Arnold, Schwinn & Co. II

Arnold, Schwinn & Co. II
Life Span: 1901-Present
Location: 47th Street and Kostner
Architect:

Lakeside Business Directory of the City of Chicago, 1904

Arnold, Schwinn & Co.

Lakeside Business Directory of the City of Chicago, 1907
Arnold, Schwinn & Co. bicycles 945 N 43d av

Lakeside Annual Directory of the City of Chicago, 1911
Arnold, Schwinn & Co. Ignaz Schwinn pres; Helen Schwinn sec; bicycles 1718 N 43d av

Chicago Tribune, October 23, 1901

Iver C. Zarbell has let the contracts for a two-story bicycle factory, 157×225 feet, to be built at 947-961 North Forty-Third avenue, for Arnold, Schwinn & Co., at a cost of $20,000.

Bicycling World and Motorcycle Review, February 23, 1907

Biggest of Enameling Ovens.
What is believed to be the largest cycle enameling oven ever constructed has been installed in the plant of Arnold, Schwinn & Co., Chicago; it has a capacity for 500 frames. It does not displace any of the old ovens but is used in addition thereto. This enlargement is one of the signs of the prosperity which the firm has enjoyed. Mr. Schwinn reports that 1906 was one of the best years in the firm’s history and that orders for 1907 indicate an even better one. The capacity of the plant is now 500 bicycles per day.

Bicycling World and Motorcycle Review, April 27, 1907

Talking about Schack recalls another man of the cycle trade who has fooled the prophets—Ignaz Schwinn. Don’t know him? Then do you remember the World bicycle and the World racing team that cut such figures in the whirlwind days in the middle 90’s? Yes? Well, Schwinn was the man behind the World bicycle and the World racing team. He kept his nose to the grindstone pretty closely and he is better known to-day than he was in those days. He’s the little bundle of nervous energy that kept the firm of Arnold, Schwinn & Co. alive while the prophets were figuring that the firm was down and out, not once, but several times. They still have a big plant in Chicago, with a tremendous output which Schwinn says will reach a total of 60,000 bicycles during the current year. He makes and has made tens of thousands of special brand models, but he has kept the World alive while doing so. He still markets it under the old nameplate, and there is no denying that it is an attractive appearing mount. If Schwinn’s fighting blood reaches fever heat again, it would not cause much surprise did the World quickly regain its old stride. That rather striking model you see in the Arnold-Schwinn collection is their other nameplate machine, the Admiral. It is about the only bicycle now made with head, frame and forks finished with striping. It’s remarkable how that striping singles it out from the others, isn’t it?

Bicycling World and Motorcycle Review, October 22, 1910

Arnold, Schwinn Enlarging Its Plant.
Work has commenced on a brick factory addition for Arnold, Schwinn & Co., Chicago, Ill., which will cost $35,000. When completed it will give 27,000 feet additional floor space. A new smokestack 124 feet high and five feet in diameter, costing the $2,500, is in process of erection.

A collection of early Schwinn frame badges.

Bicycling World and Motorcycle Review, October 28, 1911

Following the negotiations which been pending for some time, Ignaz Schwinn, of the Arnold, Schwinn Co., Chicago, have practically consummated the purchase of the name, good will and plant of the Excelsior Supply Co. on Friday last. It is understood that Mr. Schwinn has paid $147,000 for the business, and that he will take the title dating October 16th. The sale, however, is contingent on Mr. Schwinn being able to secure a new lease on the Excelsior plant for a period of two years and the privilege of renewal of one year. The Excelsior Supply Co. now has a lease on the factory for twenty years and the approximate rental is $23,000. Seventeen years is still to run on this lease, but Mr. Schwinn desires to make a new lease for the period stated. Pending the result of negotiations in regard to the lease, Schwinn is tentatively in charge of the plant.

Seven members of the creditors’ committee met in Chicago last week to go over the matter and an agreement was reached after Mr. Schwinn had made several offers. The cred.tors’ committee has full power to act in such matters through the virtue of power of attorneys granted to them by the other creditors. If this deal is consummated it is estimated that the creditors will receive about 40 cents on the dollar for their various claims. It is understood that the present Excelsior force will be continued by Mr. Schwinn and that the present Excelsior policy will remain and similar models will be manufactured without the loss of a day’s time and, no doubt, on a larger scale.

The Excelsior Supply Co. was organized in 1906 for the purpose of manufacturing motorcycles, by George T. Robie, the father <>f Fred C. In addition to the manufacture of motorcycles, this company also had a large automobile supply jobbing business and later began, unfortunately, the manufacture of motor car engines. This latter move, however, proved to be the undoing of the company and finally resulted in its being placed in the hands of the creditors last fall. George T. Robie had died in the meantime and Fred C. turned over all his property to the creditors, whose claims amounted to $897,000. It was decided at the time by the creditors to appoint a committee of seven to continue the business and this committee had full power of attorney to act. The committee found that every line of the business, except that of the manufacture of motorcycles, was running at a loss, and hence dropped the other departments and gave their full attention to the motorcycle. The business has grown to a healthy state under this arrangement and it is stated that some 6,500 machines were sold last year, and that since the entrance of the Excelsior into racing events the business has taken a decided bound. There are now in the course of manufacture between four and five hundred machines, which will probably be sold in a short time, and it is almost certain that the creditors’ committee would not feel authorized to continue the management of the business after these machines are disposed of.

If the contingency is overcome and the sale consummated, Mr. Schwinn will proceed to manufacture motorcycles without a hitch of any kind and the business will continue without the loss of a minute or a day, probably along larger and more progressive lines. This title, dating October 16, of course will include the plant, machinery, tools and good will and between four and five hundred unfinished machines, as stated. Mr. Schwinn is well known in the trade, having been a manufacturer of bicycles, marketed largely through the jobbing trade, for some twenty years, and has built up the business, calling for an output of 100,000 wheels a year.

Chicago Tribune, December 8, 1918

Chicago Tribune, September 2, 1948

Ignaz Schwinn
Services for Ignaz Schwinn, 88, of 2128 Humboldt blvd., who died Tuesday in his home, will be held at 10 a.m. Friday in St. Sylvestor’s church. He was a co-founder of Arnold Schwinn & Co., bicycle manufacturers, at 1718 N. Kildare av.

Frame badges of the three new trademarks introduced in 1938.

Brief History of Schwinn Paramount.
In the 1930s. Schwinn sponsored a bicycle racing team headed by Belgium master frame builder, Emil Wastyn. Wastyn designed and built the original Schwinn Paramount in 1937. In 1938, Frank W. Schwinn officially introduced the Paramount series. Developed from experiences gained in racing, Schwinn established Paramount as their answer to high-end, professional competition bicycles until 1941. The Paramount used high-strength chrome-molybdenum steel alloy tubing and expensive brass lug-brazed construction. During the next twenty years, most of the Paramount bikes would be built in limited numbers at a small frame shop headed by Wastyn, in spite of Schwinn’s continued efforts to bring all frame production into the factory.

While many large bicycle manufacturers sponsored or participated in bicycle racing competition of some sort to keep up with the newest trends in technology, Schwinn restricted its racing activities to events inside the United States, where Schwinn bicycles predominated. As a result, Schwinns became increasingly dated in both styling and technology. By 1957, the Paramount series, once a premier racing bicycle, had atrophied from a lack of attention and modernization. Aside from some new frame lug designs, the designs, methods and tooling were the same as had been used in the 1930s. After a crash-course in new frame-building techniques and derailleur technology, Schwinn introduced an updated Paramount with Reynolds 531 double-butted tubing, Nervex lugsets and bottom bracket shells, as well as Campagnolo derailleur dropouts. The Paramount continued as a limited production model, built in small numbers in a small apportioned area of the old Chicago assembly factory. The new frame and component technology incorporated in the Paramount largely failed to reach Schwinn’s mass-market bicycle lines. Another change occurred in 1963 following the death of F. W. Schwinn, when grandson Frank Valentine Schwinn took over management of the company.

In the early 1970’s, Mainland built a number of the all chrome Paramounts, using Nervex lugs. In an interview with Mainland, he indicated that his frames were very well-received by Schwinn, for their superior workmanship.

Chicago Tribune, May 18, 1941

Bakersfield, Cal., May 17 (AP).—Alfred Letourner of France, riding behind shield attached to race car, bettered the world paced bicycle speed record today, reaching 108.92 miles per hour, an event timed by the AAA.

The six day bike racer rode behind a large shield attached to the rear of an automobile driven by Ronney Householder. Shield creates vacuum which draws rider at speed of auto, Note large sprocket geared for speed. Earlier this month he raised the mark of 87 miles per hour, set by Albert Marquette in Los Angeles in 1933, to 90.91 m.p.h.

Alfred Letourner’s cycle is a Schwinn Paramount Racer. The large sprocket has 57 teath, the rear, six, which gives a gear of 252.

1942 Schwinn Catalog—Merrily We Roll Along

1971 Schwinn Catalog—Hawaiian Holiday

1974 Schwinn Paramount P-10

1974 Schwinn Catalog—Cycling Adventures

1976 Schwinn Catalog—Cycling America

Chicago Tribune. April 15, 1979

Most of the bicycles sold in the U.S. are sold through mass merchandisers like Sears and K Mart, and most of the bikes are made by three firms: Murray Ohio Manufacturing, Huffy Corp., and AMF Inc.

But fourth in production is the Schwinn Bicycle Co. of Chicago. A conservatively run company, Schwinn has held strongly to its marketing tactics, even as its market share gradually has eroded from 25 per cent of bikes sold in the U.S. in 1950 to 11 per cent today.

The big three manufacturers sell to the big retailers and discount stores, engage in pricing wars, fight for market share, and contemplate diversifying into businesses more profitable than that of making bicycles.

Schwinn, on the other hand, has no intentions of diversifying. The firm continues to make only bicycles and exercisers and maintains its longstanding image as the manufacturer of high quality bikes. Schwinn sells its bikes for roughly twice the price that mass retailers charge and sells only through 1,676 special Schwinn dealers.

The firm founded 84 years ago by German bike-maker Ignaz Schwinn, is privately owned and run by the third generation of his descendants. They continue to pursue the single-minded marketing strategy their founder developed: Sell a high quality product under your own brand name in special bike shops and provide strong customer service.

But how long can this type of service-oriented business remain profitable—especially if Schwinn continues to lose market share in the bike business? The answer is unclear.

Schwinn is tight-lipped about its fi-nances and in a recent interview with The Tribune, the only figures long-time marketing director Ray Burch would reveal is that last year’s-total sales of 1 million bicycles brought in more than $100 million in revenue and the current average price of a Schwinn bike is $130.

Schwinn’s competing bikemakers in the U.S. say they can’t see how Schwinn is making any money on its bikes, although the firm makes a regular, profit every year.

“The part of the market they’re in, the for bikes costing more than $100 and sold through bike shops is just not growing at all,” said a high-ranking executive at one of the big three bike manufacturers.

He also claimed Schwinn isn’t making enough money to reinvest in automated equipment to cut bike production costs. Unless it does that, the costs of making bikes will climb and customers will shy away from the higher prices. Schwinn would need to increase its market share continually just to stay even.

Birch dismisses this scenario.

“We’re making money and there will always be a market for our type of bike. Not everyone in the world wants cheap bikes. That’s like saying VW will chase Cadillac out of the car business. We have our biggest order backlog this year since 1973.’

Schwinn plans to survive and prosper without diversifying out of their particular market niche, he said.

We’d like to increase our share of the market but we have to be realistic. Cadillacs will never outsell Chevrolets. Our strategy is to get the middle-bracket customer to upgrade his bike and buy a Schwinn.

In fact, those manufacturers of cheaper bikes have probably driven away customers. If the first bike someone buys is a cheap one that’s hard to ride and falls apart, it will just sit in the garage and they’ll never realize how much fun bicycling is.

Schwinn’s return on equity is below that of the average manufacturing firm in the Fortune 500, a condition endemic to the entire bike business, said Burch.

You get good years and bad years in this business and sance 1974 these have not been profitable years for manufacturers, wholesalers, or retailers of bicycles. Demand has been soft.

In fact, 1978 was a terrible year for the bicycle manufacturing business as a whole. The three major U.S. manufacturers were involved in a price war all year, depressing their skimpy profit margins even more. Sears, the major retailer of bikes in this country fdr the last 50 years, decided that bicycles were a line of goods with little growth and depressed profits where they could gain little market share.

The firm reportedly has decided to cut back on the volume of cheaper bikes it sells in an attempt to make a larger profit on each, thus putting its major supplier, Murray Ohio,in a difficult post- tion.

Early this year, the three major manu- facturers raised their prices, pulling themselves somewhat out of their profit squeeze, but the industry is projecting sales to be level or only slightly higher than last year s volume of 9.5 million bicycles.

By sticking to its Cadillac philosophy, Schwinn is at least no worse off than its other U.S. colleagues.

Schwinn decided on its marketing strategy back in the 1920s when Ignaz Schwinn fought with one of his chainstore retailers who wanted his firm to make a cheaper bike. He refused, charging it would hurt his reputation for quality, and he began pulling his products out of chain stores. Eventually he consolidated all his sales through a limited number of bicycle dealers, a move which cut his market share.

The other bicycle makers manufactured cheaper bikes, sold them through chain stores, and relied on the low price to sell the bike. They made their profits on volume.

By deciding to sell a more expensive bike, Schwinn found himself locked into one marketing approach. The bike had to be sold by trained staff members who had to explain to customers how the bike s high quality justified its relatively higher price. Chain store clerks simply could not do this, Schwinn found, and so the dealer system was hatched.

The commitment to a higher quality bike also shaped the type of manufacturing equipment Schwinn could use. The firm could not become a mass producer of cheaper bikes even if it wanted to because it would require a completely different plant machinery and setup, says Burch.

Today, Schwinn is trying to take away market share from imported 10-speed bikes priced from $150 to $300, which make up roughly 10 per cent of all bikes sold in the U.S. The firm has come out with a line of lightweight bikes, the LeTours, after marketing research finally convinced the company s bike engineers that Schwinn’s heavy, 38-pound, 10-speed was not what consumers wanted’, in this price range.

“We were making heavier flashweld bikes and didn’t tool up as fast as we should have to make these lightweights,” Burch said.

Schwinn anticipates it will make 1.25 million bikes this year and has sold all production at the plant through July. The company has also postponed plans to build a new plant in Tulsa, Okla., because of the high cost of money and soft demand for bicycles, Burch said.

The bike market hit its peak in 1973-. when 15 million bikes were sold. “We don’t anticipate we’ll see that kind of volume again until 1990,” Burch said.

“We don’t need that additional capacity. now.”

Chicago Tribune, September 15, 1980

Schwinn Bicycle Co. is facing the first labor strike in its 110 year history.

At a meeting Sunday, Schwinn workers, represented by Local 2153 of the United Auto Workers Union, voted 629 to 60 to ask their union leadership for the authority to strike. Carl Shier, a union spokesman, said no strike date was set. However, the union could authorize a walkout as early as Sept. 22, if the bicycle firm continues to refuse to recognize the union.

UAW officials won recognition as the workers’ collective bargaining agent last March in an election at the plant, 1856 N. Kostner Av. Schwinn appealed the election results but were denied a review.

Last Wednesday, the local filed charges of unfair labor practices against the company with the NLRB, complaining Schwinn had refused to begin negotiations on a contract.

Schwinn officials could not be reached for comment Sunday. The company empoys 1,400 people.

Chicago Tribune, October 26, 1983

Schwinn Bicycle Co., the Chicago-based company whose name once was practically synonymous with its product, has quietly ended its bicycle business here.

Hard hit by foreign competition in the late 1970s, Schwinn decided it would be cheaper to assemble its bicycles elsewhere or buy them overseas than to update its obsolete Chicago plants.

“Schwinn got caught with antiquated manufacturing facilities, said Hal Vogel, an analyst with Merrill Lynch in New York.

“We haven’t produced any finished bicycles (in Chicago) since 1981,” said Edward Schwinn, Jr., president of the family-run company. Schwinn stopped producing frames here last summer although it still manufactures a few bicycle components here.

SCHWINN EMPLOYED 1,900 at its three Chicago plants when production peaked several years ago. Now there are about 100 workers—600 nationwide—and only one plant is still producing here.

Schwinn now manufactures only a small portion of its bicycles—at its plants in Greenville, Miss., which produces La Tour models, and Waterford, Wis., which makes specialized bikes. Nearly half of its bikes are imported and since September, 1982, one-third have been manufactured by Murray Ohio Manufacturing Inc., of Brentwood, Tenn.

Schwinn has laid off 600 workers since last fall, and though the fir has termed recent layoffs “seasonal,” the union expects the remaining plant, which houses its manufacturing services division at 1856 N. Kostner Ave., to be closed later this year.

Employees bitterly contend that Schwinn decided to phase out its Chicago manufacturing operation when their union, formerly independent, affiliated with the United Auto Workers after a lengthy strike in 1980.

“They just couldn’t handle the high cost of labor here,” said one Schwinn dealer. “Now, their prices are down and they caqn compete with any bikemaker.”

“They’ve had a master plan to stop manufacturing in Chicago all along, but didn’t tell anyone. They’ve just been going through the motions with the union,” said Henry Malone, the union’s president.

When Schwinn entered the agreement in September, 1982, with Murray, that was the beginning of massive layoffs and the closing of everything here,” said one former Schwinn executive. “Aftert 87 years in Chicago, they didn’t want to broadcast that.”

“Parts (of the facilities) are so old, it isn’t funny,” Schwinn said. “The ceilings are too low for modern production.” The plants are used for research, testing, and engineering operations, and as a warehouse and museum, Schwinn said.

“We have no grand plan (for Schwinn’s Chicago facilities) other than to make our manufacturing services division successful,” Schwinn added. He said the company is trying to expand the division, which makes component parts for other companies, but wouldn’t comment on its present size.

Schwinn’s Plant No. 2 on Kostner Avenue is in “very good condition,” Schwinn said. The manufacturing services division has about seven customers, including automotive, X-ray machine, exercise equipment and elevator companies, said Lee Meader, vice president of human resources.

“We’s like to give it more visibility. It’s been profitable,” Schwinn said of the division.

“We have a good reputation for manufacturing things. We’s like to expand that,” Schwinn said. “But I can’t say we want to be the biggest component-maker in Chicago.”

Looking for new contract business, Schwinn recently advertised its robotic welding, punch press, tube processing and automatic screw capabilities.

But Schwinn, whose grandfather Ignaz founded the company at the turn of the century, says the company hopes to maintain its current share of the bicycle market.

The bicycle business, a $1 billion industry in this country, is emerging from the recession, which last year pushed sales down to their lowest level in a decade, according to the Bicycle Manufacturers Association of America.

The industry is expected to grow 8 to 10 percent annually over the next two years and then level off a yearly rate of 3 to 6 percent, said William Wilkinson, spokesman for the association. This year, imports will account for 2 million of the 8.1 million bicycles sold in this country.http://chicagology.com/

Because of foreign competition and recession, Schwinn’s sales have been sliding since 1974, when it shipped a record 1.5 million bikes. This year, unit sales are up about 10 percent to about 900,000 bicycles, Schwinn said.

The privately owned company won’t release sales figures. It reportedly suffered a huge loss last year, though Schwinn declined to comment on its financial condition.

Schwinn’s market share peaked in 1950, when it manufactured 25 percent of bicycles sold in this country. Since 1972, its portion has fluctuated between 10 and 12 percent, according to Schwinn figures.

“I think their market share will drift down over time,” said Merrill Lynch’s Vogel. “They won’t collapse but they’ll be less of a factor.”

More than half of Schwinn’s bicycles are now imported from National Bicycle of Japan and Giant Cycle of Taiwan, Schwinn said.

In September, 1982, Schwinn hired Murray Ohio, one of the country’s two largest bike companies, to produce up to 300,000 bicycles a year.

Robert Hash, vice president of marketing at Murray said the companies have begun negotiating to extend the two-year agreement. Murray produces Schwinn’s Varsity and Continental models and several lines for children.

Schwinn first went shopping overseas in 1972, when the renewed popularity of bicycling in this country sent sales through the roof and its production reached capacity.

Schwinn’s heavy, lug frame bicycles later lost their consumer appeal. But because of its old plants, the company couldn’t perform the new welding processes used by foreign manufacturers in producing their increasingly popular lightweight models.

“It would have been too expensive to retool,” Schwinn said. “We would have had to tear it down.” Schwinn’s original plant was purchased in 1906 in a bankruptcy sale.

Mahone and former employees say Schwinn’s key executives have been secretive about plans for phasing out their Chicago operations. They say Schwinn, which for years boasted of its hand-built quality, wants to downplay the fact that Schwinn has become primarily a bicycle distributor.

“No one is going to pay Schwinn prices for a Murray-built bike,” Mahone said. Recently, the union circulated leaflets urging consumers not to buy Schwinn bikes and charging the company with unfair labor practices.

Some analysts contend that Schwinn is losing its premium edge in the industry by buying its bicycles from other manufacturers.

But Schwinn said, “In 1984, we hope to sell about 1 million bicycles. We’re a very small bike manufacturer. We hope to grow modestly and continue our high-quality reputation.”

He said he doesn’t believe Schwinn’s overseas purchasing program will hurt the company. “It’s not where the bike is made, it’s how it’s designed that matters. And Schwinn still designs all their bikes.”

In the meantime, analysts say Schwinn’s distribution system is being overshadowed by its competitors’ mass merchandising strategies.

Huffy and Murray, which sell through major department store chains such as Sears, Roebuck and J. C. Penney “are more powerful in marketing and distribution,” Vogel added. Together, Huffy and Murray account for about 75 percent of the domestic bicycle market.

“The others can flood the market,” Schwinn acknowledged.

But Schwinn’s supply problems this year angered its dealers and some have pressured the company to allow them to sell competing brands.

Schwinn forced certain merchandise on dealers, but couldn’t stock them with enough of its fastest-selling models to keep up with demand.

“There’s a lot of dealers who aren’t happy. Very seldom were orders more than half filled. It was ridiculous,” said one dealer, who declined to be named.

But he added, “Schwinn still has a good name, if the company would just learn how to use it.”

New York Times, January 2, 1993

SCHWINN READY TO SELL MOST ASSETS.
By Barnaby J. Feder

After 97 years of family ownership, the Schwinn Bicycle Company plans to ask a Federal bankruptcy judge here on Tuesday for permission to sell most of its assets, including its name, to the Zell-Chilmark Fund, an investment partnership that specializes in acquiring financially strapped businesses, and Scott U.S.A., a company in Sun Valley, Idaho, that makes ski equipment and bicycles.

The sale would provide Schwinn with nearly $41 million it needs to order its 1993 products from Asian suppliers in time to provide its 1,800 dealers with full inventories for the March-to-May selling season. Other terms, outlined in papers filed with the court on Thursday, could lift the total value of the deal to more than $60 million.

Family Would Lose Influence
The Schwinn family, which owns the company through a trust fund, will end up with $2.5 million and the contents of the company’s bicycle museum here. But it is expected to lose all influence over the company, and Edward R. Schwinn Jr., the company’s chief executive and great-grandson of the founder, Ignaz Schwinn, is not expected to remain in that post, people involved in the bankruptcy say.

Schwinn’s plight, like the travails last year of giants like I.B.M., General Motors and Sears, Roebuck, drives home the difference between bearing a famous corporate name and boasting a healthy business.

Schwinn has never been the nation’s largest bicycle company, and its market share during the 1960’s never topped 25 percent. Analysts say its share of the $3.2 billion industry is about 7 percent and falling. Its fame rests on its leading role in creating a network of independent dealers and trained mechanics around the nation and its longtime dominance through them of the markets for moderately priced and expensive bicycles.

Thus, when the Baby Boomers took to two wheels, a Schwinn was often the bike they dreamed of getting. A 1990 survey by Landor Associates, a market research company in San Francisco, rated the Schwinn name as the best known among American consumers in all of sporting goods and 297th among all businesses, right behind United Air Lines and ahead of Doublemint gum. Name Means Bicycles

“Schwinn still means bicycles to the average person,” said Thomas French, who founded Trek Inc., a bicycle maker in Waterloo, Wis., and is now general manager of Cycle Composites Inc., a company in Watsonville, Calif., that makes bicycles with carbon-fiber frames. Schwinn owns a 30 percent stake of Cycle Composites, which would not be included in the proposed deal.

Schwinn’s sales peaked at $212.5 million in 1988, according to records filed in the bankruptcy case. They were projected in October to be about $170 million for 1992. Although lack of cash precipitated the bankruptcy, the company was also suffering from lack of profits, with a $10 million loss projected for 1992.

Many of Schwinn’s problems, including labor woes, high overhead and dependence on Asian suppliers who became direct competitors, had been visible in the industry for years. During the 80’s, bicycle dealers say, Schwinn was often reasonably quick to recognize market trends like mountain bikes but not as deft as smaller competitors at exploiting them.

Newcomers like Trek Inc. and Specialized Bicycle Components of Morgan Hill, Calif., rode the surge in demand for mountain bikes to rapid growth. More recently, the Giant Manufacturing Company of Taiwan and the China Bicycles Company of China, manufacturers that Schwinn had turned to as it shut its domestic plants, have used the technology and distribution skills they learned from Schwinn to become major exporters of their own products to the United States.

Powerless to Stop Move
China Bicycle’s entry in the American market came with its purchase of the Diamond Back name and distribution network in 1990, a move Schwinn was powerless to stop even though it owned 33 percent of the Chinese company. That stake was reduced to 18 percent when China Bicycle sold shares on the Shanghai exchange this year.

Schwinn’s stake would be eliminated entirely under the proposal filed Thursday with the court. China Bicycle is Schwinn’s largest unsecured creditor, having shipped about $18 million worth of bicycles on credit before the bankruptcy filing. The Zell-Chilmark offer includes a provision to swap the stock for the debt.

If estimates in the court records that the stock is worth up to $40 million are correct, China Bicycle’s final coup in the joint venture will be to exploit Schwinn’s desperate need for a quick cash infusion to get full value for its unsecured debt while other creditors would be forced to settle for less. Hailed for Use of Computers

During the 1980’s, Mr. Schwinn enjoyed a reputation as an outgoing executive capable of visionary thinking. He was hailed as an early adopter of computer-aided design and Schwinn became a leader in the exercise machine wave by acquiring and developing the Airdyne line. It also pushed bicycle dealers to exploit the fitness business.

A 1986 Business Week article said Schwinn was an example of a new trend, citing the company’s withdrawal from most manufacturing to concentrate on design, distribution and merchandising, making it more of a network than a traditional corporation. A 1988 investment in a Hungarian bicycle plant, once seen as a step that put Schwinn in the vanguard of American companies positioned to exploit the opening of Eastern Europe, is now being criticized as a money-losing diversion.

The bankruptcy has also put a harsher light on the company’s continuing support for its prestigious line of Paramount bicycles, which are largely made by hand in Waterford, Wis., and cost up to $5,000.

Paramount earns Schwinn the kind of respect from bicycle enthusiasts that auto companies get from supporting racing cars, but bankers see it as an indulgence that produces little or no profit, industry experts say.

Schwinn 1992 Standard Catalog and 1992 Paramount Catalog

Precariousness Largely Hidden
The precariousness of Schwinn’s condition remained largely hidden until 1992. The first unmistakable sign that the troubles might be spinning out of control came in the spring, when word leaked of an unsuccessful attempt to sell a controlling stake to outside investors. Still, the bankruptcy filing startled Schwinn’s dealers and others.

“We have had some problem getting products over the past two years, but the bankruptcy was a surprise,” said Eugene Amagliani Jr., whose family has been selling Schwinns in Memphis, since 1917. Like most dealers, Mr. Amagliani also carries rival lines.

In November, Schwinn laid off half its work force of 320 people nationwide, including 60 of the 120 people at its Chicago headquarters. Court papers suggest that without new financing, Schwinn would have to abandon half its dealers.

Schwinn’s problems did not become overwhelming until it ran into the recession, and its banks became reluctant to let it borrow freely, a situation familiar to much of American industry in the last two years. The company’s condition worsened rapidly over the summer. According to the company’s bankruptcy filing, the bank credit squeeze reduced its secured bank debt from more than $64 million last Jan. 31 to $32.5 million.

As bank lending dried up, the company ran up its unsecured debt with its two chief suppliers, Giant and China Bicycles. Then they began to restrict their shipments.

One distressing aspect of the company’s predicament, dealers say, is that sales are strong.

Milwaukee Journal Sentinel, December 14, 2003

THIS ISN’T YOUR FATHER’S SCHWINN.
Waterford Precision Cycles shifts gears with custom bikes

By Rick Barrett
Waterford – From the remnants of a legendary family business, Richard Schwinn created his own bicycle company. David Wages, a frame builder with Waterford Precision Cycles, brazes a seat bracket. The company, co-founded by a member of the Schwinn family, produces high-end bicycles.

Marc Muller (left) and Richard Schwinn, co-founders of Waterford Precision Cycles, have been in business together since 1993, buying the facility during the Schwinn Co.’s bankruptcy proceedings.

Waterford Precision Cycles
Co-founded in 1993 by Richard Schwinn, great-grandson of Ignaz Schwinn, the founder of Schwinn Bicycle Co. Richard has a master’s degree in business administration from University of Denver and was vice president of production for Schwinn Co. before it filed for Chapter 11 bankruptcy in 1992. At Waterford, Richard’s business partner is Marc Muller, who designed Schwinn racing bikes.
Location: Village of Waterford, about 35 miles southwest of Milwaukee. The company is in a former Schwinn Co. factory and employs about 18 people.

It doesn’t have much in common with the Schwinn Bicycle Co. that once was a household name for Sting-Rays, Varsities and Orange Krate bikes. Richard Schwinn’s company, Waterford Precision Cycles, is tiny compared with the former family-controlled Schwinn Co. that peaked at more than $200 million in annual sales in the late 1980s but filed for Chapter 11 bankruptcy in 1992.

Waterford Precision Cycles is housed in an old Schwinn Co. machine shop in the village of Waterford, 35 miles southwest of Milwaukee. A pudgy Labrador retriever named Gunnar greets guests at the door, followed by Richard Schwinn dressed in faded blue jeans and a work shirt.

The unpretentious business owner has a wry sense of humor about an industry in which his family’s name was a powerful force for nearly a century.

“Life in the bicycle business is tenuous at best,” he says. “Why did the old Schwinn company die? Well, that’s like complaining because your Aunt Lucy lived to be only 106 rather than 108 years old. The number of businesses that last as long as Schwinn did, under one ownership, are few and far between. Just like at Yellowstone, not many of the bison live to get very old.”

Schwinn goes Pacific
The Schwinn bicycle brand is now owned by Pacific Cycle, a Madison-area company that is one of the nation’s largest bicycle distributors and also has Roadmaster, Murray, Dyno and other brands in its stable.

Richard Schwinn, and business partner Marc Muller, started Waterford Precision Cycles in 1993 when they bought the Schwinn Co.’s last remaining U.S. factory from the company during its bankruptcy.

Schwinn was vice president of production for Schwinn Co. Muller worked for Schwinn as a designer of the company’s hand-crafted Paramount racing bikes.

The Waterford shop, then known as the Paramount Design Group, wasn’t very big. But it had the tooling and specialized jigs needed to build elite bicycle frames.

“This factory was too useful to get lost in the shuffle,” Richard Schwinn recalled. “It had some reasonable profit potential.”

Waterford bikes are hand-built using some old techniques and new, high-tech steel alloys. The prices for a complete bicycle range from about $2,500 to $8,500.

Waterford frames are made from steel rather than aluminum or other materials, partly because the alloys used are light weight, strong, and lend themselves to custom shaping.

“This is not the steel that was on your old bicycle,” Schwinn said. “It is five to six times stronger . . . and a completed bike frame can weigh under three pounds.”

Sizing up the customer
Each Waterford frame is custom-built for its owner based on the person’s measurements and type of riding.

The fitting process goes even further, Schwinn said. “We tell people to bring their biking shorts and shoes here to the factory. They sit on a sizing machine, which is like a stationary bike, and spend about 45 minutes to an hour” getting measured for their new bike.

Waterford offers almost a limitless choice of colors. Some people have their names painted on their bikes, and some choose custom paint schemes like a black and white Holstein special.

The company has a less expensive line of bikes named after Gunnar, the company mascot. Gunnar bikes have outsold Waterfords, in volume, and are opening some new markets for Schwinn and Muller.

Schwinn said Gunnar was launched in 1998, partly as a backup to Waterford. So far, most Waterford bikes have been aimed at road riding. Gunnar, on the other hand, offers a wider selection of off-road and road bikes, including racing models.

“We didn’t want to downgrade the Waterfords, but we wanted something to make our product line more adaptable should there be a recession,” Schwinn said. “Gunnar is still a high-end bike. It’s just not as custom as a Waterford, and the prices start at about $1,500 instead of $2,500.”

Waterford grew rapidly through 2000 and then slowed some with the recession. It now has about 18 employees, up from eight when the company started.

The work that Waterford does is too customized for most manufacturers, said Fred Clements, executive director of the National Bicycle Dealers Association, based in Costa Mesa, Calif.

“Waterford is dealing with what’s almost a sub-niche” of the bicycle industry, Clements said. “It doesn’t need 1,500 storefronts and hundreds of thousands of units to be profitable, and it’s not as much of a slave to fashion trends” as other bike companies.

Waterford builds all of its bicycle frames in Wisconsin, while most bicycle companies have frames built in Asia.

“If you surveyed the bicycle business seven years ago, about two-thirds of the bikes sold in the United States were built in this country,” Schwinn said. “At this point, it’s probably less than 10%.”

For consumers that are used to spending several hundred dollars for a new bicycle, the prospect of spending several thousand dollars could be daunting.

“But when you compare the cost of buying a Waterford to even a used Harley-Davidson, we are a cheap date,” Schwinn said.

Waterford has a small presence overseas, including dealers in Germany and New Zealand. The company could do more business outside of the U.S. if it weren’t for the dollar’s strength, Schwinn said.

The company’s total sales are about $1.5 million a year and have grown roughly 10% annually. This year, the company will make about 3,500 bikes.

As the great-grandson of Ignaz Schwinn, who founded Schwinn Co. in 1896, Richard said it was hard to watch the family business crumble.

In 2001, Pacific Cycle paid $86 million for the assets of Schwinn/GT Corp. out of Schwinn’s bankruptcy. The last vestiges of the Schwinn family bicycle collection were sold at auction in 1997, with a 1968 Schwinn Sting-Ray selling for $16,000.

“The company was a legend, but it also was an old-line manufacturing company with a lot of old-line problems,” Richard Schwinn said. “That last year was a train wreck,” when foreign competition peaked and bicycle sales fell in the recession.

Schwinn isn’t getting rich with Waterford Precision Cycles, but he likes having a product that others can’t easily copy.

“We can do some things here that we probably couldn’t do under corporate ownership,” he said. “In some respects, being free from the old Schwinn company has helped.”

Ignaz Schwinn and his partner, Adolph Arnold in front seat of the first car designed by Ignaz Schwinn and built by Arnold, Schwinn & Company in 1896.

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