Carpet Scandal Has Dalton, Ga., Pacing the Floor

Had it not been for the sale of a young girl’s handmade bedspread around 1900, this small town in the verdant Appalachian foothills of northwest Georgia might have spun out its years in an unremarkable way, known mostly as a Civil War battleground bypassed by Gen. Sherman on his “march to the sea.”

Instead, the place boasts a singular claim to fame that has created a hefty pool of slow-talking millionaire entrepreneurs and a cosmopolitan air that belies its early days as a rail shipping point for livestock and grain.

Dalton’s name might not be a household word, but its products are under foot in homes and offices throughout the world. Ever since multi-needle machines made it possible to “tuft” giant rolls of carpeting in the 1940s, this town has been the carpet capital of the United States. It now produces eight out of 10 carpets in the country.

“There are 250 mills in town, wall to wall; everybody’s got lint in their hair,” said one former resident.

Little wonder, then, that a scandal involving a major carpet maker called Collins & Aikman has tongues wagging over coffee and grits at the Holiday Inn and over cold Budweisers after the 18th hole at the country club. To the fiercely independent and competitive carpet industry, the flap puts at least a temporary blot on the business and raises the specter of stepped-up government scrutiny.

Sure, there have been controversies in these parts before, like the time 15 years ago when a carpet maker was caught shorting customers by a few feet on every roll. Or the day it snowed blue from all the dye particles in the air.

This time, though, the shock waves have spread far beyond Dalton--to Wall Street and Santa Monica, home of Wickes Cos. The big Santa Monica conglomerate bought Collins & Aikman in January, just three months before the controversy erupted.

Wickes in April disclosed that the newly acquired unit had routinely submitted phony test results and sold carpeting that did not meet local safety standards. Some carpeting would have to be replaced, the company acknowledged, and the costs of resolving the problem were likely to be material.

In the weeks after the announcement, financial analysts initially put the numbers at as high as $300 million, but the company maintains that its own investigation--a crash course in the arcane details of the carpet business--has put to rest some fears. An estimate, Wickes says, is still several weeks away.

Officials at Collins & Aikman in Dalton aren’t talking. On a recent visit to the Dalton headquarters on Smith Industrial Boulevard, a reporter was politely but firmly turned away from the mahogany-trimmed lobby. All questions were referred to Wickes.

Back in Santa Monica, Wickes Chairman Sanford C. Sigoloff reiterates that “we are optimistic that the exposure to Wickes is less than originally feared.”

In fact, on Wednesday Wickes’ stock got a much-needed boost after an E. F. Hutton analyst put out a “buy” recommendation, contending that the shares are particularly undervalued given the decline since the Collins & Aikman problem was disclosed. The stock climbed 25 cents a share to $4 on volume of 7.7 million shares. It closed Friday at xxxxx.

Laurence C. Baker, a Hutton vice president, now foresees Wickes establishing reserves of something over $100 million to deal with the problem in “one flash of any eye.” The writeoff should have “absolutely no lasting effect,” he added.

Attention Unwelcome

For Dalton, a town that a few years ago was immortalized in a Johnny Carson TV monologue as the divorce capital of America, the extra attention hasn’t been especially welcome.

“I think it is going to create . . . more tension,” said Donald W. Kuhn, president of WestPoint Pepperell’s carpet and rug division in Dalton and chairman of the industry’s biggest trade group, the Carpet & Rug Institute.

“We spend an awful lot of money to make sure our products are safe, and we work closely with the government to establish tests.” But Kuhn acknowledged that “there’s always a possibility” of more government intervention when something like this happens.

“It has made everyone more conscious and more careful (about testing procedures),” said Ronald E. VanGelderen, president of the trade institute.

With about 500 workers, the Collins & Aikman floor coverings division in Dalton is the area’s 10th-largest manufacturing employer. Its sales of about $100 million a year represent about 10% of its parent company’s overall sales.

Around Dalton, the company has a reputation for quality, and the disclosure of phony test results came as a shock to many. Competitors, however, are trying to distance themselves, saying such practices by Collins & Aikman “cannot be condoned.”

“I know what our position is; I know how we feel about making products and working with . . . specifications,” said John Shaheen, president of World Carpets, the area’s second-largest mill. “We don’t want to make products that don’t pass.”

The troubles at Collins & Aikman came to light in April after some school officials in Florida blew the whistle when they found that some new carpeting did not meet specifications for smoke density. (That test measures how much time a person would have to escape from a room before the smoke became too thick.)

After its own tests corroborated the findings, Collins & Aikman reported the trouble to Wickes. Indications were that perhaps $360 million worth of commercial carpeting sold over the last decade with polyvinyl chloride backing might not meet certain local fire and smoke specifications.

Later, an even more astonishing disclosure was made: that Collins & Aikman employees had routinely submitted fraudulent safety test results to customers, including the federal government, schools and hospitals. Wickes fired four employees, including a couple of managers, and suspended the division’s president, who had arrived just a year before.

The four employees are reluctant to discuss their situations on the record. One said only that he hopes to put the event behind him as a “bad, bad experience,” and another has told friends that he intends to hire a lawyer--just in case.

For Wickes, based in far-away Santa Monica, this all came as unwanted fallout from its otherwise highly praised, $1.16-billion acquisition in January of Collins & Aikman Corp., the New York-based textile company that owns the Dalton unit.

Wickes reported the trouble to auditor Arthur Andersen & Co., which said it would qualify its opinion of the company’s annual financial results. As a result, Wickes publicly disclosed the matter April 15, saying the cost of resolving the problem was likely to be a “material amount.”

Since early April, a Wickes task force headed by an outside director has been looking into what he calls a “complex morass” of local safety codes and customer records in an effort to determine the potential liability cost. The company, which has steadfastly maintained that the problem carpeting poses no safety risks, says an estimate of cost is still several weeks away.

Meanwhile, at least two suits have been filed against Wickes or Collins & Aikman, one in Philadelphia by a former dealer and another by a small Florida competitor. The former, a class action filed in federal court, seeks more than $60 million in damages, and the latter, a state suit, hopes to claim more than $250,000 in lost profits as well as unspecified punitive damages. That suit alleges that Collins & Aikman attempted to create a monopoly by telling customers that the plaintiff’s products were inferior.

Wickes said it intends to “vigorously defend” against both suits.

For now, Collins & Aikman is in the process of replacing carpeting at some Florida schools with a product that has a backing other than polyvinyl chloride. This new product “absolutely” meets all federal and local specifications, but has not before been sold commercially by Collins & Aikman, according to Edmund M. Kaufman, the outside director heading Wickes’ task force.

New Carpeting Offered

“The issue is, will it wear as well and have the same spring and feel (as the previous product)?” Kaufman said.

Of major concern to Wickes has been the response of the federal government, a big customer that has purchased $27.5 million in Collins & Aikman carpeting since 1980, including a current contract worth $3.9 million.

In the government’s independent tests, the Collins & Aikman carpeting was found to pass two flammability tests but fail the smoke density test, which is a requirement in some locations where the carpeting has been installed.

“If the government made a determination that there was a safety hazard, we would ask for replacement (of the carpeting),” said John R. Roehmer, a spokesman for the General Services Administration, which is responsible for buying such goods for the federal government.

To fulfill its current contract with the GSA, Wickes has offered to install new carpeting like that being put into the Florida schools. “We want to be sure it will meet all our performance requirements and have some assurance that it will be a durable product,” Roehmer said. “We’re evaluating their proposal much as if it were a brand-new bid.” He added that it will be several weeks before the agency decides.

Meanwhile, Roehmer said there is, indeed, the possibility that the Collins & Aikman situation will prompt closer federal scrutiny of testing and products. “We’ll probably make some changes in the selection of samples for testing,” he said.

More than one observer has expressed surprise that Collins & Aikman, which has a reputation for selling high-quality goods, would stoop to what they call “dirty pool” marketing. Kaufman, the Wickes director, has said there was no evidence that the fired employees were paid off or otherwise compensated for submitting phony results to win contracts. “We have no idea what their motivation was,” he said.

Competitors, however, note the cutthroat nature of the business of selling carpet. As one put it: “Pennies (per square yard) make a big difference.” Some theorize that the employees might have acted out of a misguided sense of loyalty to their company. Others feel that the fired employees “were scapegoats for the sake of public relations.”

Meanwhile, in gossip-minded Dalton, the fear is that Collins & Aikman might be the tip of an iceberg. Some say the situation points out what can happen in an industry where the competition gets a little too intense.

“There are a lot of others that just haven’t got caught,” said one observer close to the industry.

The approach to Dalton from north or south along Interstate 75 leaves no doubt as to this town’s preoccupation. Billboards touting more than a dozen carpet outlet stores lure shoppers to Connector 3, where they can find bargains in brands such as WestPoint Pepperell, Coronet, Shaw, World and other big names.

Across town to the west, the view from atop Dug Gap Mountain--where Rebel and Union troops skirmished in an 1864 battle while Gen. William Sherman routed his soldiers south through Resaca--offers plenty of evidence why Dalton is to carpet what Detroit is--or was--to automobiles.

Throughout the town and surrounding Whitfield County and the four bordering counties--Murray, Catoosa, Gordon and Walker--hundreds of massive, low-flung plants radiate out through the flats and into the tree-covered hills, where many more sites have been cleared on the red Georgia clay.

By the standards of many industries, this growth has come relatively recently, although the carpet business has roots in a much older industry: hand-tufted bedspreads. A young girl named Catherine Evans is credited with selling the first of these spreads with a fluffy yarn pattern back around 1900.

After World War II, multi-needle tufting machines made it possible to make wider products, and the carpet industry was born. It surged in the 1960s, always sticking close to Dalton, with its plentiful supply of energy and water. (On peak days, the plants around Dalton use a total of as much as 50 million gallons of water, primarily for the dyeing process.)

Of the area’s work force of about 112,000, more than 25,000 hold jobs in carpet manufacturing, and probably that many more work in businesses that support carpet-making, such as yarn mills, backing manufacturers, machinery suppliers, sample companies, printing operations and others.

Last year, the Dalton area’s 250 or so plants produced about 82% of the 1.25 billion square yards of carpeting made in this country. (California, with about 25 carpet manufacturing plants, is the second-largest producer, with 10%.)

The industry returned last year to the peak production levels of 1979, before the country entered a long recession. Unemployment in February was down to 4.8%, having peaked at 17.8% during the recession of the early 1980s. But even the local Chamber of Commerce acknowledges that the industry, which tends to parallel changes in interest rates, “may be on an extended high right now.”

Given the carpet market’s total value of $6.5 billion, it’s easy to understand why the problem at Collins & Aikman has Dalton on edge.

“It makes financial people in New York look at our industry and say: ‘Look what those dumb Southerners have done,’ ” said Reg Burnett, a longtime industry analyst who lives in Dalton. “But in the long term these things are not going to affect the continued positive growth of the industry.

“Under Wickes’ or new management, (Collins & Aikman) will very quickly overcome the damage that has been done.”

Dalton can only hope he’s right. “The county’s fortunes rise and fall on the carpet industry,” said George A. Hanson, a Chamber of Commerce official. “When it’s up, everything’s up.”