Midas Inc.

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Midas Inc.

1300 Arlington Heights Road
Itasca, Illinois 60143
U.S.A.
Telephone: (630) 438-3000
Fax: (630) 438-3880
Web site: www.midasinc.com

Public Company
Incorporated: 1956
Employees: 1,900
Sales: $333 million (2002)
Stock Exchanges: New York
Ticker Symbol: MDS
NAIC: 336213 Gasoline Engine and Engine Parts Manufacturing; 336322 Other Motor Vehicle Electrical and Electronic Equipment Manufacturing; 33633 Motor Vehicle Steering and Suspension Components (Except Spring) Manufacturing; 33634 Motor Vehicle Brake System Manufacturing; 33635 Motor Vehicle Transmission and Power Train Parts Manufacturing; 336399 All Other Motor Vehicle Parts Manufacturing; 441310 Automotive Parts and Accessories Stores

Midas Inc. is the parent company for Midas International Corporation, a leading provider of automotive services related to exhaust, brakes, steering, suspension, climate control, and maintenance. The company also oversees Parts Warehouse Inc., a network of distribution sites designed to quickly deliver parts to Midas shops. The firm has over 2,000 franchised and company-owned stores in the U.S. and Canada and over 700 licensed and franchised locations in 17 countries across the globe. Once a private subsidiary of the Whitman Corporation, Midas was spun off in 1998 and now operates as an independent public company. Slowing sales and high costs have forced the company to restructure operations. Midas plans to exit the distribution business and sell off unprofitable stores.

Sherman Makes His Mark in the Automotive Service Industry: 1950s

In the early 1950s, the founder of Midas International Corporation, Nate H. Sherman, operated a family business in Chicago that manufactured car mufflers. As president of International Parts Corporation, Sherman was well aware of the developments in the automotive industry during the 1950s. The American economy was expanding rapidly, making the average person more prosperous than ever before. This prosperity translated into increased consumer demand for cars, and between 1950 and 1956 almost 40 million new automobiles were purchased. Technological innovations, such as 18-month mufflers and dual exhaust systems, were also changing the way cars were serviced. Sherman recognized that the independent service stations—the “mom and pop” corner gas stations—would no longer be able to meet the growing demand for automotive services. These developments convinced Sherman that he could develop a new type of service station where he could sell his mufflers directly to consumers and eliminate the need for distributors.

Sherman correctly predicted that consumers would prefer fast, efficient automotive service to the slower “mom and pop” service station. He felt that the best way to take advantage of the dramatic changes in the automotive market was to create a network of independent businesses that would be supported by a central company—in short, to begin franchising. In 1956, the entrepreneur formed the Muffler Installation Dealers’ Association (M.I.D.A.S.) and convinced long-time friend Hugh Landrum to open the first Midas Muffler franchise shop. Located in Macon, Georgia, the shop installed and replaced mufflers as quickly and as efficiently as possible. In order to differentiate Midas from other service stations and to encourage return business, Sherman guaranteed to replace any muffler his shop had installed in a domestic car for as long as the motorist owned it. By the end of 1957, there were 100 Midas Muffler franchise shops independently operated in 40 states.

With his flair for marketing, Sherman began to revolutionize the automotive service industry. Consumer surveys taken throughout the 1950s indicated that most people did not understand how their own cars worked; because of their lack of mechanical knowledge, many of these people believed that they were overcharged or charged for unnecessary repairs at service stations. In addition, a large number of people were angry with the inadequate service or poor workmanship evident in fixing their cars. Sherman’s marketing strategy was to directly involve the customer in making decisions about repairing the car. He instructed Midas Muffler shop owners to invite the motorists into the service bays to educate them about their cars and what needed repair. A written estimate that included an itemization of the repair work was given to each customer before the repairs were begun. Finally, Sherman suggested that all Midas shops install large windows to an area where customers could watch the repairs made on their cars.

Rapid Growth: 1960s–1970s

The accuracy of Sherman’s predictions about the automotive industry and his marketing savvy helped Midas become one of the fastest growing franchises in the United States. By 1960, there were 319 Midas Muffler Shops in operation and a growing number of competitors both locally and regionally. In order to protect and increase its share of the automotive services market, Midas introduced shock absorber service in 1960. The company continued to grow, and in 1968 Midas purchased Huth Manufacturing Corporation, a firm that produced made-to-order bender machines. The benders provided automation to cut and weld tubing for a car’s exhaust system. The Huth machines proved to be time savers, and, as muffler installers increased their demand for the benders, Midas’s marketing network grew both in the United States and in foreign countries. The first Midas Muffler “Silencer” Shop opened in 1968 in Harlesden, England. By 1970, there were 577 Midas Muffler Shops operating throughout the United States, England, and Canada.

In 1972, Midas International was purchased by IC Industries, Inc., which subsequently renamed itself the Whitman Corporation. At that time, under the leadership of William Johnson, IC Industries divested most of its railroad holdings and began the transformation into a multinational conglomerate. Diversification into consumer goods and services was indicated by three major acquisitions: Pepsi-Cola General Bottlers, a soft-drink bottler located in the Midwest; Midas International; and Pet Inc., an evaporated milk company operating out of St. Louis.

As a wholly owned subsidiary operating within IC Industries’ consumer products division, Midas benefited from the financial resources of its parent company. In 1974, Midas created the Midas Institute of Technology in Palatine, Illinois. This facility was designed to serve as a training center for new franchisees, managers, and automotive mechanics. In order to ensure the best service throughout its franchise network, emphasis was placed on developing good consumer relations and improving the technical skills of Midas employees. In 1978, Midas opened its 1,000th shop in the United States; during the same year, Midas also extended its muffler guarantee to customers with foreign cars. In 1979, Midas announced that it would provide brake service in all its shops. By 1980, there were 1,350 Midas Muffler and Brake Shops, with franchises in Australia, Belgium, Canada, England, France, Mexico, and Puerto Rico.

Continued Success in the 1980s

Midas continued to grow during the 1980s. The company manufactured its 50 millionth muffler in 1983 largely due to improvements in production. The company initiated a major expansion at its manufacturing facilities in Bedford Park, Illinois, and Hartford, Wisconsin, where it produced exhaust systems and other automotive parts for domestic and foreign cars, vans, light trucks, and even antique autos. With over 1,400 franchise outlets in the United States by 1985 and over 400 shops in foreign countries, Midas was three times larger than its closest competitor. Record revenues of $298 million were reported in 1984, an increase of 10 percent over the previous year. Also in the same year, Midas opened 74 shops in the United States alone. In the exhaust replacement market, Midas accounted for approximately 12 percent of the outlets but garnered about 25 percent of the business.

Near the end of 1984, Entrepreneur magazine ranked Midas as one of the top-ten franchisers in the country. Although the automotive products and services market was growing at an annual rate of over 10 percent, the market was far from saturated. Research had shown that as consumers kept their cars longer and as traditional service stations provided fewer automotive repairs, the demand for special repair stores continued to increase. Midas’s own marketing research indicated that the company had the highest profile and best name recognition of all the competitors in the exhaust replacement industry. By taking advantage of these trends, Midas opened its 2,000th shop in 1986. In contrast, Car-X and Speedy Muffler King—both franchises that were controlled by Toronto-based Tenneco—Midas’s closest competitors in the automotive services franchise business at the time, operated 434 shops combined. Meinecke Muffler Company, with 400 shops located primarily in the southern and midwestern parts of the United States, ranked third.

Company Perspectives:

For more than 40 years Midas has built customer relationships based on reliability. We know that quality parts and services are important to our customers. That’s why we stand behind them with guarantees. We may be a company on the move—but we will never leave behind the values that have made us a success: trust, service, and reliability.

In 1986, Midas opened its New England Training Center in Taunton, Massachusetts. Because of the large number of applications for Midas franchises in the eastern part of the United States, the company duplicated the training services it had established in 1974 at the Midas Institute of Technology in Palatine. At the company’s Hartford and Bedford Park manufacturing facilities, highly automated and computerized assembly lines were producing more than 1,000 mufflers per hour for both the domestic and foreign markets. In 1989, Midas manufactured its 100th million muffler. Midas also introduced computerized suspension and alignment services in all its shops during this time. With the increasing popularity of four-wheel-drive vehicles, the addition of smart suspension systems, and the use of four-corner struts by most car makers, Midas anticipated that the suspension market would ultimately grow larger and more financially rewarding than either the exhaust or brake markets.

In 1991, Midas celebrated its 35th year of operation by continuing to expand its franchise network. During the early 1990s, Whitman Corporation began acquiring muffler shops in Europe for Midas to operate and increased its name recognition in the United States through a major advertising campaign. By continuing to expand both in the United States and in such countries as England, Switzerland, and Austria, sales for the company grew rapidly. In 1992, sales and services provided by Midas shops accounted for 20 percent of Whitman Corporation’s total sales. By the following year, U.S. retail sales had surpassed $1 billion.

Spurred by its franchising success, in 1993 Midas initiated an expansion campaign in Mexico. Under a franchise contract with Interamericana de Talleras SA de CV, Midas began opening retail and service outlets in major metropolitan areas. Management expected these outlets to grow at a rate often shops per year for the first few years and then increase rapidly. The goal was to open over 140 shops to service the nearly ten million registered automobiles and light trucks in the country.

The most recognized name in the muffler service and repair business, Midas was poised to take advantage of the growing used car market during the early 1990s. The unpredictable state of the world’s economy resulted in people holding onto their cars longer than at any time in the past, and Midas planned to provide the repairs and services necessary to keep these cars on the road. With its continually expanding franchise operation and its ready access to the financial resources of its parent company, Midas appeared to be well positioned to remain the industry leader.

Overcoming Challenges: Mid-1990s and Beyond

The company began to face challenges in the mid- to late 1990s, however, due in part to heightened competition from the likes of Pep Boys and Penske Auto Centers Inc., companies that focused on the super auto center concept. As the competition was becoming well known for offering a vast array of services, Midas had to contend with the consumer perception that it only dealt with mufflers. To shore up its image, Midas launched a $23 million advertising campaign in 1996 that focused on the company’s other services, including alignment and suspension.

Meanwhile, franchisee relations with Midas’s parent company were deteriorating and sales and store growth were languishing. In a move that was beneficial to both the muffler king and Whitman, Midas was spun off as an independent public company in January 1998. Under the leadership of new CEO Wendel Province, Midas immediately began to make changes in an attempt to revamp its brand, capture market share, and increase sales. To restore franchisee faith in the company, Province began selling company-owned stores in markets that directly competed with franchise locations. He then used the proceeds of those sales to give each franchisee $15,000 per store to pay for new signs and new paint in order to relate the company’s “New Midas” campaign. To cut costs, the company moved its headquarters from downtown Chicago to Itasca, Illinois, and also shuttered a Midas factory.

Midas continued to face an upward battle as the exhaust market deteriorated further. In fact, during 1999 the market declined by 20 percent, making the company’s transformation from just a muffler place to a multi-service auto shop crucial to its survival. During 2000, the company completed its “New Midas” North American campaign, which included store refurbishment and the addition of new services related to climate control and maintenance. The company also launched Parts Warehouse Inc., a network of distribution sites that delivered parts to Midas locations and other customers.

During 2001, the company switched gears and began an aggressive campaign to strengthen its company-owned holdings by purchasing 98 Midas locations in the United States. The strategy was designed to bolster profits, but during the following year the company reported a loss of $33.6 million. As earnings continued to decline, Province announced his retirement. McDonald’s Corp. executive Alan Feldman was named his replacement and knew he had his work cut out for him. ‘ It’s clear to me we have our challenges,” claimed the new CEO in a January 2003 Crain ^ys Chicago Business article. Indeed, as the company planned to exit the wholesale distribution market and sell off many of its company-owned stores, Feldman’s ability to bring the shine back to the Midas name remained to be seen.

Principal Subsidiaries

Midas International Corporation; Midas Illinois, Inc.; Midas Realty Corporation; Midas Properties; Muffler Corporation of America; Dealers Wholesale Inc.; Huth Inc.; International Parts Corporation; Parts Warehouse Inc.; Midas International Corporation; Insurance Services Management, Inc.; Progressive Automotive Systems, Inc.; Cosmic Holdings LLC; MDS Automotive Holdings B.V. (Netherlands); Midas Automotive International B.V. (Netherlands); Midas Canada Holdings, Ltd.; Midas Canada, Inc.; Midas Realty Corporation of Canada, Inc.; APWI Canada, Inc.

Key Dates:

1956:: Nate H. Sherman forms the Muffler Installation Dealers’ Association; Hugh Landrum opens the first Midas muffler franchise shop in Macon, Georgia.
1960:: Midas begins offering shock absorber service.
1968:: Huth Manufacturing Corp. is acquired.
1972:: 1C Industries Inc.—eventually known as Whitman Corp.—purchases Midas.
1979:: The firm begins to offer brake service in all of its shops.
1986:: The company opens its 2,000th shop.
1993:: U.S. sales surpass $1 billion.
1998:: Whitman spins off Midas.
2001:: The company purchases 98 franchise locations.