Eastern Tire ESOP extends employee care tradition

ROCKLAND, Maine — Eastern Tire & Auto Service Inc. values its employees so much that it has created a number of unusual benefits to reward its staff, including recently transitioning to an Employee Stock Ownership Plan (ESOP).

President Alvin Chase Jr. said he opted to turn ownership of the 77-year-old tire dealership into an ESOP rather than sell the business to another entity.

Employees who have worked at the business for at least three years earn ownership shares in the business and thus the profits for their retirement.

"We have a long track record of making sure that our employees are well taken care of because they take such good care of us," Chase told Tire Business.

"This is just a natural extension of what we have always done, which is if you contribute to the success, you share in the riches of the success. So this is just an extension of the culture that we've had for 30 years."

That culture includes providing its 16 employees higher-than-average wages, no weekend hours, profit-sharing — and essentially free electricity for their homes via the dealership's recently built solar array.

Founded in 1946 and owned by the Chase family for about 45 years, the independent dealership provides auto repair and tire service in a single location in midcoast Maine.

"For 77 years, Eastern Tire & Auto Service has played a significant role in the lives of our employees, generations of customers and our community; my brother, our families and I are very proud of what the business has accomplished to date," Chase said.

"This transfer of stewardship is a natural progression. Because of this transaction, we know that the company will prosper and thrive for future generations, while continuing its culture of commitment."

Brothers Alvin and Aaron Chase are the third generation of their family to run the dealership, which was bought by their father, uncle and grandfather in 1978 after their grandfather had worked for the previous owners for decades.

Alvin Chase recounted that when he was in college, he had no interest in pursuing a career in the family business. But in 1988, after he completed graduate school, his father came down with an illness and asked him to help out at the business. Since he had a six-month gap before he planned to start a career, he came home to work in the dealership.

Then, he said, his father, Alvin Sr., had a "miraculous" recovery, worked a few more years and then retired about 2000. Alvin Jr. stayed on and took over the business.

"So my six months turned into 33 years. Of course they all retired, and they left me here alone," the younger Chase quipped, but added, "I'm not really alone. My younger brother is with me, and my son is here with us."

His brother Aaron is vice president and his son Ian works in the shop and at the front desk. Neither expressed an interest in taking over Alvin's duties as president, he said.

So Chase started making succession plans, noting that the company had received queries from potential buyers, such as regional chains and private equity firms.

"I was not comfortable that anybody else would take care of our employees and our community the way we have," he said.

Many of Eastern Tire's employees have been around for years, he said.

"We treat all of them as if they are brothers, sisters, cousins, and it pays off," he said.

"I didn't want to make a decision that would put the management of the company in the hands of somebody that didn't cherish the employees and their relationship to our community as we have for as long as I can remember. ...

"So I was looking for an exit strategy that satisfied everybody's needs, and I just started researching selling a business and succession plans, and I stumbled upon this concept of ESOPs."

A couple of businesses in town had become ESOPs, he said, so last summer he initiated the creation of an ESOP and completed the transaction March 1.

All employees are vested after three years for a share in the business based on payroll. The employee who earns $20 an hour gets half the shares of the employee earning $40 an hour, he explained. Shares are accumulated over time and when employees leave the company, they take the monetary value with them as retirement funds.

Every year the company is appraised, and employee-owners get a percentage of that appraised value, he said.

Assuming the dealership keeps growing, as it has for the past 30 years, "it will dwarf everyone's 401k and IRAs from a retirement point of view," he said.

Chase and his brother also became employee-owners but continue in their same roles. In the future, a board of directors will hire officers for the dealership, he said.

"My plan is to stay seven years in this capacity, so probably at the five-year mark we'll look to bring someone in that I can mentor to perpetuate my role in the company," Chase said.

He said employees are happy with the ESOP.

"It's a natural extension of what we've always done. Because we are a true family business, we embrace all the people that are here like family. We have the same expectations of them and the reward structure is the same."

Eastern Tire hopes the ESOP will attract new employees who want to make a career at the company.

Chase said since ESOP earnings are tied to profits, if employees put effort into their jobs, they are guaranteed to benefit as owners, he said.

"If you're in an ESOP and you're vested after the third year, you're absolutely guaranteed that your ownership has value. I would see it as both a retention and an attraction tool," Chase said.

If owning stock in the business isn't enough incentive to work for Eastern Tire, how about essentially free electricity for your home?

Maine has notoriously high electricity rates — as much as $300 a month for a household of four — and rates have been increasing for the past few years, Chase said.

So the dealership decided a couple of years ago to build solar arrays on a 20-acre lot the family owns in nearby Warren, Maine. The solar panels not only generate enough electricity credits for the three buildings at the dealership but also for all the employees' houses. Employees receive credit for a fixed monthly amount of kilowatt hours and only pay the service delivery fee of about $14, he said.

"They are more excited about seeing their CMP (Central Maine Power) bill compensated than with a cash equivalent in the form of a check. It's all perception, I suppose," Chase said.

"They earned it. I wouldn't have had the $300,000 to spend (on the solar arrays) if they hadn't worked so hard to accumulate it."

With rising electricity rates, Chase predicted the solar arrays would pay for themselves in about four years.

The solar panels are one aspect of the dealership's environmentally friendly efforts.

"In a dirty business, we try to be as environmentally friendly as we can," he said, noting that the dealership also recycles its waste oil and uses energy-efficient lighting.

The dealership has been using its waste oil to heat its buildings for about 15 years. "It's double-dipping. One, we generate a huge volume of waste oil. So as opposed to paying someone to take it away, you invest in the infrastructure to burn it. So not only are you recycling, but you're also saving … significant savings every year and we're recycling it. So we can tell that story, as well," Chase said.

The dealership promotes its eco-friendliness on the side of its electric vehicle (EV), which touts "Eastern Tire: doing our part," with an image of the solar panels.

Not only does having the EV provide some good will, it serves as a training tool for the dealership's technicians.

Chase said the dealership has just begun the education process of servicing EVs and hybrid vehicles. So far there are very few such vehicles in his market, but he expects to see more in about three years with the changing demographics of the community.

"It's coming, without question. But I think it's going to be three or four years before I'm forced to or that I'm going to embrace the EV/hybrid repair, but we need to be ready. … You have to stay current now," he said.

He has three techs who are training to service EVs and hybrids, and they get to practice on the company EV.

"It made sense to buy it. We could tell our commitment to the environment story, and we can practice on it, break it, take it apart and put it back together. And when the time comes that you pull in and you need our service with your EV, then you don't have to worry that I've got on-the-job training on your vehicle," he said.

The dealership has seen a huge change in demographics the past two years as about 25% of its client base is new residents. "It has been wonderful for us," Chase said.

With three buildings and seven bays, the dealership has maxed out its footprint at the location, he said, and the business is only open 7:30 a.m. to 4 p.m. weekdays.

"So we constantly had to tweak our client base to deliver service, product and value to a customer that is not as price-conscious. We are as far from the cheapest place in town as you can get. So because of that, and because we have been able to nurture that type of client base for the last 20 years, the people that move to our community in the last two or three years are exactly the client base (we want). I could not have hand-picked them to be better," he said.

Chase said people have moved to his town from other states and regions, and they don't seem to mind paying a little extra for quality services.

"And that's what we do. We deliver the absolute highest level of service that we can muster, and we believe it's a value. Our customers believe it's a value. We are not price-sensitive, and our customers are not," he said.

He described his customer base as upper middle class, although he said the community as a whole is an evenly mixed bag as it has been transforming from a very industrial fishing community to more of a tourist attraction with high-end restaurants and art venues.

With the influx of new residents, potential new employees may come to town and not be able to afford the high rents, he said, noting that there is an affordable-housing crisis in the state.

Even though his employees make higher-than-average wages for this industry, they still may struggle paying $1,400 to $1,500 a month for a low-quality apartment, Chase said.

So to help out his employees who may have a hard time paying rent, he plans to build two or three small one- or two-bedroom houses on the 20-acre property that has the solar arrays.

He plans to let employees rent at cost, for about $800 or $900 a month, with the expectation that they would be able to save enough money to buy their own home later.

"To be able to offer housing, I think, will make us that much more attractive to somebody who wants to come work for us, but comes to town and says, 'I can't work for $60,000 a year for you because the rent in Rockland is $1,700 and that just doesn't make any sense.'

"We can provide the right kind of housing for the right dollar figure and attract the right kind of employees. So long as we're making money here at the company, with their effort, I don't need to make money on the rent," Chase said.

He joked at how this housing idea is percolating just as the dust has settled on the ESOP transition.

"I need something to do all the time, and I like to think a little bit crazy and a little bit outside the box. But I think it's one of those things that will, again, benefit our employees and consequently benefit the entire company, which now is owned by them.

"There's a vested interest for those guys that don't need housing to have the best employees they can get on the team, and if it means them owning a tiny house for someone to live in — they've all bought into it as a concept," he said.

The impetus for the housing project was that he currently has two employees who don't have comfortable housing.

"What can we do to get them in a better place to be more comfortable so they don't have to worry about where they're going to live, and how they're going to come up with what everybody here thinks is a ridiculous amount of money (for rent)?" he said.

The idea is just an extension of Chase's business philosophy: "We take care of our employees like they're family and we take care of this community. ...

"We're in it for the long haul. And we just continually take care of and reinvest in all those things that make you successful and those things are your customers and your help.

"It's not rocket science. If you're honest, and you're truthful, and you have a little bit of empathy, and you have a long-term outlook, the people standing in line will reward you for it."