Econo Lube Files for 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, which has 258 locations in 17 states, 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, founded in 1974, also took a financial and public relations hit in the summer when California regulators yanked the licenses of 18 of its 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 30-60 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 East Coast closures 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.
