Designed in America: Part Three

The Fall of Schwinn

In parts One and Two of the Designed in America series, I began looking into the factors that led to the shift of the American bicycle industry from "Made in America" to "Designed in America - Built in Asia." I mentioned that the various factors are so intertwined that it's almost impossible to talk about one without mentioning the others. In fact, one name that keeps coming up again and again in the discussion is the Schwinn Bicycle Company, as the fate of Schwinn in so many ways helped shape the fate of the American industry overall.

The friendly neighborhood Schwinn dealer was a major
part of the company image, and part of the brand's quality
reputation. (from the 1971 catalog)

For generations in America, the name Schwinn was synonymous with bicycles. The family business, founded in Chicago by German immigrant Ignaz Schwinn in 1895, grew to become the dominant manufacturer of bikes for the better part of a century. The company's share of the American market was so large that Schwinn had the power to influence the whole U.S. industry. For example, if Schwinn demanded higher quality components from its suppliers, they got them. And that improvement in quality parts and bikes led to improvements from Schwinn's competition as well. By the 1960s, Schwinn was also the preeminent "bike shop" bicycle. Whereas most other American manufacturers sold their bikes through large retailers, auto-parts stores, hardware stores, toy stores and the like, Schwinn began focusing on exclusive dealer contracts to keep better control over bicycle sales, assembly, service, and ultimately their image. As a result, Schwinn bikes had a well-earned reputation for quality.

That Schwinn no longer exists.

Exactly how Schwinn as a bicycle manufacturing giant collapsed is such a long, detailed yarn that one could write a book about it. In fact, there IS a book about it: No Hands: The Rise and Fall of the Schwinn Bicycle Company, An American Institution (1996) by Crown and Coleman. Unfortunately, that book is now out of print, but it is still recommended reading for anyone who can locate a copy.

Given the limits of a blog post, let me touch on some of the main points that keep within the context of this Designed in America series.

As already discussed in Part One, on the American Bike Boom, Schwinn was unable to keep up with the massive demand for bicycles in the early 1970s, which had essentially doubled in just a year or two. In order to meet that demand, the company quietly turned to Japanese manufacturers National Bicycle (Panasonic) and Bridgestone -- an action that helped give a major boost not only to those particular companies, but to the Japanese bicycle industry as a whole. The high demand for bicycles, combined with the credibility of the Schwinn name meant that bicycle buyers in America's heartland, who previously might have been skeptical of a Japanese bicycle, ended up buying them without question. The problem with the strategy was that it helped to sow the seeds of Schwinn's demise as a major manufacturer.

The Japanese-built 10-speeds were in many ways superior to Schwinn's own Chicago-built bikes. Yes, Schwinn had their top-of-the-line Paramount and the middle range Superior and Super Sport models -- all hand-built with chrome-moly tubing. But these only accounted for a small slice of the company's production. The mainstay Varsity and Continental models, flash-welded from thick-walled steel, were tanks - durable, but heavy, and equipped with components that were outclassed by the Shimano parts bolted onto the Japanese models.

Here is one of several times the word "complacency" is going to come into play. Schwinn dealers and probably even some in management had to have recognized that the Japanese-built models were more desirable than bikes like the venerable Varsity. So, did the company do anything to improve the American-built models to make them more competitive? Of course not. It was cheaper and easier to simply contract with their Japanese suppliers to make more bikes, and to offer models that moved higher and higher on the Schwinn lineup. In the mid-'70s, the Chicago-built Super Sport was dropped in favor of the Japanese-built LeTour. A Super LeTour was later added, and along with the imported Voyageur models eclipsed the Chicago-built Superior/Sports Tourer. Later, the Panasonic-built Volare notched in just below the top-tier Paramount, with a beautifully made lugged frame, Reynolds 531 tubing (just like the Paramount) and Shimano DuraAce components instead of Campagnolo. From top to bottom of the lineup, the imported bikes were outshining Schwinn's home-built models.

The Schwinn factory in the '40s (from the 1940 catalog)

The failure to invest in the Chicago factory was another problem. By the 1970s, Schwinn had a massive industrial complex that also happened to be on the verge of obsolescence. The company had not made a significant investment in new machinery in decades, and the plant was almost entirely set up to weld durable but heavy bicycles out of thick-walled seamed steel tubing, while the major market growth during and after the bike boom was in lightweight 10-speeds. Despite what Schwinn called them, "light weight" did not describe most of the company's 10-speed bikes. There were a number of calls within the company to update the factory -- and given the amount of money that had to be pouring in with the bike boom, there was an excellent opportunity to do it. But apart from the addition of a warehouse and some new rim making equipment, no such investment was made in Chicago.

A task force was convened in the mid-'70s to explore the idea for a new factory in Tulsa, Oklahoma. It was expected that the price tag would have run up to about $50 million. In order to get the money, the company could have easily acquired financing, or sold public stock shares, or some combination of these things, but the family-owned company refused to consider such options. They didn't want to cede even a small amount of control to outsiders. Not only that, but according to No Hands, there was always pressure from members of the Schwinn family, descendants and relatives of founder Ignaz, to increase dividends to the Ignaz Schwinn Trust Fund. Given the choice between updating the factory and equipment, or satisfying the family's demands, the family won out.

Labor difficulties became another issue. Even as the Chicago factory fell farther and farther behind the times, worker dissatisfaction started to increase. In 1980, the plant workers organized with the United Auto Workers, and near the end of that year, went on strike. That strike lasted about a 13 weeks and hastened the end of the line for the Chicago factory, which would close for good in 1983. Although it would be easy (for some) to blame the plant closing on the UAW or the labor strike, the fate of the Chicago plant was already written on the walls long before. The strike may have been the "straw that broke the camel's back" but that doesn't make all those other straws blameless. Bad decisions at the corporate level, management problems, and the long-term neglect of the factory all have to be considered.

When the labor difficulties first started brewing in Chicago, Schwinn got serious about opening a new factory, and in 1981 they opened a plant in Greenville, Mississippi. The prime attraction for the location was that it was far beyond the reach of organized labor unions, in a state that had no love for such things. Unfortunately, however, locating far from labor unions also meant being far from a trained industrial labor workforce. It also meant locating far from industrial centers, with their supporting industries, infrastructure, and supply lines. I mean, there's a reason that most of the American auto industry, along with the supporting steel, glass, and rubber industries, all centered around the Great Lakes region. And that much of the bicycle industry was located in and around the same region.

From the 1984 catalog. The Super LeTour was a mid-priced
bike built in the Greenville factory. 

The Greenville factory was set up to produce modern lightweight lugged steel frames, and in fact, production of some of the brand's mid-range bikes that had once been built in Japan, like the Super LeTour was moved to Greenville. Still, the new factory was plagued with problems almost from the beginning. It was far from airports and major highways. Getting materials and components to the plant was difficult. Few Chicago managers or engineers wanted to spend any more time in Mississippi than absolutely necessary. Worker turnover was high. Quality control suffered. I've read from several sources that the Greenville factory lost money every single year it operated, and it was closed after 10 years in 1991.

Another factor in the fall of Schwinn was a failure to keep up with trends. Here's another area where that word "complacency" comes into play. Whereas the company was setting the trends in earlier decades - with bikes like their balloon-tired, streamlined Aero Cycle of the '30s, the Black Phantom in the '50s, or the Sting-Ray in the '60s. By the 1970s, they were slow to even follow the trends.

The Scrambler (left) was no BMX bike. The Competition
Scrambler, released a couple years later, was closer to the
mark, but still far behind the competition. (1977)

When California kids started stripping down old Sting-Rays, cutting off anything unnecessary, adding gussets and reinforcements, and knobby dirt tires, the new sport of BMX was born. Companies like Redline and Diamond Back were quick to pounce with light and tough race-ready machines. Schwinn's lawyers were afraid the sport was too dangerous and the company waited on the sidelines. By the time they finally decided to launch their own BMX bike (the Scrambler, which was really just a Sting-Ray with knobby tires) they had already given up much of the market share and had to play catch-up. Fun fact: the weight of the original Scrambler was listed in the catalog at 38 pounds! The chrome-moly tubed Competition Scrambler, introduced in 1977 was a slightly less porky 32 lbs.

The Sidewinder, from the '82 catalog, was more
Varsity than mountain bike.

At the end of the '70s, when a bunch of Northern California hippies were bombing down Mt. Tamalpais on modified Schwinn Excelsiors, which they dubbed "klunkers," West Coast Schwinn dealers were clambering for the company to take notice. Schwinn sent some executives (many of whom probably didn't even ride bikes if they could avoid it) to check out the scene. They scoffed at the contraptions and flew back to Chicago. It would be several years before the company would offer something to compete, and just as with BMX, Schwinn's first attempts at the mountain bike, like the Sidewinder and the King Sting, really weren't in the same league (picture a Varsity with knobby tires and BMX handlebars). Their hesitance gave companies like Specialized and Diamondback a head start at grabbing a big part of the market, and once again, Schwinn was having to play catch-up. In both BMX and in mountain bikes, Schwinn did eventually offer some products that were truly top-notch, but those typically came too late. It's really an awful irony that both of these major industry trends actually got started by people tinkering with old Schwinn bikes, yet Schwinn was left behind on both of them.

Finally, Schwinn had developed an unhealthy practice of building up small suppliers into major competitors that would later crush them. First it was the Japanese. Then in the '80s, as the rising Yen was making Japanese imports less cost-efficient, the company turned to Taiwan to cut costs. There, Schwinn chose Giant, which at the time was a pretty small company - a giant in name only. Schwinn helped the small manufacturer by lending them a tremendous amount of engineering, development, and manufacturing expertise. More and more of Schwinn's lower-priced bikes were being manufactured by Giant, while the quality of the Taiwanese products continually improved. By the later part of the decade, Giant had truly become a giant, and the relationship with Schwinn began to sour. Schwinn tried to buy a share of the company, which it probably should have done before they built it up. By this time, the Taiwanese company was so big that they could more realistically have bought Schwinn. Giant started selling bikes under their own name -- bikes that sold for less, but were basically identical to the Schwinn-branded bikes that were also built by Giant. Did Giant start selling their own brand because the relationship was souring, or was it the other way around? That probably depends on who's telling the story.

It didn't help matters when Schwinn started up a new business relationship in mainland China. With a failed bid to buy a share of Giant, Schwinn turned to another small supplier, China Bicycle Company. Schwinn bought a minority share in CBC, and just like they had done with Giant, gave the company an infusion of engineering and manufacturing expertise, and helped to grow it into a powerhouse. Later, CBC began building bikes under contract for a number of other brands, acquired shareholder stakes in others, and helped undercut Schwinn in the bike shops, just as Giant had done a few years earlier.

Schwinn lost money and lost market share, and much of it at the hands of companies that they themselves had built up. The closing of their remaining factory in Greenville in 1991 meant that America's biggest bicycle manufacturer had truly become just an importer, sticking their name on somebody else's bikes.

Through a 4th generation combination of poor management, complacency, hubris, inflexibility, and more complacency, the well-known iconic brand filed for bankruptcy in 1992, just a couple of years before their centennial. Purchased by investment bankers and reorganized, the company got a second lease on life in the '90s, following the kind of "design it here and import it from there" business model perfected by companies like Specialized a decade earlier. During the '90s, Schwinn was sold and merged and re-sold, and in 2001 filed for bankruptcy again. Today, the brand is owned by a huge multinational conglomerate, along with a lot of other brands that really exist as nothing more than names on decals to be affixed to rather generic bikes made in China (probably by CBC) and mostly sold through big box merchandisers.

It's really a sad fate, not only for the iconic Schwinn brand, but for American bike manufacturing as a whole.