Troy, Mich. (April 9, 2002) — Penske Auto Centers L.L.C. and Kmart Corp. were scheduled to appear in U.S. Bankruptcy Court in Chicago again this afternoon to discuss the permanent closing of the largest independent tire dealership in the nation.
At stake are 563 stores that Penske Auto Centers has at Kmart locations across the nation and Troy-based Kmart's effort to keep its business intact as much as possible as it tries to emerge from Chapter 11 bankruptcy.
Penske Auto Centers closed all its stores last Saturday, but Kmart obtained a temporary restraining order from the court preventing the closings. Despite that order, Penske stores remained closed. Executives and public-relations officials at Penske Auto Centers did not return phone calls yesterday or today.
Employees at Penske stores at Tel-Twelve Mall in Southfield and 100 E. Maple Road in Troy answered the phone today but said the stores were closed. Both stores declined to provide further information. On Monday, employees at both stores said they were closed for inventory.
Penske Auto Centers has 564 stores nationwide and at least 18 in metro Detroit. The company has only one store that isn't on a Kmart property.
Penske's announcement hurts Kmart's image and could hurt its effort to hold onto other important vendors, said Burt Flickinger, managing director of Reach Marketing in Westport, Conn.
“Approval from the bankruptcy judge could potentially open the door for Martha Stewart and other licensees,” he said.
If Penske leaves, Mr. Flickinger said, Kmart could pursue relationships with other tire dealers and automotive-service companies.
Penske Auto Centers said in a news release that it has invested more than $40 million into the auto centers since Kmart filed for bankruptcy protection Jan. 22.
Also, according to Penske Auto Centers, Kmart COO Julian Day said the discount retailer's research showed that the Penske service centers add no value to Kmart's core business and that Kmart is unwilling to provide additional support for the chain.
Jack Ferry, Kmart´s director of financial and corporate communications, declined to comment on Penske Auto Centers' claims but said losing Penske would be a blow for the discount retailer.
“It doesn't look good for customers for one section of the store to be closed down,” Mr. Ferry said.
Troy-based Penske Auto Centers is a subsidiary of Detroit-based Penske Corp. In 1995, Roger Penske, racing legend and Penske Corp. founder and chairman, paid Kmart $112 million for majority ownership of the automotive service chain.
Kmart, the only other owner, retains a 22 percent stake.
According to Tire Business, Penske Auto Centers' reported 2000 sales at $298 million.
In 1995, Penske Auto Centers had 860 locations. The chain, which has closed locations each year, shuttered 63 stores March 8, the same day Kmart announced plans to close 283 stores across the country.
The financial woes of Penske Auto Centers shows that small, independent dealers can survive in the face of competition from regional and nationwide chains, said Ross Kogel, executive vice president of the Reston, Va.-based Tire Association of North America.
“The tire industry is an incredibly competitive market,” Mr. Kogel said. “I am never surprised when service-based companies win out over price-based companies, because it's a market strategy that wins.”