Earl Scheib, Inc. Business Information, Profile, and History

Company Perspectives:

Earl Scheib Paint & Body is the world's largest company-owned and operated auto-painting and body repair service, painting more than 15,000 cars and trucks every year. Made famous in the early years by Earl's slogan, 'I'll paint any car, any color for $29.95. No Ups! No Extras,' the company has painted more than 10 million cars over its 62 years in business, and continues to adhere to Earl's original commitment of offering the best price in town on auto painting. A commitment they guarantee.

History of Earl Scheib, Inc.

Earl Scheib, Inc. owns a national chain of automobile painting and body repair shops. Operating under the New Earl Scheib Paint & Body Shop name, the California-based chain consists of more than 175 stores in about 150 U.S. cities. Though the stores are primarily known for economically priced, production auto painting services, body and fender repair services are also offered. Earl Scheib manufactures its own paint at a company-owned facility in Missouri. The company established a fleet sales division in 1998. The Earl Scheib brand became well known largely through founder Earl Scheib, a pioneer of advertising.

Entrepreneurial Beginnings in the Late 1930s

Earl A. Scheib's association with automobiles began in the automobile mecca of southern California in the 1920s. After graduating from Los Angeles High School in the late 1920s, Scheib secured a job as a gas station attendant rather than pursuing college. Through numerous oil and tire changes completed for the General Petroleum Co., Scheib gained valuable experience. Soon Scheib branched off onto his own, purchasing his own service station in Los Angeles. Scheib fell into auto painting rather by accident. Customers frequently asked Scheib about auto painting shops, so Scheib decided to paint a few cars in the station's garage during the evening hours when the station was closed. What began as a small, after-hours endeavor soon blossomed, and Scheib could not keep up with demand. He thus sold his gas station and in 1937 opened Earl Scheib Paint and Body on a Los Angeles street corner near Beverly Hills.

Scheib was the first to introduce production painting of automobiles in the United States. Touting low prices of $29.95 for sedans and $24.95 for coupes, Scheib seriously undercut competitors' prices, which generally ran a few hundred dollars to paint an automobile. Because of the rock-bottom prices, customers rushed to Scheib's shop, reportedly causing traffic snarls that required assistance from the police. Open daily, Scheib and his ten employees painted between 150 and 210 cars per week during the early years.

Earl Scheib hit a snag in the 1940s with the advent of World War II. The war generated a great demand for paint, and paint supplies in the United States grew thin. Scheib was forced to lease a gas station to make ends meet, and he fought to keep his business open. In 1946, however, paint rationing ended, and the auto painting business experienced tremendous growth and popularity. Scheib opened additional stores in the San Fernando Valley, located just outside of Los Angeles, to accommodate the demand.

King of Advertising and National Expansion: 1950s-70s

Scheib began to expand nationally in the 1950s, and to raise awareness of his auto painting shops he turned to advertising. Earl Scheib marketed his shops through low-budget television commercials. Appearing on late-night television programs, Scheib soon became a national icon and celebrity, and his oft-heard sales pitch, 'I'm Earl Scheib, and I'll paint any car, any color for $29.95. No ups, no extras,' became an instantly recognizable phrase. Scheib, credited as being the first spokesperson for his own company, handled all advertising and developed and wrote his own television commercials. Scheib believed viewers would find his ads more convincing and genuine if he spoke directly to the viewers about the company's offerings.

Earl Scheib also handled media buys, placing his television and radio ads carefully. As son Donald explained in a company statement: 'He'd personally call the station manager and tell him to interrupt a sponsored show at a pivotal moment and run his ad. ... So you'd be watching a show, the villain's sneaking up behind the hero with a knife, and just when he's about to plunge the knife into the hero's back ... Earl comes on the screen pitching his service.' Scheib's commercials were seen and heard on television and radio stations in more than 100 cities, and he continued to film spots until his death in 1992. Despite his fame and television ad ubiquity, son Donald claimed that Scheib was less than fond of appearing in commercials. 'In truth,' Donald Scheib said in a company statement, 'he hated doing those television spots. ... He didn't like being in front of the camera, you'd have to drag him feet-first into that studio, screaming.'

Expansion and Competition in the 1980s

Earl Scheib, Inc., which went public in 1963, was the largest non-franchised auto painting chain by the 1980s, thanks in large part to founder Earl Scheib's promotional efforts. Though the cost of a standard Earl Scheib paint job had grown to $99.95, the chain's prices were still among the lowest in the industry and appealed to budget-minded consumers. Car owners were choosing to keep their cars longer, and this trend was reflected in Scheib's sales; in the early 1980s the company's sales increased an average of 17.6 percent per year, and between 1982 and 1985 the firm's stock quadrupled. By 1985 there were 275 Earl Scheib stores, ranging from Hawaii to New York. The company opened its first store in Canada in 1984 and planned to open 25 new outlets in fiscal 1986. Overseas expansion was in the works as well, and an Earl Scheib store opened in London in 1985.

Despite sales growth in the 1980s, Earl Scheib faced increasing competition in the industry it had essentially created. Chains and franchises such as Maaco, which had 380 outlets in 1985, and One-Day Paint and Body were expanding more aggressively than Earl Scheib and taking away its market share. This competition, coupled with Scheib's commitment to low prices, presented challenges for the company. If the company continued to raise prices--the cost of an Earl Scheib paint job had increased 43 percent between 1982 and 1985--it risked losing its standing as the low-budget alternative to more expensive shops, some of which offered paint jobs starting at $129.95. In addition, Scheib paint jobs had earned a reputation as being rather shoddy, and the potential for customers to jump into a higher price range for better-quality work was something Earl Scheib was forced to face. Some industry analysts believed Scheib could grow through diversification and the offering of more expensive and upscale services, but the company was hesitant to change its tried-and-true formula.

Sales Slump in the Late 1980s and Early 1990s

After reaching record sales of $69 million in 1987, Earl Scheib entered a period of decline. At the end of 1987 Earl Scheib announced plans to close its European auto painting operations. Though the company had entered the European market only two years earlier, losses continued to build, and future prospects appeared gloomy. The domestic situation seemed no better. Under Earl Scheib's command, overall yearly sales sagged in the late 1980s, and though sales began to inch upward in the early 1990s, the company continued to rack up losses. For the third quarter ended January 31, 1991, Earl Scheib reported a net loss of $1.9 million on sales of $9.9 million.

On February 29, 1992, a day after turning 85, Earl Scheib passed away, leaving behind a legacy and a struggling business. A few days later, on Monday, March 3, the company's stock skyrocketed 47 percent as investors speculated about the future of the company. Many believed Scheib's 37 percent interest in the company would be sold in order to finance his estate taxes. Irwin Buchalter, an Earl Scheib board member and executor of Scheib's estate, indicated that the 37 percent stake would be divided between Scheib's three sons, all of whom were employed by the company. Buchalter acknowledged problems with Scheib's management and commented in the Wall Street Journal that Scheib 'refused to take realization of the economy--of what was happening to the auto-painting business. ... He always felt he had to have the lowest prices in the business by a wide stretch.' Scheib's belief, Buchalter noted, prevented him from raising prices to compensate for slow sales. It was not until June 1991 that Scheib finally relented, raising the price of a basic paint job from $99.95 to $119.95. Buchalter believed the stock rise was indicative of stock buyers' optimism about the company's potential for growth.

A week after Earl Scheib's death, his son Donald was named president and CEO. Donald Scheib had previously served as vice-president. Irwin Buchalter was elected chairman. The company also announced that it had no plans to sell. The formidable task of turning around the ailing company was started. For fiscal 1993 the company reported sales of $53.64 million and a net loss of $110,000. The following fiscal year sales declined to $48.49 million, yet net loss grew to $1.82 million. In November 1994 Donald Scheib stepped down as president and CEO and was elected chairman, a position that had become vacant upon the death of Irwin Buchalter in August. Daniel Seigel was appointed president and CEO and handed the task of making the 250-store chain profitable once again.

The New Earl Scheib: 1995-2000

With a new CEO leading the company, Earl Scheib faced many changes in the second half of the decade. A major restructuring strategy was adopted in fiscal 1995, and as a result 84 unprofitable stores, most situated in the Midwest and East, were closed. The company took a pre-tax charge of $4.2 million for restructuring-related costs. The following fiscal year Earl Scheib reported its first profit in four years. The company earned $895,000 on sales of $43.98 million, compared to a loss of $5.55 million on sales of $47.28 million in fiscal 1995. The company also spent about $4.6 million to renovate and convert 137 stores into the New Earl Scheib Paint and Body store format. The new stores boasted an updated look, including new paint and graphics, as well as new exterior signs. The shops also offered a customer information center and modern equipment, such as the Infrared Quartz Finish Drying System, used to facilitate the drying of car paint. Conversions of stores in California were completed in early fiscal 1996, and results were positive--during the first quarter comparable store sales grew by 24.2 percent compared to year-earlier figures. The upswing in sales spurred Earl Scheib to renovate the remainder of its shops.

Another challenge Daniel Seigel and Chief Operating Officer Christian Bement had to tackle was Earl Scheib's image. Many customers viewed the chain's auto painting work as being of poor quality, and new management needed to alter this perception if Earl Scheib was to once again reign the industry. Bement, reflecting upon the state of the company in 1995, admitted in the Dallas Morning News in 1998: 'We mainly had the Earl Scheib name. That was the good news. That was also the bad news.' The new shop format was designed to boost the chain's image, and to back up its new exterior, Earl Scheib started developing a new, top-quality paint. 'We definitely had some of the worst paint in the industry,' Bement recalled in the Los Angeles Daily News. 'When I first got here I received letters from customers complaining about the paint jobs. The paint that was chipping off was actually in the envelopes,' he added. The company-owned paint manufacturing plant in Missouri was called upon to create a high-quality auto paint, and the outcome was Euro-Paint, a 100 percent acrylic urethane paint. Introduced in 1997, the paint provided durability and a high-gloss finish and was rated as the best paint in production auto painting by Paint Research Association Laboratories Inc., a paint-testing firm. The paint, as well as other changes, effectively reduced the percentage of jobs that had to be redone because of poor quality. The company's 'redo rate' dropped from 22 percent in 1995 to below six percent in the late 1990s.

Earl Scheib stepped up its expansion efforts beginning in 1997, concentrating on opening more stores in existing markets to diminish the need for increased advertising expenditures and to fully penetrate existing markets. The chain opened five new stores during fiscal 1997 and the following fiscal year opened 12 new shops. Sales continued to grow, reaching $48.34 million in fiscal 1997, up from $43.98 million the previous year. In late 1997 the company established a fleet sales department. The division, which initially had a staff of ten sales people, sought to establish multi-vehicle fleet sales accounts. It was hoped that fleet sales would help offset the regularly slow winter months. One of the first contracts secured by the fleet department was a three-year agreement with US Airways Inc. to paint about 3,500 ground vehicles and equipment. The fleet division also gained contracts with Orkin Exterminating, the Hertz Corporation, and several government agencies.

Hoping to grow to 200 shops and $100 million in sales, Earl Scheib opened 19 new stores during 1999. The company also closed six stores, bringing the year-end total to 174. Daniel Seigel resigned as president and CEO in January, and Donald Scheib retired from the board of directors in August. Seigel remained a member of the board, and Christian Bement was appointed president and CEO. Sales for fiscal 1999 increased 8.2 percent from the previous year to reach $55 million. Although comparable shop sales increased by 3.1 percent, earnings were essentially flat due to various non-recurring expenses. As increased sales returned, so did founder Earl Scheib's classic commercials, a result of a resurrection of old television programs and commercials. Not only did Earl Scheib's ads appear on Nickelodeon's "TV Land" cable network, which featured classic television shows and ads, but Earl Scheib merchandise, including T~shirts and hats, were offered for sale through specialty catalog merchants.

As Earl Scheib entered the year 2000, the company continued with its comeback strategy. The company hoped to increase sales in stores open for more than a year and to continue expansion. Earl Scheib also planned to seek strategic acquisitions to grow the company more quickly. As the year commenced, however, the outlook was restrained. Rising materials and administrative expenses, among other factors, affected first quarter sales, which reached $15.75 million, down from $15.90 million the previous year. Comparable store sales were hit harder, dropping 6.7 percent compared to the first quarter of fiscal 1999. As a result, first-quarter net income reached $345,000, down considerably from the year-earlier figure of $1 million. Earl Scheib remained focused and hopeful, however, and planned to continue painting cars--any car, any color--well into the 21st century.

Principal Subsidiaries: Earl Scheib Automotive Paint Finishes, Inc.

Principal Competitors: Ziebart International Corporation; Peach Auto Painting and Collision, Inc.

Chronology

• Key Dates:

• 1937: Earl A. Scheib opens the first Earl Scheib Paint and Body in Los Angeles.
• 1946: Scheib opens new branches just outside Los Angeles.
• 1962: Earl Scheib incorporates.
• 1963: Company goes public.
• 1985: Earl Scheib begins international overseas expansion with a new store in London.
• 1992: Founder Earl Scheib passes away; son Donald Scheib becomes president and CEO.
• 1997: Company establishes a fleet sales department and launches Euro-Paint, an exclusive, high-quality auto paint.