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1988 Schwinn Head Badge
1995 Schwinn Head Badge
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Schwinn Bankruptcy

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Next, Schwinn made the colossal error of acquiring a dilapidated bicycle factory in Budapest, Hungary. The cost for controlling interest was more than $1 million. This was a year after 1987’s record breaking $7 million profit. The plant needed to be overhauled. It was outdated in every way. The ceiling leaked. There was a lot of money to be saved on labor, but after that, it wasn’t even an improvement on the Chicago factory that Schwinn had closed. Hungarian labor proved to be lackadaisical in the crumbling former Eastern block. In 1988 the average Hungarian could make more money on the black market than as a legitimate worker for Schwinn. 1987 proved to be Schwinn’s best year. Without another banner year, the company couldn’t purchase the number of bikes from the Hungarian plant that it had projected.

Volume at the Budapest factory was too low to reap the benefits of economies of scale. Schwinn, the largest bike seller in America was juggling production from Giant, China Bicycles, the Hungarian plant, and its own Greenville factory in Mississippi. The company that should have been commanding the deepest discounts from materials and parts suppliers was losing money because it had splintered its manufacturing so poorly. In Europe for instance, the Budapest factory was a minor player and couldn’t command discounts from suppliers. Costs stayed high. Sales stayed low. Quality was never on par with Giant’s bikes. A recall from a faulty brake in 1991 cost Schwinn $1 million by itself. Schwinn would never recover.

Every problem that Schwinn had in manufacturing their bikes was felt by the dealers. If there were delays, the dealers had to scramble to get bikes from other brands. If the parts failed, the dealers had to handle the complaints even if Schwinn backed up the bikes with replacement parts. Higher costs for Schwinn went straight to the showroom floor and cut directly into dealer profits. Schwinn assumed that its reputation would allow retailers to collect higher prices, but with quality suffering Schwinn quickly lost its clout with those selling Schwinn bikes.

The dealers began turning to other brands. Schwinn attempted to throw its weight around, taking away dealer “authorization” and the benefits and protections that came with it. One dealer saw his sales drop 10% after he lost his Authorized Dealer status. The next year, sales were back because of other brands.

In the late 80s Schwinn had made it clear that it would be moving away from Giant. Giant, in turn had become a direct competitor. But Schwinn would never be able to fully rid itself of Giant manufactured bikes. In 1990, Ed announced that Schwinn would be aggressively severing all ties with the manufacturer. A year later Schwinn had to go back to Giant because their other factories couldn’t keep up. Schwinn just didn’t have access to the capacity they needed. Therefore, Giant continued to have access to Schwinn’s latest plans. Giant became less flexible on price and other services. They started calling Schwinn dealers and offering bikes almost identical to Schwinn’s models (produced at the same factory, even) at a lower cost. Giant made itself into a liability for Schwinn. Schwinn recognized the issue, but was powerless to do anything.

Managers started jumping ship in 1990 after a year of losing money. That same year, Schwinn lost a patent lawsuit related to the Air-Dyne, one of the company’s most important bread winners. Meanwhile, the Greenville factory lost $7.6 million dollars in 1990. The plant was closed in 1991. The banks to which Schwinn owed $64 million began to get nervous. They began to call in the loans as quickly but quietly as possible. All lenders were afraid of a rapid descent into the abyss, but hoped things would drop slowly enough for them to get their money out.

By the early 1990s, Michael Sinyard’s Specialized was grossing $170 million per year. More than Schwinn.

Schwinn filed bankruptcy in 1992 (just 3 years short of its centennial) and was purchased by the Scott Sports Group in 1993. By 1994 Schwinn had left 100 years of history behind, pulling out of Chicago and settling down in Boulder, Colorado. Scott took the company in a completely different direction. Almost all of the old lines were phased out within a couple years and Scott introduced a whole new type of Schwinn. The Homegrown mountain bike line was their new racing bike. Priced between $1200 and $3000 in 1995, these top-of-the-line stock racers featured the latest aluminum frames.

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