Newport’s Econo Lube Files Chapter 11

Newport Beach-based Econo Lube N’ Tune Inc. has filed for bankruptcy protection and closed 30 of its unprofitable auto repair shops on the East Coast, company executives said Tuesday.

The company, founded in 1974, has 258 locations in 17 states. It ran into financial trouble by expanding too quickly in recent years and could not afford to continue to pay the leases on some of the chain’s unprofitable stores, executives said.

“The company was in the midst of a tremendous expansion about a year ago, which was a burden on its cash flow,” said Sean O’Keefe, the attorney representing the company in the bankruptcy proceedings.

The chain also took a financial and public relations hit in the summer when California regulators yanked the licenses of 18 company-owned shops, settling a 1998 lawsuit that accused the chain of pressuring customers to buy unnecessary parts and services. The company also agreed to pay a total of $2.5 million in fines and restitution.

Dave Schaefers, the company’s vice president of franchise development, said that the chain’s problems with the state are not at the root of the U.S. Bankruptcy Court filing.

“Although the state’s action did not help, it is not really the reason why we’re at where we’re at,” he said. “It’s a growth issue.”

The company filed a Chapter 11 petition this month seeking to reorganize under bankruptcy protection. As part of the reorganization, which is expected to be completed in 30 to 60 days, the company will outline plans to downsize. Schaefers said Econo Lube eventually plans to switch entirely to franchise operations.

Econo Lube’s bankruptcy filing in Santa Ana listed $30 million in assets and $21 million in liabilities. The company’s income fell to $573,000 last year from $1.2 million in 1997, Schaefers said.

The shop closures on the East Coast leave Econo Lube with 36 company-owned stores. All of its 87 shops in Southern California are franchises.

Although the state’s action did not involve any of the more than 100 shops in California operated by independent franchisees, Schaefers acknowledged that adverse publicity cast a cloud over the entire chain for a time. But he said he believes the company has regained customer faith.

“These stores have been around, some of them for 23 or 24 years, and they have a customer base. Their numbers today are in line with what they were before. I think we did a good job of educating our customers and our franchisees and moving on with business.”

Still, a few individual franchises in Orange County have filed for bankruptcy in the last year.

Although the company did not admit liability, under the terms of its settlement, Econo Lube was required to pay $1.6 million in restitution to California consumers by offering coupons through their franchisees, required to pay $650,000 in civil penalties to Fresno County and $250,000 to the state’s Bureau of Automotive Repair for the costs of its investigation and prosecution.

The company was founded 25 years ago by Robert Overdezest as a single shop in Anaheim and now has many direct competitors such as Jiffy Lube, Minit Lube and Tuneup Masters. Overdezest remains president of the company.