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The Last Chicago Schwinn

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Schwinn's new Greenville factory, unlike the aging Chicago factory, could produce chrome-moly frames, but the factory was plagued with problems. It was managed from Chicago and the distance caused runs or surpluses of parts. Quality control was less than impressive. Dealers started canceling orders. The new factory never worked out its issues and never got out of the red. Greenville lost money every year that it produced bikes. Schwinn shifted most of its production to Taiwanese company, Giant, and closed the Chicago factory entirely in 1982. Nearly a century of American manufacturing came to a close. Another third of Schwinn's manufacturing went to Murray Ohio at their Nashville, Tennessee factory. Murray couldn't produce chrome-moly frames either and they turned out mountain bikes and antiquated road bikes that nobody wanted (they cost more than the competition also).

In 1983, the end seemed very near indeed. With a borrow, build, then repay strategy, Schwinn had amassed $60 million in debt since the end of the boom years and over production after unionization in 1980. Inventories were building and interest rates were hammering down on the struggling company. Three years of losses had seen Schwinn's net worth drop from $43.8 million in 1980, to less than $3 million in 1983. With the Chicago factory gone and the Greenville factory not quite pulling its own weight, Schwinn's lenders were getting nervous. With millions in write offs after the Chicago factory closing, Schwinn had almost no collateral. Never mind that its biggest liability, the outdated Chicago factory, had been cast overboard, Schwinn was facing bankruptcy. Weeks of negotiating resulted in a deal that listed the Schwinn name as a significant asset so that Schwinn could continue to borrow enough to purchase materials, parts, and bicycles. Things seemed to improve for a brief period.

Schwinn continued to outsource to Giant of Taiwan and, in so doing, began to stretch its design fingers once again. No longer saddled with the manufacturing limitations of antiquated in-house machinery, Schwinn began to put out competitive offerings and at lower prices because of the low costs of manufacturing in Taiwan.

After the poor showing of the Scrambler and Schwinn's inability to produce the popular Sting in large quantities, Schwinn finally introduced a BMX model that could compete with Mongoose. 1983's Predator (manufactured by Giant) was billed as "a track bike built for the streets," and it was just in time to see the decline of the BMX "fad" and the beginning of the next "flash in the pan," the mountain bike. Schwinn's failure to get in early on the era of the mountain bike was arguably the final nail in the Schwinn coffin.

Giant manufactured Schwinn's first chrome-moly mountain bikes in 1984, the Sierra and High Sierra. They were an instant success, if late to the market. Ned Overend even won the Pacific Suntour Series in 1984 on a stock High Sierra.

Schwinn's new Excelsior division had begun selling the Air-Dyne exercise bike in 1979 (also manufactured by Giant after 1982). The exiled Fritz, ever loyal to the Schwinn company, didn't go down without a fight. In 1986 Excelsior sold more than 65,000 units and was grossing almost $25 million per year. With near 50% margins, it was the most profitable division in the company (Schwinn bicycles were barely breaking even). Fritz couldn't keep up with demand. Ed Schwinn, Jr. was enraged. He continued to see Fritz as a challenger to his own power and he forced Al Fritz to retire in 1985. By 1989, Schwinn was selling almost 125,000 Air-Dynes, at which time the exercise bike was pretty much carrying the company.

In 1986, Schwinn was outsourcing 80% of its production to the growing Giant. In 1987, fearful of the potential competitor they had created, Schwinn, intending to protect themselves from a supplier that had grown too large, struck up a deal with China Bicycles. Schwinn purchased a third of the company and promised to divert most of its manufacturing away from Giant to the three year old company. China Bicycles, with Schwinn as part owner, knew that their biggest customer wasn't going anywhere. They did not go to the lengths that Giant had in wooing the Schwinn account. China Bicycles ramped up production slowly and could not meet Schwinn's demand or quality standards.

Meanwhile, Giant's feathers had been ruffled. The company had built enormous capacity to feed Schwinn and now needed to do something with the excess or drown under huge overhead costs. Giant put all of its force behind its own brand name and went head to head with Schwinn. By 1991, Giant was selling 300,000 bicycles under the Giant label every year in the U.S. alone. Schwinn was selling just over 500,000 units.

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