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Scheib

Back in the days when Earl Scheib was the king of auto paint, Johnny Carson parodied Scheib’s cheap assembly-line methods by dunking a mop in a bucket of paint and then slopping it on a car. Today, six years after Scheib’s death, Earl Scheib Inc. is revamping its slapdash image, closing inner-city shops, upgrading suburban locations, offering incentives to management, modernizing its equipment, and finally turning a profit for the first time in years.

“We even have to pay taxes,” quipped Chief Operating Officer Chris Bement.

Directing the turnaround is former Thrifty Corp. President Daniel Seigel, who took the helm as chief executive in 1994. Seigel quickly hired two other Thrifty Corp. executives: Bement and John Branch, who is now Scheib’s vice president and chief financial officer.

The former Thrifty team set to work restructuring Scheib’s down-at-the-heels operations. In 1995 they closed 84 unprofitable shops in the East and Midwest, representing 34 percent of the company’s total chain. The following year they renovated 137 of the company’s remaining shops, creating new signage, new graphics, and installing modern painting equipment.

Expenses related to those moves kept the company in the red, on an operating basis. But the changes started producing their intended results in 1997, with the company posting an operating income for the first time in five years, of $97,000. Its net income that year was $1.1 million.

While the results for the full fiscal year, which ended April 30, will not be released until next month, Seigel said: “We’re expecting over 1,000 percent improvement in operating income from fiscal year 1997, and I wish it were more.”

For the nine months ended Jan. 31, Scheib’s operating income had already hit $941,000, only $29,000 shy of Seigel’s stated “1,000 percent improvement” mark of $970,000. (The company had an operating loss of $502,000 in the comparable nine-month period of fiscal 1997.)

Scheib’s stock has improved as well, but not as steadily. Soon after Seigel joined the company in 1994, the company’s stock doubled from $4 to $8, but it has fluctuated between $5 and $10 per share since then. As of last week, it was trading at about $7.75 a share.

There are, however, a few bullish signs. For one, the company’s largest shareholder, the well-regarded Gabelli Funds Inc., has been increasing its stake lately. It now owns a 30 percent stake, up from 22 percent a year ago. Seigel has also increased his holdings, now owning about 19 percent of the stock, up from 11 percent a year ago. Don Scheib, the company’s chairman and son of its founder, along with his two siblings, owns about 20 percent of the company, just a bit less than a year ago. The Scheibs have sold about 140,000 shares over the past 18 months, according to Bloomberg News. Those shares were sold for tax purposes, Seigel said.

According to both officials at Earl Scheib Inc. and its largest competitor, Maaco Enterprises Inc., there is strengthening demand for their services. Maaco, a privately held company, long ago usurped the national auto paint throne from Scheib and now has more than 500 franchise outlets in the United States, compared with Scheib’s 164 company-owned shops. Maaco President Mark Martino said the increase in the number of cars on the road has driven his company’s growth.

“Also,” he said, “the average age of cars has crept up pretty consistently in the last 20 years, creating a bigger opportunity for all of us (in the auto-painting, body-work industry).”

Scheib’s strategy, in fact, is similar to the one Maaco has been following with much success since its inception. Ironically, Maaco was originally conceived as an imitator of Earl Scheib’s lucrative business. Scheib innovated the assembly-line method of car painting in the late 1930s, and by 1972, the year Maaco was founded, Scheib was king. Whereas Scheib had located primarily in metropolitan areas, Maaco founder Anthony Martino (Mark Martino’s father and also the co-founder of Aamco), located in the suburbs, priced his service higher than Scheib’s, and courted a market with more discretionary income.

In recent years Scheib, under its new management, has been moving to imitate Maaco focusing on suburban locations, upping its price structure, improving its paints, and offering costlier options, such as protective coatings. Scheib has also instituted a monetary incentive for store managers to increase the number of cars painted, and a disincentive that applies whenever a customer returns dissatisfied.

Scheib has also been expanding since 1997, when it opened five new shops. In fiscal 1998, it opened another 12 new shops and closed seven underperforming shops. Another 18 new stores are slated to open in the current fiscal year.

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