How a Firm Lost Money By Losing Its Focus : Diversification: GI Industries was profitable in trash hauling but decided to expand into car rentals and truck dealerships. After losing millions, GI again is concentrating on rubbish.

For years GI Industries, the major hauler of residential trash in Simi Valley, Moorpark and Thousand Oaks, has been the rubbish king of eastern Ventura County. But in 1987 GI decided its empire wasn’t big enough.

GI, then controlled by the wealthy Asadurian family, began buying other businesses. Having already diversified into leasing garbage trucks and related equipment to other rubbish haulers, the company also bought Thrifty car-rental franchises and three Mack truck dealerships.

GI had revenue of $10 million in the fiscal year ended April 30, 1988. The deals to acquire Mack truck and Thrifty were to quadruple the company’s size. “The numbers were right,” GI Chairman Manuel Asadurian Sr. recalled. “It would make our stock go up.”

But the company’s optimism turned out to be, well, rubbish. The diversification move was a flop, as GI’s new subsidiaries hemorrhaged cash and sent the whole company into the red. GI, with nearly 50,000 residential and commercial rubbish customers, lost $1 million in fiscal 1988 and lost another $7.2 million in fiscal 1989.

For a while, the mess delayed GI’s completion of audited financial statements. Without those statements, banks were reluctant to lend GI much-needed cash, and at the end of fiscal 1989, GI’s debts exceeded its assets by $2.6 million.

At one point the four main members of the Asadurian family--Manuel Asadurian Sr., 58; his brother Sam, 63; and their sons Manuel Jr., 33, and Carl, 38, respectively--each had to lend the company $1 million so it could keep operating.

By early 1989, “we knew we needed to make some drastic moves,” said Daniel M. Van Rossen, GI’s executive vice president and chief financial officer.

At first, GI considered selling out to Western Waste Industries, a Gardena-based trash hauler, for an undisclosed sum. But talks between the companies fell apart last fall.

So GI decided to pull back to the business that Sam and Manny Asadurian first pursued 40 years ago--hauling garbage. “It’s just like starting all over again,” Manny Sr. said.

The company jettisoned its Thrifty car-leasing unit and Universal Mack Sales & Service, the subsidiary that ran the Mack truck dealerships. The two businesses generated $27.5 million in revenue in fiscal 1989, but because of accounting rules those sales were not included in GI’s results for that year, when reported total revenue was $11.8 million.

GI slashed its corporate staff to three positions from 14, and its overall work force dropped to 80 from 212 because of employees who left when the businesses were sold. The company also sold 40% of equipment lease payments due the company, and some real estate. And it moved its headquarters from a leased office to a building the company already owned. All told, the actions enabled GI to cut its debt to about $20 million from $50 million a year ago.

Finally, a change in GI’s top management left fewer Asadurians at the top, although the family’s influence remains strong.

Sam resigned as chief executive and chief financial officer, and in late 1989 he purchased Universal Mack from the company. Manny Jr. quit as president, and his father added the posts of president and chief executive to his chairmanship. Van Rossen became chief financial officer. Carl remains head of GI’s Conejo Enterprises rubbish-hauling division, and Michael Smith remains a senior vice president.

GI officials said Sam’s decision to leave was his own. It would be unfair to say “there was pressure on Sam to step aside,” Van Rossen said. “Sam left the company to take care of a number of things, not to mention possibly being semi-retired.”

Sam Asadurian did not return phone calls requesting comment.

The Asadurians, who took GI public in 1987, also no longer control the company’s board of directors or its stock. The five-member board now has Manny Sr., Carl and three non-Asadurians. The family’s stock ownership fell to 44% of the total from 52% in late 1989 when GI issued 500,000 new shares to Mack Trucks Inc., the builder of Mack trucks, to help complete GI’s sale of Universal Mack to Sam Asadurian.

What stock the family still owns also has dropped sharply in value, to a recent over-the-counter price of about $2-$2.50 a share from $7.50 a share in early 1988, giving the Asadurians’ combined stake a current value of about $4 million to $5 million.

Van Rossen said “frustration is an understatement” to describe the mood at GI’s headquarters in recent months. “I’m not an Asadurian,” he said, “but I felt personally as bad as they did when these problems surfaced.”

The biggest problem was Universal Mack. Van Rossen admitted that GI knew Universal Mack’s “profitability was nominal” when it bought the company two years ago, and that “in that industry there normally aren’t exceptionally high profits.”

So why buy it? Because GI itself, with a 45-truck fleet, claims to be one of the biggest users of Mack-built garbage trucks in Southern California, and its own orders for trucks and parts--together with its influence in urging other garbage haulers to buy Mack products--were expected to generate sales at Universal Mack, Van Rossen said.

But GI’s Mack dealerships fell victim to Mack Trucks’ own problems. The truck maker, based in Allentown, Pa., has suffered major setbacks in recent years and lost $185 million on sales of $1.75 billion in 1989.

After Mack built an assembly plant in South Carolina, coordination between Mack’s parts suppliers and the plant broke down, leaving hundreds of new trucks without certain parts. Delivery of new-truck orders, including those ordered by Universal Mack, fell months behind schedule.

A new model “that didn’t come out until a year after its scheduled delivery date cost the company almost 200 truck orders,” Van Rossen said. Mack Trucks also “fell way behind in their ability to provide parts for warranty service” on trucks already in the market, he added. The result was that Universal Mack accounted for $4.6 million of GI’s fiscal 1989 loss.

GI’s financial results for the fiscal year ended April 30 are not yet available, but Van Rossen said GI has made a major improvement. GI probably will report an operating loss of “only a fraction” of its $7.2-million net loss in fiscal 1989, and it anticipates that the quarter ending July 31 “will be its first profitable quarter in two years,” he said.

The rubbish business has always been profitable for GI, which also expects to benefit from increased recycling efforts by Ventura County cities, Van Rossen said. GI already has an exclusive contract to pick up recyclable products left on Simi Valley curbsides, and is working on similar arrangements in Thousand Oaks and Moorpark.

Meantime, Manny Asadurian Sr. is glad to be again concentrating only on trash, which to him is gold. “I just wanted to go back to what I really knew,” he said.