Big O Tires Inc. franchisee U.S. Autocare L.L.C. has filed for bankruptcy after losing the leases on its nine locations in Michigan.
U.S. Autocare, the Dearborn Heights, Mich.-based investor group founded in 2002 to open Big O outlets in the Detroit area, filed for Chapter 11 bankruptcy protection in October 2005. The company then converted that to a straight Chapter 7 filing March 21 after its landlord, Kmart of Michigan Inc., asked the company to vacate the premises.
U.S. Autocare was operating Big O franchises at Kmart stores that formerly housed Penske Auto Center locations. At one time, the firm had 13 Big O stores open and it's stated goal was to open 18 to 20 in Michigan before expanding into Indiana and Illinois.
The company expanded ``too aggressive, too fast,'' according to Stephen Wilson, a former Penske Corp. executive who served as executive vice president of U.S. Autocare.
``We're disappointed at the turn of events,'' he said. ``Our recovery plan was working, and we were making a profit on an operating basis the past two months.''
U.S. Autocare filed for Chapter 11 in October ``to give us a chance to catch our breaths, regroup and move forward with a better business plan,'' Mr. Wilson added.
The firm was notified March 7 by Kmart that the retailing giant was terminating its leases with U.S. Autocare and given two weeks to vacate the premises. Sears Holding Corp., which owns Kmart, did not return calls seeking comment at Tire Business presstime.
``If we had had a couple of months to look for other locations, we might have had a chance,'' Mr. Wilson said. ``But with no locations, there was no hope to continue. That's when the decision was made to file Chapter 7.''
U.S. Autocare employees spent much of the two weeks securing inventory and equipment.
Whatever was left on the premises after March 21 most likely would be sold or disposed of by a court-appointed receiver, Mr. Wilson said.
The demise of U.S. Autocare leaves 54 employees without jobs.
Mr. Wilson said the lack of additional Big O franchises in Michigan also did not help his company's situation. Since U.S. Autocare opened its first stores in Michigan in 2003, there have been only two other Big O stores opened in the state, in Dearborn and Livonia.
This lack of additional locations hurt the franchisees' ability to leverage advertising and promotional expenses effectively, he said.
Documents filed with the U.S. Bankruptcy Court for the Eastern District of Michigan show U.S. Autocare generated $3.95 million in sales in 2003, $6.07 million in 2004 and $4.34 million for the first 10 months of 2005.
The Chapter 11 filing listed debts of $2.68 million and assets of $1.1 million as of October 2005. Among the largest creditors were: Kmart, $404,177; State of Michigan/Department of Treasury, $124,000; Aramark Corp., $56,853; and Tire Wholesalers Co. Inc., $45,123.
Haitham Masri is listed as president of U.S Autocare in the bankrupcty court filings. The identities of other owners were not disclosed.