Blowout

When David Carmell bought Consumers Tire, the company's biggest liability was one that never showed up in the financials

No greater fear hath any company buyer than the fear of skeletons lurking in unseen closets. Lawsuits that haven't yet been filed. Hazardous wastes that haven't yet been found. David Carmell thought he'd checked out Consumers Tire pretty thoroughly before he bought it, but there were some company secrets he didn't find out -- until it was almost too late. -- J. H.

You couldn't escape the tires. They were everywhere. Musty, dirty tires, stacked half a dozen high in the hallway outside the chief executive's office. New, smelly tires lining the corridors, piled up in corner rooms upstairs, crammed into dank basement space below. If the sight didn't stay with you, the stench of new rubber did.

"We had to fumigate our clothes," says Ellen Carmell. "That company was the filthiest, most disgusting place you've ever seen."

Not that her husband appeared to mind. David Carmell was standing knee-deep in tires, but he was seeing resources -- granted, malodorous ones -- that needed "to be efficiently consolidated." Dressed in his uniform of gray pants and a white shirt, Carmell was an efficiency nut on a challenging mission. At 29, he had bought Consumers Tire & Supply Co., based in Chicago. As of this day, April 7, 1986, Carmell was running a $6-million company. It was only the second company he'd worked for since graduating from law school.

Since his college days, Carmell had always considered himself "a good conceptualizer, not a real stickler for details." So he wasn't about to let a few stray tires obstruct his view of the company's future. He planned to catapult the 60-year-old company into the modern age, installing computers and retraining workers. Then he would roll through the fleet-maintenance industry like an 18-wheeler, flattening the regional companies and creating a national powerhouse.

That's what he had assured his investors and his banker. That's the vision that helped sustain him during those first few weeks, when, from 6:00 a.m. to 8:00 p.m., he lugged tires around the building. "I learned from the start that this is not a coat-and-tie kind of business," he says.

But soon enough, he did have some other hallmarks of a chief executive. He cleared a space for his office and put a desk inside. On the desk he placed a picture of his wife and daughter. Leaning back in his chair, Carmell soon began to feel like a real CEO.

One afternoon, Carmell picked up the phone to hear a manager's voice on the other end. Is there a problem? he asked.

Well, said Haywood Foster, there are a couple of guys down here who say they need to talk to you. He hesitated for a second; he knew there was no way to prepare his boss for what was coming.

David, he added, they're from the FBI.

"Whenever you buy a company," says David Carmell, "you never know exactly how the previous owners ran the business. You can miss a lot."

Not that Carmell was -- or is -- an expert at buying companies. He ended up in business purely by accident. In 1981, Carmell was in his third year of law school when he happened to meet Robert Cohn, chairman of CFS Continental Inc., a $2-billion food-services distributor. Cohn hired Carmell as his assistant.

When CFS Continental was acquired in 1985, Carmell decided to strike out on his own. After cashing in his stock options, he lined up eight investors, most of whom he knew from a local club. Carmell visited many distribution businesses, everything from glass to baseball gloves.

He first saw Consumers in 1985. From the start, owner Freddy Taich struck him as the sort of fellow you wouldn't mind having for a neighbor. Though his family had always owned Consumers, Taich dressed in the standard brown smock, with his name stitched over the breast pocket.

As the two of them toured Consumers' five buildings, Taich recounted how his father had founded the business back in 1928. Albert Taich began by selling tires to local truckers who were dropping off goods at nearby meat and fruit markets. Later, he added a parts division.

Taich had been running the company since the early 1980s. He had grown the business, he told Carmell, by bidding for more contracts with the city, servicing police cruisers, buses, and garbage trucks, among others. Now, nearly 60, he found himself with no choice but to sell out. Neither his children nor his brother's were "capable of succeeding me," he said. He wanted to get his money out rather than watch them run it into the ground.

That wasn't Taich's only source of disillusionment. He had also decided that competing for city business just wasn't worth it. We're having to wait as long as nine months to get paid, he complained. Taich decided to cut out that business and sacrifice $6 million, about half the annual sales. "It sounded strange," says Carmell. "I figured maybe there was some politics going on."

Still, Taich assured Carmell that Consumers could remain healthy by servicing the private sector. Carmell remembers Taich's exact phrase. "This business," he said, "has been very good to me."

From what Carmell could see, Taich had not been very good to the business. The company looked like a subway station at rush hour: harried people running every which way. The tires and parts businesses were run separately, with different warehouses, showrooms, and trucks. Why not combine the two? Carmell asked. Taich shrugged. The separation, Carmell later learned, resulted from tensions between Taich and his father. That contained more logic than the Taiches' approach to warehousing. They used storage space on three floors, so employees were constantly bounding up and down the steps. On the shelves, different manufacturers' lines were intermingled and parts were duplicated. Carmell didn't know much about cars, but he noticed that oil filters were kept upstairs in the back. Why keep such fast-movers in such an inconvenient place? Always have, replied Taich.