Big O Tires, Inc. History

Address:

11755 E. Peakview Ave., #A
Englewood, Colorado 80111
U.S.A.

Telephone: (303) 790-2800
Fax: (313) 782-3333

Public Company
Incorporated: 1962
Employees: 242
Sales: $142.1 million (1995)
Stock Exchanges: NASDAQ
SICs: 6794 Patent Owners and Lessors; 5014 Tires and Tubes; 5013 Motor Vehicle Supplies and New Parts

Company Perspectives:

Exceed your customers' expectations, and they will have no reason to shop anywhere else. Providing customer satisfaction boils down to fundamentals so simple that they never occur to some companies: select the right site, choose the right franchisee, provide the right training, and give the right kinds of ongoing support. These principles have been driving objectives at Big O Tires since nine founders created the company in 1962. With our concept, we believe we can deliver a superior product and superior service, thus giving superior customer satisfaction and achieving superior business success for our franchisees.

Company History:

Big O Tires, Inc. is the largest and fastest-growing independent tire and auto service operation in North America. In 1996 Big O became a subsidiary of TBC Corporation--one of the nation's largest marketers of automotive replacement products. Marketed through their more than 400 existing franchised and company-owned retail stores in 18 western and midwestern states as well as Canada, Big O offers a complete line of their branded tires and related products for passenger, light truck, and RV vehicles. Company retail stores provide brake, alignment, shock/strut work, lubrication, oil changes, and front-end repair services in addition to tires. Big O owns and operates three distribution centers located in Boise, Idaho; New Albany, Indiana; and Henderson, Nevada. Their tires are manufactured by Kelly-Springfield, but their dealers also offer brand names such as B.F. Goodrich, General, Dunlop, Goodyear, Michelin, Uniroyal, and Yokohama. Big O was ranked by consumers as "Best Overall Replacement Tire in Customer Satisfaction for Passenger Vehicles" by J.D. Power and Associates' 1995 Replacement Tire Study (an international marketing information firm specializing in measuring and analyzing consumer opinion and behavior). Entrepreneur Magazine ranked Big O number 82 in their 1997 Annual Franchise 500 study.

Promoting Travel in the 1950s

The prosperity of the 1950s brought growth to all segments of the American economy including the automobile industry, which in turn effected a positive impact on the tire industry. Augmented by automobile advertising, the 1956 Interstate Highway Act promoted more long-distance travel, while motoring for leisure became more appealing, and the growth of suburbs meant driving farther to work. Tire replacement sales rose as a natural consequence of the travel boom, increasing sales from 45 million tires sold in 1952 to 78 million sold within the next decade. Increased sales resulted in increased competition, favoring major manufacturers' companies over those of independent dealers. From one of the early successful retail chains--OK Rubber Welders merged the new Big O Tires company. OK Rubber Welders was founded in the 1930s by Nebraskan Harold V. James, an inventor who created an electric machine designed to repair tires without the "bump" that had always accompanied tire repairs in the past. His franchise organization maintained an advantage due to the technical superiority of his patented machine over the techniques of his competitors. OK dealers were linked merely by James's machine and the OK brand name, but as they became more focused they organized a system of dealer interaction, whereby they later tested newfound information. The OK franchisers solidified their ranks and their businesses soon took on a similar appearance and identity. They established a communications network system, or "Committee System" still central to Big O's philosophy today. One of their innovations, the concept of "Outside Merchandising," was born--dealers had noticed that the more tires they moved outside of their small garages, the more they sold. Then Harold James had a new idea. Since rubber was being rationed during World War II he reasoned that in addition to repairing punctured tires he would find a way to salvage treadless casings, and soon developed the "rubber welder," a retreading machine that kept more cars on the roads while saving on precious rubber--and making his company the largest tread rubber account in the nation. They added their own brand of new tires but, unfortunately, the company officials did not reduce prices as competitors gained significant business and technological strides, refusing to upgrade with the times, which ended in internal company disputes that caused a split into dissenting factions--the more progressive group, which included one of the founder's sons, Milliard James, broke off from OK Rubber Welders in 1962 and regrouped as Big O Tires (Salvaging the "O" from OK Rubber).

A New Beginning in the 1960s

Big O began as a simple buying cooperative, with dealers pooling their inventories to secure volume pricing. Millard James became president of the co-op, but within a year the company was incorporated in the state of Colorado, and Norm Affleck became the new president. Affleck had the idea that customers were waiting too long to have their tires mounted. So he introduced the idea of the "speed lane" to their retailing industry, creating a drive-through area where well-trained technicians worked together to move cars through at a record pace. The idea proved extremely profitable with dealers making up to $10,000 in a single day. The company then decided to offer a free replacement warranty on their top-of-the-line private brand tires, in anticipation of an advertising edge over other retailers.

Growth was minimal until 1968 when a dealer incentive program was instituted, giving leading dealers in each geographical zone a percentage of sales, while encouraging new dealers to join the system. By the early 1970s Big O grew to approximately 200 stores and the company offered their first Big O brand tire in 1974. Made by Uniroyal, the tires were an immediate success, and the company went on to produce an entire line of tires through a variety of manufacturers whose products were continued, or not, based upon customer satisfaction.

The 1980s Marketplace Required New Leadership

During the volatile mid-1980s the tire industry underwent major repositioning with competitors Uniroyal and Goodrich merging, General Tire's acquisition by Continental, Firestone's acquisition by Bridgestone Armstrong, then acquired by Pirelli, and then Uniroyal-Goodrich acquired by Michelin. By 1984 Big O recognized the need to change with the times and turned the company leadership position over to Steven P. Cloward, who had begun his career as a territorial sales representative for Michelin based in northern California. Big O had been one of his accounts and he soon became assistant to the Area Director of Big O Tires of Northern California. Cloward also accepted the position as president of William B. Thomas Enterprises, the largest of the area tire distributors, and shortly thereafter he orchestrated the merging of "his" two companies. Experienced management was added after Big O's going public, in preparation for rapid growth. In order to implement more efficient distribution, eleven warehouses were consolidated into five, and an aggressive franchisee recruitment program was launched. By this time 40 Canadian stores operated under the Big O banner, and by 1994 total stores numbered over 400.

A commitment to training induced the formation of "Staker University," a Big O training school located in Mesa, Arizona, with courses structured around customer-related programs and business approaches developed by Big O dealers. They became a franchisee training school--recognized as an industry leader in training. Big O also decided to provide a staff of regional trainers traveling to individual stores, giving sessions on everything from accounting to sales techniques, brake work, and undercar care. According to company records, Cloward reasoned that "The better job you do at conveying your genuine interest in a customer, the more customer inventory base you're going to build, the more repeat business you're going to get, the more positive word of mouth--the net result is a more successful business. The times may change, but the basic needs to satisfy customers will not."

Deflated Price Margins of the 1990s

Increased competition and slimmer margins led to Big O's emphasis on promoting professionalism in every aspect of their business. Relentless price-slashing by chains like Discount Tire Co. and Wal-Mart forced Big O to lower its prices in an effort to lure customers away from competitors. Their "Cost-U-Less" program contributed to increased revenues of $122.9 million for 1993, up approximately $4.7 million over the previous year. The company announced in 1992 that it was switching to U.S.-produced tires for all its stores because of difficulty in receiving adequate supplies of tires from companies such as Kumho and Hankook of South Korea. In 1995, lagging performance prompted shareholders of Big O stock to approve a resolution requiring Big O to hire an investment banker to investigate a possible sale of the company. A dissident investor, Kenneth W. Pavia, owning 9.6 percent of Big O stock, forced Big O management into a proxy fight over his proposal of either hiring an investment banker, or considering a merger or sale. He complained that in addition to an unacceptable return on assets, the Big O board was riven with conflicts of interest. Following several years of problems with one of its manufacturers, the company had terminated its supply contract with Ohio-based General Tire, Inc. (a subsidiary of Germany's Continental AG, the world's fourth-largest tire maker), which had contributed to staggering tire-warranty costs--$4.6 million in 1993 alone--due to manufacturing defects. General Tire continued to provide and sell tires to Tire Marketers Associates, a division of Big O that supplies tires to distributors predominately based in the eastern United States, as reported in Rubber World. A previous private-label supplier had racked up $3.9 million in net warranty expenses five years earlier. The problems mounted. According to Elliot Blair Smith of the Knight-Ridder/Tribune Business News, "Investment cheats at the now-defunct Haas Securities exploited the prior scenario to manipulate Big O's laggardly stock price throughout the late 1980s, leading to three criminal convictions in 1989 against brokerage principals. Big O management was an unwitting victim of the scheme."

Pavia lobbied company shareholders and gained a 46 percent vote in favor of the initiative to hire an outside investment adviser, and PaineWebber Inc. was chosen for the job. Big O management advised shareholders that their new business strategy was a viable one, while they continued to pursue acquisition opportunities. Anaheim, California-based AKH Co. Inc., a family-owned discount tire retailer, stepped forward to discuss a possible merger. Big O was then valued at $15.875 a share, with a company purchase price beginning at $52 million. According to Smith of Knight-Ridder/Tribune Business News, "President Cloward told industry newspaper Tire News last week that any merger probably would produce the reverse of its intent: a substantial number of store closings considering that our franchises are in close proximity to most of AKH's stores." At a Las Vegas dealers meeting, embittered president and CEO Steven Cloward resigned from his duties, but only to rescind his resignation after dealers rallied to his side. After failed negotiations between the two companies, an insider group headed by Cloward, senior managers, and franchised dealers, bid $61 million or $18.50 per share to acquire the company, hoping to return it to private ownership; however, they were unable to secure financing. This news sent the stock down to $14.25 and the group dropped its bid. The company named Cloward and John E. Siipola, Big O's chairman, to share the new office of chief executive.

By March 1995 the insider group again expressed interest in acquiring Big O, stating that the price needed to be lower than $18.50 per share, offering $53 million, or $16 per share, subject to financing and, "to participation of at least 80 percent of the shares held by the company's employee stock-ownership plan, which holds a 17.2 percent stake in the company; and to participation of dealers operating at least 85 percent of the franchised locations," according to a Wall Street Journal report. News of the rebuffed bid caused Big O stock to fall 12.5 cents to close at $13.75 a share. The insider group made a third offer, raising their bid to $54.7 million, or $16.50 a share. The group disclosed that it had sent proxy materials to their 10 largest shareholders, recommending that the company abolish its shareholder-rights plan and begin a "good faith" consideration of the $16 per share offer. In July 1995, Big O announced that it had signed an agreement, subject to shareholder approval, with BOTI Holdings Inc., headed by Cloward, for $54.7 million. Blaming a time lag in consummating the deal, Big O finally changed its course and merged with TBC Corp., a Memphis, Tennessee marketer and distributor of automotive products, settling on an approximate value of $56 million.

The company continues to focus on customer satisfaction, and statistics provided by Cloward in Franchising World show that 89 percent of customers who purchased Big O tires as replacements said "they 'definitely' or 'probably' would purchase the same brand in the future. This compares to a national loyalty level among all brands of just 37 percent."

Principal Divisions: Tire Marketers Associates.

Big O Tires, Inc. History

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