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Penske, Kmart reach agreement on store closures

Order Reprints

Penske Auto Centers LLC and Kmart Corp. have agreed to work together "to achieve an orderly wind-down of operations" at auto service centers at 563 Kmart stores nationwide.

The terms of the agreement reached between the two are subject to the issuance of a signed order by the United States Bankruptcy Court for the Northern District of Illinois.

On Saturday, April 6, Penske Auto Centers (PAC) Chairman Richard Peters said the chain was closing up shop immediately. In response, Kmart, which filed for Chapter 11 bankruptcy in January, requested -- and received -- a temporary restraining order against PAC, supposedly preventing the chain from discontinuing operations.

The order enjoined Penske "from taking any action to close or liquidate the Penske Auto Centers owned and operated by Penske Auto Centers LLC, including any action to refrain from opening or continuing to operate the auto centers for business as usual," according to Kmart.

Penske Corp. owns 64% of the tire and auto service chain; Kmart owns the remaining 36%.

Under the new agreement, Penske has earmarked funds for "certain close-down expenses, including facility restoration, removal of hazardous waste and materials associated with the wind-down, and monies to support Penske Auto Center's future customer's warranty needs."

PAC's parent company, Penske Corp., has approved PAC's payment of approximately $10 million for salaries, severance, and future medical expenses of PAC employees. Penske also has agreed to pay $6 million to Kmart under the terms of a master lease guarantee, and PAC has agreed to waive a claim of $5 million that allegedly was owed as a result of Kmart's previously announced store closing plan.

"We're pleased to have reached this agreement and are moving forward with a plan to convert the space occupied by Penske to additional Kmart selling space," said James B. Adamson, chairman and CEO, in a Kmart press release. "Furthermore, we are confident Penske's departure will not have any adverse affect on our business."

Modern Tire Dealer called the local Penske outlets in the Akron, Ohio, area today, and none of them were open for business. One line had been disconnected or was "no longer in service"; another rang with no pick-up or message. At still another store, a man said they were "closed right now for inventory."

One number listed another number to call, which turned out to be the Penske dealer locator service. The disembodied voice answering the new number said there were 650 Penske company-owned and operated outlets, and asked for a zip code "for the location nearest you."

After typing in our zip code, we called the number given us. "Hello?" a man answered. "Is this Penske Auto?" we asked. "Yes," he said. "Are you open today?" we continued. "We're out of business," he replied.

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