Saturday, February 22, 2020
Feb. 22, 2020

Linkedin Pinterest

Les Schwab’s pending sale shakes up an Oregon institution

By
Published:
3 Photos
Les Schwab Tires  near Highway 99 in Vancouver bustles with customers, most of which are looking for tire chains and snow tires because of an impending winter storm heading in to the area on December 17, 2008. (The Columbian files)
Les Schwab Tires near Highway 99 in Vancouver bustles with customers, most of which are looking for tire chains and snow tires because of an impending winter storm heading in to the area on December 17, 2008. (The Columbian files) Photo Gallery

PORTLAND — It’s a cherished tradition for managers at Les Schwab Tire Centers. Every five years the company treats them to a business trip to a luxury resort in Hawaii, where managers go over the company’s results, outlook and strategic plans — while spouses spend the day enjoying the sun and surf.

The trip is a reward to company managers accustomed to 50 and 60 hour weeks, and a succession of relocations around the Northwest as Schwab Tire transferred them from store to store among small towns from Prineville to Pocatello.

Many of the managers had been with the company for decades and could remember when Les Schwab himself greeted them at these meetings. At the most recent Hawaii meeting, a year ago this month, managers looked around and were shocked to see that the company’s current owners were young enough to be their children — or their grandchildren.

So perhaps they shouldn’t have been surprised by last month’s news that Schwab Tire is for sale. And yet it was a shock when the company abruptly summoned managers to a video conference call — two nights before Christmas — and delivered the news while allowing no opportunity for questions.

In a public statement the next day, Schwab Tire cited the difficulties of running a business in its fifth generation of family ownership, which now includes Les Schwab’s great-great grandchildren. The company said it believes its best chance to grow and thrive, as it approaches $2 billion in annual sales, rests with a deep-pocketed new owner.

“We believe a new owner — one with deep experience and resources — will carry forward the Les Schwab vision far into the future,” Schwab’s descendants said in a written statement. They said the expect to take several months to find a buyer.

There is no guarantee, though, that a new owner’s vision will align with Les Schwab’s. The tire baron, who died in 2007 at age 89, had some unconventional notions about how to run a business — ideas he admitted were expensive but that he insisted helped make his business distinctive and kept it close it the company’s roots in the high-desert town of Prineville.

A new owner might not see the business the same way. Or new owners might see opportunities for changes that might boost profits but undermine the core business. Oregon has endured a spate of such misfires following the sales of Tektronix, G.I. Joe’s and several other of the state’s best-known businesses.

Prineville and nearby Bend — where Schwab tire moved its headquarters the year after its founder died — are no longer single-industry towns reliant on the fading timber market. Data centers, breweries, tourism and small industries have made them more economically durable than they have been in decades.

And yet there’s only one Les Schwab — only one company on that scale anywhere in the region — and any change at the tire company could have broad ripple effects.

“I look at it as: Who buys it?” said Prineville city manager Steve Forrester, who went to elementary school with one of Schwab’s granddaughters and watched many of their classmates move into lucrative careers with the company.

Perhaps, Forrester said, a new owner would see Central Oregon as core to what makes the company distinctive and retain Schwab’s Prineville distribution center and the corporate office. Or maybe a new owner would see the company as a cash cow, a business to mine for profits with little regard for its heritage.

“What’s at risk here? It could be that corporate headquarters,” Forrester said. “That would be tough for everybody.”

Deep Oregon roots

The pending sale injects uncertainty into an Oregon business that has thrived on stability for nearly seven decades and harks back across the generations.

Born in Bend in 1917, Les Schwab went to school in a boxcar cut with holes at the Brooks Scanlon logging camp. He had three newspaper delivery routes as a child.

In 1952, at age 34, Schwab sold his home and borrowed from his brother-in-law and from his life insurance policy to buy an OK Rubber Welders tire shop in Prineville. He had never changed a tire in his life, Schwab later recalled in his memoir.

The business grew slowly but steadily as Schwab applied a set of fashioned principles, many of which remain in place today. The company returns half the profits from each store to its employees and only hired managers from within the company.

Schwab believed those practices gave employees a feeling that they were invested in a store’s success and helped establish the tire chain’s reputation for outstanding customer service.

Other ideas proved less durable. For decades Schwab, himself a cattle rancher, gave away beef with tire purchases during the slow winter months. He was once among the most famous faces in the Northwest, pitching the free beef in his signature cowboy hat, a tradition that ended in 2011.

And it was decades before Schwab Tire had a female store manager. Schwab himself was unapologetically “old fashioned” in his approach to family matters, praising his granddaughter in his memoir for giving up her career in favor of her husband’s.

“I’ve always told her that the best thing she could do is to help her husband be successful,” he wrote.

In 2010, two years after Schwab’s death, his company settled a six-year fight with the federal government by paying a $2 million settlement and agreeing to train all its managers on gender equity.

Building a brand

Schwab kept the company’s headquarters in Prineville all his life, well after the company had topped $1 billion in sales. It operated out of low-slung, spartan offices along the main highway into town.

It was a decision that didn’t make strict financial sense, Schwab admitted, but conformed to his notion of finding and developing loyal and hard-working employees. Schwab Tire never took on debt and still doesn’t, according to the company, growing by investing profits back into the business.

Even today the company runs all its tires through a central distribution center in Prineville, which looks increasingly remote as Schwab Tire expands as far south as Bakersfield, California and as far east as Denver, Colorado.

Schwab Tire encourages tire jockeys to come sprinting out of the service bay when new customers arrive. It fixes flats for free and allows customers to return the snow chains they bought in November if they haven’t used them by spring.

These are the kinds of practices that helped keep Schwab Tire a steadily growing company through decades of economic upheavals, retail shakeups, corporate raiders and leveraged buyouts. Schwab himself acknowledged meeting with private equity firms, mostly out of curiosity, but vowed he would never sell — and his descendants wouldn’t, either.

“The company isn’t for sale,” Schwab told The Oregonian in 1997. “It will go on, bigger and better than ever, and continue to provide opportunities for young people to be successful. All the stock will remain in our family.”

His descendants share ownership of the business and, separately, own much of the real estate upon which Schwab Tire’s stores operate, according to the company. The stores pay rent to the family members, an arrangement that apparently provided a steady revenue stream to the family even as their largest assets were tied up in the business.

Both of Schwab’s children died before he did. Though many of his heirs serve on Schwab’s board none of his four grandchildren held executive positions with the company and none live in Oregon.

The Columbian is becoming a rare example of a news organization with local, family ownership. Subscribe today to support local journalism and help us to build a stronger community.

It’s unclear why the family decided to sell at this moment. Schwab’s widow, Dorothy Schwab, died in 2016 at age 98. Her obituary listed 17 direct descendants.

Schwab Tire declined a request to make executives or family members available to discuss their plans. On Christmas Eve, Schwab Tire said it expects to take “several months” to find a buyer. It has hired Goldman Sachs to broker the deal.

Schwab Tire has been tight lipped about the family’s thinking, but in a statement to The Oregonian/OregonLive the company said it believes the practice of promoting from within to develop new leadership will be attractive to new owners.

And the company said it anticipates the new owners will retain the Prineville warehouse.

“While we may decide to add additional distribution centers as the company continues to grow, the Prineville distribution center is ideally located, given our high density of stores in the Pacific Northwest,” the company said.

Schwab Tire said it hopes a new owner will seek “more aggressive” growth and expansion of Schwab-owned brands.

Corporate sales, mixed results

Many of Oregon’s best-known companies have sold over the past 15 years as the number of large, corporate headquarters in the state has precipitously declined. Sometimes the new owners left the core of the business intact, investing to grow it. Other times they didn’t seem to know what they were buying, or didn’t care.

The conglomerate that bought Tektronix, godfather to the Silicon Forest, had little understanding of the Washington County company’s highly technical business. As its sales declined and technology withered, Oregon’s signature technology company spent years cycling through managers and laying off workers after its 2007 sale.

Outdoor retailer G.I. Joe’s lasted for 57 years, but survived just two years after its 2007 sale to a private equity firm that loaded the 1,600-employee company up with debt — then shuttered all 31 stores in Oregon, Washington and Idaho when the company couldn’t cover those loans.

Many other companies that sold continued operating in Oregon, often with only modest reductions. Precision Castparts, Mentor Graphics and Vigor Industrial, among others, have seen little if any visible decline under new owners.

And while economists worry the lack of large companies based in Oregon may leave the state vulnerable in the next downturn, during this long upcycle the string of deals for Oregon companies has done little to derail a labor market enjoying unprecedented strength.

The fate of Schwab Tire likely depends in large measure on the priorities of Schwab’s family, according to Dave Garten, who teaches strategy, alliances and acquisitions at Portland State University.

If the family simply wants to cash out, or some family members have specific financial needs, they could be looking for the highest bidder.

Outwardly, though, Garten said the business appears in good shape. That could give the family leverage to dictate some terms of the deal without sacrificing much on price. For example, they could insist the new owners retain the Bend headquarters and a distribution site in Prineville.

That’s something a prospective owner might go along with if the company can demonstrate it has a formula that’s working.

“My sense is Les Schwab is a strong brand and a strong company,” he said. “If that’s the case then there’s a lot of value there and they can call the shots.”

Schwab Tire could be of interest to a private equity firm looking to add a steadily growing, cash-generating business to its portfolio. A tire manufacturer might want an outlet for its products, or another auto supply company might be looking to expand geographically.

Such buyers might leave the business pretty much as it is, according to Garten, perhaps consolidating back-office functions while relying on Schwab Tire’s executive management to retain the company’s operating structure and customer relationship.

But if Schwab is indeed a steadily growing, profitable business, that could be attractive to a leveraged buyout firm who might see an opportunity to change the company’s capital structure. Schwab Tire has never borrowed in the past, but debt could pay for an aggressive growth plan — or finance immediate dividends for the new owners.

“Too much debt would worry me,” Garten said.

Nothing Schwab Tire has done previously indicates the family is desperate for money, though. And Garten said the fact that so little has changed over the years indicates they’ll want to find a buyer that shares their values and goals.

“It’s hard for me to imagine it’s all about money here,” Garten said. “There’s got to be more humanity here. Imagine it’s your grandfather.”

Loading...