in the Southern California market.
A lack of funds kept RPJ from doing much in the way of extensive refurbishments to its locations in the last three years, and the company added only one new store during that period.
The company had begun a needed upgrade of its computer systems, but was ``struggling to finance the proper upgrade and the proper staffing to implement it,'' Mr. O'Neil said.
At most times, he admitted, about 30 percent of RPJ's stores were not profitable, although in 1996 the company's revenues hit a three-year peak of about $84 million. Last year, as it began to sell off operations, sales sank to approximately $68 million.
The firm's 1996 results, while a ``significant improvement over 1995,'' were nonetheless ``not acceptable,'' he said.
``Last year at this time, we presented to our board a five-year plan. But the board's focus was on a one-year turnaround plan, not a desire to sign on for five more years.''
RPJ also was a victim of the extremely competitive Southern California market, which stymied its ability to fund much-needed growth.
``It's more costly to do business here,'' Mr. O'Neil stated. ``The aggressive, competitive forces have led to the lowering of margins. We're selling tires cheaper in Southern California now than in 1994. In the short term I don't see that changing.
``All that said, there's still plenty of opportunity to make money in the business out here.''
In some ways, the company has simply been treading water since November 1993, when Parnelli Jones Inc. merged its operations with Dob's Tire and Auto Centers and became an industry heavyweight, then racking up total annual sales in excess of $80 million through 94 stores in six states.
In light of current events, Mr. O'Neil's assessment of the merger is that it failed.
``My feeling is that when the companies merged, they ultimately were not structurally established to be successful.
``They probably were not capitalized to the degree that was required. They had certain locations that were sub-standard, and at the same time the business plan didn't address selling, closing or restructuring those pieces of the company.
``So it's much more a recognition that the company had to go through some difficult restructuring in order to be poised to be successful.''
Even though RPJ won't survive, Mr. O'Neil—who joined the firm in 1994 as its vice president of wholesale—is ``very hopeful'' about what will emerge from the ashes.
If the new dealership he expects to run succeeds in purchasing some of RPJ's stores, he's confident it will be ``much stronger and leaner'' than its predecessor.
``We've done pro formas on a core company that I feel extremely confident will be profitable and will grow,'' Mr. O'Neil said.