Dealers Are Buried in Winter Tire Inventory
To call this a disappointing winter tire sales season is a gross understatement in Mark Rochefort’s book.
“It’s the worst on record,” says Rochefort, vice president of a two-shop retail business, Vermont Tire & Service Inc., and Vermont Wholesale Tire. “Compared to a normal winter, inventory right now is twice as much in stock than what I’d like to see at this point.”
That’s double the inventory for what has been about half a winter, at least in terms of snowfall. The National Weather Service says Burlington, Vt., home of one of Rochefort’s stores, has had 29 inches of snow this winter, about half of the normal 60.8 inches that typically falls by the end of February. A year ago almost 76 inches of snow had blanketed the area by the last day of February.
Rochefort, president of the New England Tire & Service Association, isn’t alone. His wholesale business has confirmed the misery. Some of his customers’ sales are down 40% this year. “That really makes it difficult for the entire next year because you’re loaded down, in money and space. And then you just hope there isn’t a price realignment.”
So while staring at piles of unsold winter tires, instead of piles of snow, Rochefort is preparing to place orders for next winter. He prefers to say he’s placing his bets.
But these bets can make or break him, as winter tire sales typically account for 50% of his business.
“There’s a lot of feeling in the industry that this stinks, but that’s just how it is. The fact is that’s not how it was. Within the decade that’s not how it was,” he says.
“When my dad was in the business, he’d order half the stock early, and then manufacturers kept building throughout the busy season. We weren’t over that way,” Rochefort says. “When everything started to move offshore is when I started to notice it. When all orders have to be completed in March and April, it’s a crapshoot in terms of getting the right tires. Manufacturers did it to save money to build all their stuff in low-cost countries, and tire dealers bore the brunt of it.”
There are other complicating factors, too. The proliferation of tire sizes adds another complexity. Tire sizes on the newest models of vehicles are unknown when tire dealers place their winter tire orders. By the time the new models are rolling off showroom floors in the late summer and fall, tire dealers are left scrambling to find any winter tire that might fit, let alone the consumer’s preferred brand. “Then you have to explain to Mr. Customer how he can’t have the tire he wants.”
Rochefort has one thing working in his favor: location. Being so far north – just 50 miles from the Canadian border – even in an unusually mild winter, there’s always at least something of a winter tire season. October is pretty stable with new car owners and higher-income customers who mark the changeover to winter tires as a regular appointment on their calendars. “November is the month you really need weather. If you have the weather, you have the sales. If you don’t have the weather, you don’t.”
In November 2015, 0.2-of-an-inch of snow fell in Burlington, Vt. Months later, the two warehouses Rochefort dedicates to his winter tire inventory remain half full. It means he won’t have an overflow space to stock up on and take advantage of deals on all-season tires in the coming months. “I straight up don’t have the space.” And some customers next year will question why they’re buying winter tires that are more than a year old.
“It doesn’t have to be this way.”
Rochefort says he beats this drum “every chance I get” when talking to tire manufacturers. But he doesn’t feel anyone’s really listening. “They haven’t been receptive at all.”
Five tire makers explain lead times
Modern Tire Dealer sought answers for Rochefort’s questions and frustrations. MTD sent queries to 31 tire manufacturers and marketers. Some chose not to respond because winter tires aren’t a large enough part of their product portfolio, and others declined for competitive reasons.
Five tire makers did answer our questions: Bridgestone Americas Inc., Continental Tire the Americas LLC, Michelin North America Inc., Nokian Tyres North America, and Pirelli Tire North America Inc. Of those five, their ordering, production and ship-to-dealer schedules aren’t all that different. Nokian takes orders earlier than anyone else, in February and March, but says some dealers begin taking delivery of winter tire orders in the first quarter of the year. Deliveries for all companies are much more common in the second half of the year.
The production cycles are more varied. While Nokian and Bridgestone say they make winter tires “almost year round” and “year round,” respectively, Pirelli says production begins in April. Continental and Michelin say it’s limited to the first half of the year.
Manufacturers weren’t too free with the details of that production. Cecile Dittiele, the North American winter tire category manager for Michelin, was the only one to expressly say the company manufactures winter tires in the U.S., as well as Canada, Spain and Russia. Others referenced their global footprints, while Riccardo Cichi, chief commercial officer at Pirelli, acknowledged the overseas production “comes with longer lead times as well.”
Joe Maher, Continental’s production manager for passenger and winter tires, says worldwide production “allows for excellent fill rate support for our dealers, although transportation times can be longer.”
When so much of the industry relies on an “on-demand” schedule, Rochefort and other dealers wonder why winter tires are the abnormality. Why is the lead time for winter tires so long?
Robert Saul, director of consumer product strategy for Bridgestone Americas Tire Operations, says, “The winter tire portion of our business depends heavily on the weather. It’s not only important that we forecast the volume correctly, but the location as well. If it snows a lot in the Northeast but we have more tires in the Northwest, we’ll have to transfer inventory to meet the demand. This can increase the lead time for tire shipments.
“We also are constantly testing and making improvements to our winter tires, which is another factor that can impact lead times, as we have to manage inventory of new products coming into the market.”
Another factor is the complexity of the rubber compounds in tires, says Maher of Continental.
“Processing compounds that deliver premium cold weather performance are unique and require significant changeover in the compound mixing and extrusion area of the plant. This makes it inefficient to alternate processing of winter and all-season compounds. Therefore, during winter tire production, the plant focuses production to winter tires.”
Steve Bourassa, director of marketing for Nokian, points to a problem for manufacturers that dealers can relate to: size proliferation.
“Lead time for winter tires is rather long due to the challenges of a large SKU count and complexities of timing a seasonal product into such a small sales window.”
There’s no solution to controlling the weather, but are there options to shortening the lead time for winter tires? Bourassa says yes.
“Legislation of winter tire laws in snow areas would lead to safer roads during winter months, but also lead to a more predictable winter selling season, and thus a shortened lead time.”
Saul from Bridgestone says the weather remains a big obstacle.
“We are continually innovating and exploring avenues for shortening our lead time to best meet the need of our dealers, but the lead time for winter tires depends heavily on the weather. Shortening lead time requires maximizing flexibility to adjust supply plans to changing weather conditions within the fall and winter seasons.”
While Rochefort and other dealers manage an overflow of leftover inventory throughout the year, manufacturers must prepare for the next production cycle. They again point to the global reach of their business.
A mild winter in one part of the world is usually balanced by a more regular weather pattern elsewhere. Their winter tire production continues uninterrupted.
But regionally, one warm winter does disrupt the cycle, says Maher of Continental.
“A mild winter season leaves unused inventory in the dealers’ warehouses that will carry over to the following season. This occurrence can significantly change demand for next season’s production, to what extent is validated with the winter tire orders in May.” ■
Winter tire service leaves Dunn Tire up all night
Dunn Tire LLC hasn’t let a mild winter stand in the way of expanding its winter tire services. In November 2014 the Buffalo, N.Y.-based dealer experimented with a new overnight winter tire service at one store in the Syracuse, N.Y., area. This season, the service was expanded to five stores, three in the Buffalo area and two in the Syracuse area, including the store in Camillus that led the way a year earlier.
Consumers called to make an appointment and agreed to drop off their vehicle by 6 p.m., and the car was ready for pick up the next morning an hour before the store’s regular opening. The overnight appointments were limited to tire changeovers and new tire installations.
Robert Clark, managing director of retail operations for Dunn Tire, says the goal of the program “was to expand our capacity during a time of year when capacity is at a premium.”
During the first year at the Camillus store, when Mother Nature delivered plenty of winter weather, that one store was installing tires on 25 vehicles a night. Some nights the work wasn’t done until midnight. Dunn Tire typically ramps up its staff before the busy changeover time of year, but it hasn’t hired extra workers specifically for the overnight service. Technicians simply are scheduled differently.
This year, the weather didn’t push as many customers in the door, but Clark says the overnight service still was a success, and likely will be expanded again next winter. “Instead of getting done at midnight, we got done around 9 p.m.” He attributes some of the service’s popularity to Dunn Tire providing winter tire storage. Clark says most of the dealership’s competitors don’t offer tire storage.
Some customers asked if they were paying a premium for the convenience. Clark says there’s no price difference. “At the end of the day we’re trying to get it so customers aren’t sitting in our waiting room for hours.”
But Clark says offering the service takes more than just keeping the lights on later into the night. “One of the real challenges is you don’t have access to the customers like you do during the day.”