Kmart Corp. is selling its money-losing auto service centers to Detroit entrepreneur Roger Penske, who runs a winning Indy car racing team, a truck leasing business and car dealerships.
The $112-million deal will convert 860 auto service centers at U.S. Kmart outlets into Penske Auto Centers.
“It takes us out of a business that we didn’t, perhaps, know as well as we should have,” Kmart Chairman Floyd Hall said Monday at a news conference to announce the divestiture.
In addition to the cash, which Kmart will use to retire debt, the company will receive ongoing income from Penske Auto Center Inc. through royalties, rent and payments for administrative support, Hall said.
He said the discount retailer has been losing millions of dollars a year on its auto service business, which had revenues last year of about $360 million.
“The agreement reinforces the commitment of Kmart Corp. to focus our energies on our core business strengths,” Hall said.
In the past year, Kmart has sold off its OfficeMax, Borders Group and Sports Authority units to concentrate on the battle for discount shoppers with competitors such as Wal-Mart Stores Inc. and Dayton Hudson Corp.'s Target chain.
The company has had 10 consecutive quarters of disappointing earnings. It lost $54 million in this year’s second quarter, primarily due to charges related to the Borders and OfficeMax sales.
Penske said the new auto service company will retain the 5,600 Kmart employees. He said it will continue to operate as a discount auto service business.
The transaction is expected to be complete by Nov. 1, and it will take three years to phase in the changes, Hall and Penske said.