THE SCHMITTS

Frederick J. Schmitt IV wheeled his ten year-old Chevy Suburban into the parking lot of his 104 year-old company. Once again he had to zig-zag his way around beer cans, wine bottles and other crap left by the gangs, drug dealers, pimps and prostitutes that frequent this part of the city. He made a mental note to fire his latest security guard firm. Again. The third security firm he has had in three years. Fred parked in his usual spot, got out, and opened the back hatch to retrieve his briefcase crammed with the numbers he’d be covering with his bank and insurance company today, and made his way to the lobby entrance. 

As he unlocked the door and stepped in, Fred felt that familiar pang of pride as he crossed the threshold of his company, which was, unfortunately, accompanied by a major dose of anxiety, as he realized today’s meeting might be the end of the line for the company and his family. Automotive Parts Distributor was founded by his namesake and great-grandfather in 1910. The “original” Frederick Johan Schmitt immigrated from Germany as a young man bringing his wife and two boys with him. As a tool-maker back in Germany, young Fred had heard of the great things Henry Ford was doing in Detroit and wanted to be part of it. After landing at Ellis Island, and spending a year learning English with relatives in New York City, Fred struck out for Detroit to get a job with Henry Ford. 

Back in the day Henry Ford would hire anybody regardless of background or capabilities. Petty thieves, grifters, handicapped, men with no skills, men with no prospects knew they could get a chance working for Ford. Fred knew this, and thought his tool-making skills learned in Germany would allow him to step into a job making tools used in the assembly process. But he was wrong. Everybody at Ford back then started at the same point regardless of experience - or lack thereof. Fred’s first job was sweeping the floors, but soon enough he proved his potential to others and he found himself quickly moving around to other jobs, before landing in his coveted tool-maker position. Fred lasted a few years at Ford, long enough to save up money to start his own shop, fabricating tools and parts which he sold to the growing number of auto-makers in the Detroit area.  

Frederick Johan Schmitt was smart, bull-headed, worked like a dog, and was at the right place at the right time. His shop grew, the number of parts he produced grew, and soon he was even distributing parts made by other shops. By 1919, Fred’s shop had grown into Automotive Parts Distributors and employed 100 people. The Schmitt’s were not rich, but they were comfortable and masters of their own destiny. Fred would run the company he started for the next 50 years, through good times and bad, always staying about the same size and in the same business, until the day he died. Frederick Johan Schmitt, the first of his name, died at his desk at the ripe old age of 90. 

After Fred’s death, his son and grandson took over the reins and would run the company together for the next 40 years. During their tenure, son and grandson of the original Fred lived through the catastrophic decline of Detroit and the car business. While friends, competitors, vendors and suppliers were either going bankrupt or moving their businesses south or off-shore, the Schmitt’s doggedly stayed in Detroit. The Schmitt’s loved Michigan, the Great Lakes, the Upper Peninsula, the fishing and hunting. They loved Detroit, their kids went to public schools; they were huge Tiger fans and lived in the same neighborhood. The unions, the riots, the gangs, the EPA, OSHA, the Department of Labor, the corrupt city council and its leadership were not going to run them off. And they paid the price for their stubbornness, a price that Frederick J. Schmitt IV was about to learn. 

Fred made his way back to his office and glanced out the side window at the spot where his sister, Hannah, had been violently attacked and raped last year. She ran marketing for them, and one night had stayed late finishing up the print collaterals for a new product line they were launching. As she made for her car two gang members jumped her, beat her, and raped her. The on-duty security guard heard her screaming and was able to run them off before they killed her. His sister is Schmitt through and through, and although shaken to the core by her experience, she was back at work the next week. Shortly thereafter she bought herself a 40 calibre Glock 26 and got her concealed carry permit. She doesn’t talk about the rape; the two miscreants have not been caught - the overworked detectives filled out a complaint and later said they were probably back in Mexico. Fred gets just a little bit crazy everytime he thinks about it. His craziness driven by the guilt that he feels for having kept the company in Detroit but tempered by his sister’s bravery and resolute commitment to the family and company. Many times she has said “if we move they win and I will not allow them to beat us.” 

Flipping on his office light, Fred went over and fired up the coffee pot and sat down to review his numbers. He still had a couple of hours before the bank and insurance people arrived. His operating numbers were good, not great, but not bad for a distribution business operating in a highly competitive business. APD did almost $50 million in revenue over the past 12 months and generated close to a 5% operating profit which was profit before taxes. He employed almost 250 people, and the size of the business hadn’t changed much in 40 years. In addition to being bullheaded the Schmitt’s are also no-bullshit, and while other companies in the 80’s were doing crazy leveraged buyouts, building unsustainable mini-congomerates and launching new businesses without a clue, the Schmitts, stuck to their knitting. The company had always been profitable. After paying the family members modest salaries, bonuses to the employees and investing in plant and equipment, each year they would sock a little bit into a rainy day fund. 

The reason for the visit from the financial guys was not his operating results, but his inventory and the risks associated with continuing to lend against his inventory. Over the past ten years, APD had four major thefts of its inventory. Each one involved more than $500,000 of loss. Each time it happened the bank would get stiffed, and the insurance company would have to step up and repay the bank. Each time it happened his insurance rates doubled. His property insurance premiums had grown to the point where he could no longer afford to pay them. APD’s inventory was an attractive target for two reasons; first, it is easy to convert stolen auto parts into cash, and, second, APD had over the years gravitated towards the more expensive, higher margin parts like electronics, imported tires, speciality rims, etc., which were highly valued by thieving criminals.

The meeting was scheduled for 9:00 am. Fred laughed as he watched the bankers brand new Cadillac Escalade pull up into the parking lot. Driving a brand new Escalade in this part of town was tantamount to waving a red flag in front of a bull. The banker and the insurer got out and nervously looked around before heading into the lobby. Fred met them in his boardroom where he greeted each one with a firm handshake and steady gaze. His banker, who had been the company’s lending officer for 20 years would not look him directly in the eyes. Fred knew his fate was sealed. The meeting was short. He didn’t need his numbers. The insurance company was redlining all of Detroit and no longer insuring any companies. The banker said they were “rolling up” all their loans in Detroit and were pulling out of the market altogether. The banker knew exactly the position into which he was placing Fred. He told Fred he had 90 days to repay his $10 million revolving line of credit and suggested he get to work figuring out how to repay his loan. Fred told the banker to go fuck himself.  

After they had left Fred suddenly realized, he felt good about what happened. It felt good to tell the banker to go fuck himself. He never cared for the guy. It wasn’t until the early 80’s that the company first took on any debt at all. But that was out of extreme circumstances brought on by an onslaught of State and Federal agencies who almost put APD out of business.   

Up until the early 80’s, APD ran a small metal stamping and forming business that produced APD parts, and, parts for other companies.  It was a nice solid business that just about ran itself. One day the government came calling. An alphabet soup of State and Federal agencies descended upon APD at the same time. By the time they were done, APD was looking at more than a $1 million in fines and another $3 million in capital improvements - if they wanted to stay in business. The stamping operations required all kinds of sound abatement modifications, and they were going to have to excavate almost a quarter acre of concrete and 20 feet of soil in order to remove any residual chemicals that may have leaked into the ground going all the way back to the start of the company. Fred’s father was up against the wall. The company did not have that kind of money just sitting around, so they decided to shut down the stamping business and then took out a loan to cover the fines and soil remediation efforts. 

The meeting had taken 20 minutes. It was now 9:30 in the morning on a beautiful summer Friday. Fred walked backed to his office flipped off the lights, grabbed his car keys and told his admin that he would be gone for the day. Driving out of his lot, he noticed his maintenance guys had cleaned up the crap in the parking lot and were cutting the grass. The Schmitt’s always took care of their stuff. Fred wasn’t sure where he was going or what he was doing; he just needed time to think. He drove for the next couple of hours on automatic pilot revisiting the sights and places in grew up with as a kid; Tiger Stadium, Belle Isle, Woodward, Hudsons, Greektown. He fondly remembered their Thanksgiving Day ritual, first the Hudson’s parade then the Lions game. He drove out through the nightmarish remains of the old River Rouge facilities recalling his grandfather’s stories of what it was like during the day. Driving back into the city center, Fred came upon the new Downtown spearheaded by Dan Gilbert and was impressed with the improvements. he recalled how security ahd been front and center for Gilbert who had to create his own police force.

Politics was never front and center in the Schmitt family, they were always too busy working, keeping their head down and minding their own business. Most turn of the century German immigrants were the same way… they knew first hand the dangers of tyranny, letting one man, backed by a political party loose on everybody else. Like his father and grandfather, Fred served in the Marines as an enlisted man, ostensibly fighting for liberty. His grandfather’s war was WWII; his dad’s was Viet Nam, and Fred’s was the first Gulf War. He kept in touch with a few Marine Corp buddies - his best friend being another German, who was a sniper and a firearms training instructor. He made a mental note to call him.

Fred found himself pulling into his driveway. He was in a daze barely remembering how he got there. His wife came out to greet him wondering why he was home so early and then she looked at his face. Fred felt an overwhelming sense of loss, the company, the city, his employees, his family. Fred had lost the game, as he began facing the reality.  His initial exuberance in telling the banker to go fuck himself had swung to total despair with the reality of having to liquidate the company. His wife took him by the arm and guided him inside while Fred told her about the results of the meeting. She was a spitfire; they met in high school; both went to Michigan State, and she knew him inside and out. She suggested they leave immediately for their little lake cottage and talk things through. They needed to be back by Sunday afternoon for their weekly family dinner a ritual that went back to the original Fred. Which would also be a good time to announce to the rest of the family the results of the meeting with the bank. 

The lake was four hours away. The family had a small cottage on Glen Lake built by his grandfather. His wife was right, the drive, combined with some fishing and relaxation was what he needed to clear his head. As they headed out towards I-94 Fred couldn’t help but notice just how bad things were getting in his neighborhood. The Schmitts had long owned houses in the Boston-Edison district going back to Fred the first. While there were some large houses and even mansions built by some of Detroit’s “first” families” the Schmitt’s opted for the smaller more modest 3 and 4 bedroom homes just right for raising families. The Schmitts lived in a 4 bedroom turn-of-the-century home with a dining room and living area large enough to host the Sunday dinners. 

Fred and his wife had three kids, two attending MSU and one graduated. The two in college lived at home over the summer, and both worked at APD. Fred was always concerned for their safety and had reluctantly put them in private schools back in the late 90’s. But even the private schools were no longer a safe option. As they passed their church on the way to the entrance of 1-94, he saw the homeless sleeping on the steps. As he punched the accelerator and guided the Suburban into expressway traffic it occurred to him that while he was always aware of the state of decline in Detroit, it wasn’t until today and the meeting with the bankers, followed by his drive through Detroit, that he began to acknowledge the real scale of the problems. Detroit was bankrupt. The city was a rotting shell. No law enforcement. Few city services. The economy was shot. The auto industry a farce of what it had been. And nobody on the horizon with a realistic plan to bring back Detroit. Maybe his banker had done him a favor.

By the time Fred reached the lake he was convinced that his only course of action was to liquidate the company. By the time they got done selling off their inventory, equipment and the land and building, then repaying the bank, taxes, etc., they might clear $1 million. Fred was the largest equity holder but even still he would only see 20% of the proceeds. The rest would be distributed to his mother, brother and sister and various aunts and uncles. All told there were 10 other equity holders in the business that had a say in what happens and a distribution of the net proceeds from a sale or liquidation. It was then that Fred was struck by a thunderbolt resulting from the realization that if he did liquidate the business he would have to go to work for somebody else. The proceeds were not enough to live on through retirement and while they had comfortable savings built up it was not enough to retire on. Fred wasn’t sure where he could go to get a job in this economy and with his experience. He was 45 years old. His industry was dying, and his business model antiquated, compared to other distribution models like Amazon.

It was almost 9:00 in the evening when the pulled up to the cottage. The first thing they saw was his sister’s vehicle. He had completely forgotten that she was up here with her husband and two young kids. Fred had a great relationship with his little sister, and she was the perfect sounding board for ideas about the company. He was relieved to see her there. They opened the door and were greeted by a puzzled look by her sister. She then saw the look on Fred’s face and simply said “shit”. She knew about the bank meeting and had been anxiously awaiting the news all day. After getting settled, putting the kids to bed and getting a bite of dinner the four of them sat out on the deck and went through the various options open to family.

The driving factor in their analysis was repaying the bank. They owed $10 million which had to be repaid in 90 days.  There were three simple options at this point for repaying the bank. First, they could sell the business. Second, they could liquidate the business. And third, they could look for a replacement lender. Selling the business as a going-concern was not an option due to many requirements placed on the business back in 1985 by the EPA and OSHA in the event of a change in ownership. Refinancing the business would be tough if not impossible because of the reasons their existing lender had pulled out. Which left liquidating the business as the only apparent solution. All four of them sat on the deck looking dejectedly at the lake. It was a full moon, not a cloud in the sky and the lake was shimmering, but none of them could appreciate it. They all got up at once and shuffled off to bed. There was nothing else to talk about.

Saturday morning was not much better. Fred was feeling like a trapped animal; he had no viable options, at least if wanted to continue doing what he loved. He can’t sell it; he can’t refinance it, and while he pays back the bank in liquidation, he essentially walks away with nothing. The more the reality sank in, the angrier he got. His sister was worse than he was. And although she could go out and probably get a better job than what she had with APD she was a SCHMITT. A year ago she went through a horrific attack in the parking lot of her company and if that wasn’t enough to scare her off, then this sure as hell wouldn’t. By noon, dejection had catalyzed into anger fueled by the feeling that they had done nothing wrong. For more than 100 years this family had kept its head down, worked like dogs, never asking for anything it hadn’t earned and now, due to a complete and total breakdown of government, they were paying the price. 

It was Hannah who shed the first ray of hope. Over lunch she started talking about the only way to win this fight was to network with other like minded Michiganders; wealthy, patriotic, conservative families, many third, and fourth generation auto families. Collectively, she speculated, they might be a source of financing for APD and other firms facing their same dilemma. Fred's wife wasn't so sure reminding Hannah how most of the families had long ago abandoned tradition and conservatism in favor of liberal causes. Hannah agreed with her mother but also felt that there were enough left that might invest in a fund. After all, these families had a vested interest in the success of Detroit, perhaps there was a way to organize a venture capital fund to invest in companies like APD. The more Hannah thought about it the more promise it held and soon she and her mom were making a list of contacts they would approach.

That Saturday afternoon, once again sitting on the deck, and a feasible financing plan on the table, he began to put things in perspective. Fred had never been a fan of government. He did the bare minimum to comply with taxes, regulations, etc. as did the other Schmitt’s throughout the company history. Both his wife and sister were much more politically aware than he was. Over the past couple of years he heard one eruption after another from them - Benghazi, the IRS, NSA, Snowden, Holder, Illegal Immigrants, amnesty, etc., etc. They even got into a minor brawl over Ron Paul and Mitt Romney with his sister voting for Ron Paul. The only thing he knew about Ron Paul back then was that he wanted to legalize drugs and was weak on defense, but now his comments on the Federal Reserve, and limited government and other details he recalled suddenly were making sense. 

Fred realized that he had unconsciously delegated certain aspects of his life to government - most importantly his security. And his sister had paid a very personal price for this oversight. Rather than fleeing, it occurred to Fred that the best way to proceed was to stay and fight. To take back control. Take back control of his life, his family, neighborhood and business. The most important weapon he had in his fight was his business - because it provided the sustenance of his self-reliance. But in order to run his business not only did he have to get it on an entirely new financial footing he would also have to learn how to defend his business from attack by thieves, criminals and civil disturbance. Because the police department wasn’t doing it for him, his insurance company wasn’t doing it for him, the courts wouldn’t do it for him, and neither would the Detroit City Council, Wayne County, the State of Michigan or the government of the United States of America.  

Fred finally came to the realization that he alone was responsible for his liberty. And at the top of the list in securing his liberty was security, the security of his family, his business, his church, the schools and his community. And the only way to win this fight was to network with other like minded Detroiters who understood that everything started with them, and through them they could do better, faster and much more effectively almost everything government has tried to do in the past. Beginning with their security. 

Which is when he reached for his cell phone and called his old Marine Corp buddy “Silent Bob”. 

Fred Schmitt came to the conclusion that every self-reliant American needs to come to; that he is responsible for his security. And that before he can defend his family, business, church or community he must first learn how to defend himself. 

The first step Fred took was to sit down and compose a security briefing that he could share with “Silent Bob”.