Schwinn scooter brand falls victim to legal, financial woes

Publish Date: 
Jan 22, 2014
By Holly J. Wagner

AUGUSTA, Ga. - The bankruptcy of Tomberlin Automotive Group (TAG) has left dealers of Schwinn-branded scooters in the lurch, with neither Tomberlin nor Schwinn brand licensor Pacific Cycle claiming responsibility for support or parts for these vehicles.

It may spell death for the Schwinn scooter brand. Meanwhile, some wholesalers and retailers say they carry parts for Chinese-made scooters that will support Schwinn vehicles. 

“We were somewhat naïve. We felt like they were transferring the dealer channel over to us. It was a wrong assumption, evidently, on our part."

-- Mike Tomberlin 

TAG CEO and majority owner Mike Tomberlin acquired the Schwinn brand licensing rights in 2009 from Pacific Cycle Inc., a subsidiary of Montreal-based Dorel Industries. Tomberlin transferred the license to another company, PowerGroup, where he is the majority owner. PowerGroup was responsible for Schwinn scooters, he said.

Eventually, however, the business opportunity started to unravel. Sales were far below expectations, and in a trademark dispute, PowerGroup incurred a $1.56 million judgment  for unpaid licensing fees due Pacific Cycle.

Tomberlin said strict instructions from the court prevented him from using the Schwinn brand in the future -- or even staying in the scooter business. “We were under strict instructions that we are exiting that segment -- no use of the logos, parts or anything,” Tomberlin said.

Tomberlin on Oct. 29 sent a letter to “hundreds” of dealers explaining the judgment and the situation. “A Federal Magistrate in Madison Wisconsin has agreed with Pacific Cycle, Inc. that the transaction was simply a license agreement. No dealers were assigned. The court also issued a summary decision that PowerGroup owes Pacific future minimum royalties exceeding one million. Those royalties were based on unrealized revenues projected by Pacific from their original dealer base that they did not assign and from existing orders that faded away. PowerGroup acknowledges the confusion of compliance for the approximately 500 dealers that remain with Pacific Cycle,” the letter says, and refers dealers to Pacific Cycle.   

The actions likely spell death for the Schwinn scooter brand. "We have no plans to license Schwinn Motor Sports to anyone else. It’s just not a priority,” said Dorel spokesman Rick Leckner.

Leckner said Pacific Cycle hasn’t been responsible for Schwinn scooter parts or dealer support since Tomberlin licensed the brand. "The dealer network is not ours; it's Tomberlin's. They set up their own dealer network." 

Tomberlin disputes this point; indeed, dealer support was a point of contention in the trademark case. Tomberlin’s attorneys argued that Pacific kept control of the dealer network, which prevented Tomberlin from managing it effectively. He could not, for example, terminate a dealer who wasn’t selling any scooters or appoint a new dealer that would overlap a non-performing territory.

“We were somewhat naïve. We felt like they were transferring the dealer channel over to us. It was a wrong assumption, evidently, on our part. It prevented us, because of the various state regulations, from managing it,” Tomberlin said.

ROCKY ROAD
Court records show the relationship was fraught from the start. The licensing deal was born after Tomberlin met George Simone, then-Schwinn vice president of motor sports, in 2008 while on a tour of a Chinese factory. Simone was there to sort out supply chain issues. The company had decided to exit motor sports due to “cash flow problems that had led to increased lead times and a drop in quality” at the factory, according to court papers.

Tomberlin's deal to secure Schwinn was in its early stages just as the economic recession began in the United States. Court records show that in April 2009, Pacific indicated it had 471 dealers, “from Top 100 dealers to boutique shops” and 2,486 pre-orders for scooters. But just before the deal was completed, Simone revised the sales forecast downward.

Who has Schwinn parts? Story continues on next page