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Letter to the Editor

Penske and Kmart Dispute Announced Auto Centers Closings

Penske Auto Centers, LLC (PAC) announced that it has discontinued operations of all of its automotive service centers. The company, which purchased the automotive service business from Kmart Corporation in November 1995, had operated at 563 Kmart locations in 44 states.

Jim Wheat, President and CEO of PAC said, "Our team is focused on assuring an orderly transition for all of our constituents including customers and employees. Importantly, wherever possible we will try to provide our employees with opportunities for positions within the Penske family of companies." Mr. Wheat will continue in his current position as PAC operations wind down.

Kmart Corporation said that the United States Bankruptcy Court for the Northern District of Illinois has issued a temporary restraining order against Penske Auto Centers, Inc., and Penske Auto Centers, LLC requiring them to continue operating auto service centers at more than 550 Kmart stores across the United States.

The order, signed by Chief Judge Susan Pierson Sonderby, enjoins 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. Penske informed Kmart on April 5, 2002, that it intended to immediately shut down the operations of the auto centers as of the start of business on Saturday, April 6, 2002.

Kmart had been in discussions with Penske for several weeks regarding a mutually acceptable plan for the future of the auto centers.

Senior officials of PAC responded that the Kmart press release regarding the court order was misleading. Richard Peters stated, "After reviewing the release from Kmart this afternoon, I feel obliged for the benefit of our employees and customers to provide background on some of the events surrounding PAC's decision to discontinue operations. Over the past five months, PAC management has conducted numerous meetings with senior Kmart officials to discuss strategies to provide support to PAC during Kmart's restructuring and subsequent Chapter 11 bankruptcy filing. During that period, Penske Corporation provided over $40 million to support the viability of PAC."

On March 27, 2002, Peters and Penske met with Kmart's Chief Operating Officer, Julian Day and Chief Restructuring Officer, Ronald Hutchinson. Peters, commenting on the meeting, stated, "Julian Day informed us that Kmart had determined through their research that the auto centers provided no value to its core business. Kmart was therefore unwilling to provide any support to PAC and agreed that the best course of action was to close PAC."

Peters added further, "On April 1, Kmart then defaulted on a $5 million payment that was contractually due to PAC as a result of the Kmart store closures announced in March."

PAC will appear before the court in Chicago on April 8 to protect its interests. Peters added, "Our immediate focus is on the well being of our employees and their families as well as our customers. I regret that these actions had to be taken."

PAC, which is owned 64 percent by a subsidiary of Penske Corporation and 36 percent by Kmart, has operated 563 auto service centers at Kmart locations nationwide.

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