Great Lakes Quick Lube, which bills itself as the largest Valvoline Instant Oil Change franchisee in the Midwest, filed for Chapter-11 bankruptcy protection last month. Facing acute cash needs, the company seeks to restructure the relationship with its franchisor, to preserve the value of the business and to protect jobs.
The West Allis, WI-based company employs roughly 440 people and operates 64 Valvoline Instant Oil Change centers in Indiana, Missouri, Illinois, Wisconsin, Iowa and Kentucky. Not too long ago, Great Lakes had 107 lube centers.
The company started off in 2004 with 47 lube centers in Wisconsin and Illinois that it acquired. Between 2004 and 2011, it continued to acquire shops. However, Great Lakes has struggled with profitability since its inception.
By 2010, according to court records, the economy — in particular, high gas prices — created “extreme competition” in the oil change services industry. Great Lakes responded by increasing its advertising campaigns and discounts to customers in an attempt to maintain its business. Nonetheless, business declined.
The cost of oil increased during this time, which increased Great Lakes’ cost of goods and further reduced its profitability, according to an affidavit from Great Lakes president Jimmy Wheat. “The downward pressure was felt particularly hard in the smaller markets, where business was already low,” Wheat’s affidavit reads.
As a further strain on operating capital, the company was unable to renew its historical line of credit with JPMorgan and was required to make payments toward retirement of the line of credit in 2010 and 2011. By January 2011, when additional equity funding was not available, Valvoline declined to continue to provide support for product purchases and required prepayment for product orders.
Wheat’s affidavit points out that, at times, product shipment was interrupted. It further states that the prepayment requirement made it impossible for Great Lakes to order product in quantities sufficient to take advantage of any bulk pricing. This further increased the company’s cost of goods by as much as 2 percent, or approximately $1 million in excess cost in 2011.
Additionally, the affidavit claims that Valvoline declined to provide signage allowances for stores that were acquired in late 2010 and demanded that all national fleet accounts receivable payments due to Great Lakes be directed to Valvoline.
The company has closed 43 lube centers since July 2011, leaving it with a “central core” of 64 locations that management believes will be profitable after restructuring.
Great Lakes estimates its assets to be between $1 million and $10 million, and its liabilities to be between $10 million and $50 million. Among the creditors holding the 20 largest unsecured claims against the company are Interstate Battery with a disputed claim of roughly $187,5000; the city of Milwaukee, which is seeking just under $198,500 in real estate taxes; and the Milwaukee Brewers with a marketing claim of approximately $136,700.