Business as Usual?
Safelites CEO says bankruptcy
little effect on daily operations.
by debra Levy
John Barlow must feel like he has a lot in common with Mark Twain these days. He says reports of his deathand that of his companys have been greatly exaggerated. In fact, he says that his companys near death experience will leave it stronger and healthier than it has ever been.
Barlow is president and CEO of Safelite Glass Corporation, the largest auto glass repair and replacement company in the United States. Based in Columbus, Ohio, the company employs more than 6,300 people in 600 plus locations. On June 9, Safelite filed a petition for bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code in U.S. Bankruptcy Court in Delaware. It cited depressed market conditions and an inability to service high debt levels incurred as the result of its merger with Vistar as the main reasons for the filings.
The news garnered mixed reaction throughout the auto glass industry. Safelite was quick to distinguish this Chapter 11 filing as voluntary and unique, while some independent auto glass retailers (who both compete with and subcontract from Safelite) were quick to begin a deathwatch on the company. Others, such as insurance companies and large suppliers, took a wait-and-see attitude, although American Family Insurance has announced it would end its contract as a result of the filing. Nationwide Insurance has announced that it will continue business as usual.
In a sweeping four-hour and 30 minute interview/meeting on the first business day after the filing, Barlow met with me in his Columbus office to detail his view of the events of the past week and the companys plan for the future. In an industry full of rumor and speculation, two things ring clear from our meeting. First, Barlow believes fiercely that his company will emerge from bankruptcy better, stronger and with the best balance sheet it has ever had. He expects to receive confirmation of its reorganization plan on September 12 (his target date). Second, he is truly mystified by the impassioned negative reaction that some in the industry have toward his company.
I havent had that much demand on my time since the announcement, he began in response to my thank-you for his time. Before then we were zipping around the country seeing customers and explaining what options we had since the announcement it has quieted down a bit, he said. It ends the speculating weve got the suppliers quieted down, he chuckled. When they find out, people cut you off, but when they find out what we are really doing, they turn you back onall in the course of an hour.
What they are really doing is a voluntary reorganization under Chapter 11, according to Barlow and vice president Beth Wolszon, who joined us for much of the discussion. This is a short process with protection for creditors and with a strong business plan that allows us to convert debt to equity for the new owners, said Wolszon. This plan was pre-negotiated with most of the owners and major bondholders before it was implemented. It is not a liquidation and we are not going out of business.
The restructuring option is unique, said Barlow. There is no im-pairment anywhere. None of the glass shops will lose a dime. We are paying all the shops. We took the unusual step of going in the first day with motions to make sure they got paid. We are still doing business like we always did. Nothing is different day-to-day.
Market forces have changed significantly since we purchased Vistar, he said. In many cases, you see slow growth or no growth. Units are down, windshield replacements are down and theres no doubt prices have eroded.
Barlow said that the company had profits of $45 million before interest, taxes, depreciation and amortization (EBITA) last year. It currently pays approximately $50 million a year in interest. So it has been eroding and we had to do something. We had a number of options, and this was one of them. Barlow said that in order to service its debt at the current level, the company would need something like an $80 million EBITA, and thats not going to happen.
When asked if he could understand why some might say that the poor market conditions were, in fact, caused by his companys pricing levels, Barlow said that Safelite had negotiated and re-negotiated 22 renewals in the 18 months following the Vistar merger. Some pricing erosion might have occurred, he allowed.
But the facts dont bear this out, commented Wolfson. Our customers are large and have tremendous buying power. They can get very competitive pricing. It would be foolish for us to bring down prices ourselves, she said. The large buyers bring it down.
So was the Vistar acquisition a bad one? Its sort of like buying an SUV, said Wolszon. A few years ago, it was a great decision. When the world changed and gas went over $2 a gallon, it wasnt anymore.
Both were asked about the risk this type of announcement brings. I asked if they didnt worry about a worst case scenarioone in which all suppliers cut them off, subcontractors refused en masse to do their work, employees quit and insurance customers went elsewhere.
This is why we talked to everyone we could ahead of time, said Wolszon. We told them we are going to be here and that we would be much stronger after this short process. We gave them the real facts. This filing is different from a typical bankruptcy.
The people advising us were very professional, she continued. They [the financial advisors] had been through this before and knew what people were likely to say and hear. Wolszon said they had a plan for the associates toocomplete with videos and conference calls right down to the store manager level.
Insurance companies were also included. When we explained what was really happening to our insurance partners, they were very supportive of it, said Barlow. They could see we were going to come out of this much healthier.
Our sales force was prepared, said Wolszon, they had letters and fact sheets and a vendor hotline. We are also providing regular updates on our websites. We had to do everything in a short time frame but we got it done.
Barlow is stunned by the fierce reaction of some independents against the company. Ive tried a number of things to reach out, but nothing seems to work, he mused. Ive heard the rumors that we put in bad glass or do improper installations. Yet if you look at the surveys we do, the checks and balances, the technician ratings and trainingno one is more critical of us than we are of ourselves. We call more than 300,000 customers a year100 per technician. We measure work from our network. We try to dissect it. Why would people criticize an honest effort? Its very frustrating to us.
People think we are putting in tons of windshields a day. Someone asked me in Hawaii [Barlow made a very enlightening presentation at Glass Expo Hawaii 98] what our average per day per installer was. I didnt want to sayI was embarrassed it was as low as it is.
You look at some of the programs around the country, he continued. We dont give away free steaks or anything elseand weve never attacked that either. We try to be good partners.
Safelite clearly is planning for growth beyond September 12. In the end, we all face the challenges of technology, the technology of cars, the ability to deliver faster, better and cost-efficiently to our customers, he said. And we all face the challenges of the future. Just imagine the day when a customer gets on the Internet and says he needs a windshield replaced and asks wholl do it for the lowest price. When it gets down to open pricing where will any of us be? he asks.
Barlow was a most gracious host. He was kind enough to take me to visit the companys two call centers and distribution center, all of which will be included in a detailed article in AGRR magazine. I asked him what message he would most like readers to have.
That this is different than most Chapter 11s. Its positive. Its a good news storythat our company is stable and stability is a good thing.
Debra Levy is the publisher of AGRR magazine.
CARA Collision & Glass Files Under Chapter 7
Safelite isnt the only AGR company visiting the bankruptcy court. After an auspicious start, CARA Collision and Glass has been forced to file for bankruptcy, citing one too many mild winters as the major cause.
CARA was founded by Randy McPherson and Dan Gutt, the former CEO and CFO of ABRA Auto Glass respectively, and grew to a $12 million business within the first 90 days of its existence. CARA expanded to locations in Indiana, Wisconsin, Colorado and Nevada.
The final blow to CARA occurred when Marquette [Michigan] Capital Bank froze the companys accounts, including its credit line, and efforts to raise additional capital failed. CARA is in the final stages of an agreement with the bank to allow its customers to retrieve an undisclosed number of vehicles held in CARA shops.
The company owes about two weeks worth of back pay, insurance claims and other benefits to its employees, and will eventually liquidate to pay its creditors.
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