Truck Stops Join Low-Cost Imports as a Challenge to Commercial Dealers
Although demand for retreads is increasing, low-cost imported tires continue to squeeze profitability for commercial tire dealers. Aggressive truck stop chains, manufacturer price increases and supply issues are the latest headwinds.Yet respondents to Modern Tire Dealer's annual survey of commercial tire dealers are finding opportunities in the midst of the challenges.
(See MTD's 2017 Top 25 Commercial Tire Dealers in the U.S. chart here.)
Retreading is gaining ground
“We feel the quality of our Bandag brand retreads is such that we can compete with a low-cost Chinese tire,” says Pete Glesing, president of commercial sales and operations for Best-One Tire and Service. “It feels like we are making some headway there. Request for Chinese product, while still there, has lessened throughout the year.”
Best-One Tire and Service does quite a bit of business with the nation’s top 50 fleets, which do not buy the Tier 4 products, according to Glesing. “They are regimented to a retread program because they know ultimately that’s the best way to drive out costs from that line item.”
But private fleets, trailer leasing companies and some owner operators demand low-cost Chinese tires. Best-One Tire and Service, which holds the No. 2 spot in the rankings, is taking steps to regain its cap and casing sales. “We’re trying to do some things that are starting to move the needle to where we are purchasing and selling less Chinese product and producing and selling more cap and casings,” says Glesing.Bob Majewski is also seeing perceptions tilt toward retreads. “We are proving to people how much better the retread is over the low-cost tires, but this takes time,” says Majewski, who is chief technical officer for Lebanon, Tenn.-based Sumerel Tire Service Inc.
Dealers saw volumes of low-cost imported tires rise following the U.S. International Trade Commission’s decision to not levy duties on Chinese truck and bus tires.
“We thought the tariffs were going to go into place,” says David Mickelson. He is president and CEO of Graham Tire Co.’s South Dakota and Nebraska locations. “Like most tire companies, we had made arrangements with our manufacturers. We were very surprised when the tariffs didn’t go through, and it certainly caused an impact in the marketplace with an influx of import tires.”
Mickelson says that while Graham Tire offers Chinese products, his employees focus on selling the benefits of retreading and the value of a new tire that can be recapped multiple times. The message is getting through as his retreading business has seen some improvement in the last six months. “It’s still tough but you have fleets that understand the value of retreading. And they are not always just looking at price.”Beasley Tire Service Inc. began producing its first retreads a year ago at a leased facility in Hungerford, Texas. “As long as you can fill your shop with tires from fleets that are retreading their own tires, you do OK,” says President Bob Beasley.
His company just completed building a larger retread plant next to its corporate headquarters in Houston.
“We were a large Michelin associate retread dealer for many years until we finally opened our own shop,” says Beasley. The new plant is set to begin producing 250 medium truck tire retreads a day this month. The capacity is 350 retreads per day with the potential for 450.
Beasley Tire’s commercial offerings include emergency road service, fleet programs, truck alignment, front end repair and a mobile offering called “Rolling Tire Shop” that mounts and balances tires on light fleet vehicles on site. The company also sells and services industrial tires.
At McCarthy Tire Service Inc., year-to-date production of medium truck tire retreads is up 15,877 units. The company expanded one of its nine retread plants in September 2016. At full capacity, the revamped plant in Wilkes-Barre, Pa., produces 1,000 Bandag retreads per day.
“The major manufacturers, such as Bridgestone, Continental and Yokohama, make a superior product compared to what you can get in the third and fourth tier that’s manufactured in China,” says John McCarthy Jr., president. “In our opinion, the best way for fleets to run a very good tire program is to start with a new, quality product, wear it out, and then retread that quality casing multiple times.”
Another form of competition
Although demand for retreads is picking up, dealers are facing more competition from truck stop chains. Travel Centers of America LLC launched its TA Truck Service Commercial Tire Network, which serves the trucking industry through 244 truck stops, in November 2016. Love’s Travel Stops & Country Stores Inc. is buying Bridgestone Americas Inc.’s Speedco business. The acquisition, which is subject to regulatory approvals, will add 52 trucking service and lube outlets and bring Love’s network to 323 facilities.
“Truck stops have been in the commercial tire business forever,” says McCarthy. “They have a renewed focus on the commercial tire business, and they are well financed. It’s another form of competition, and we have a lot of competition out there.”
Up to now, the company’s competitors have been the same size or smaller. “We’re now competing against someone who is much, much larger than us. We are going to continue to offer tires, road service and mechanical services at our locations and just be the very best servicing provider that we can be,” says McCarthy.
Best-One’s Glesing notes that truck stops are more business-to-business now rather than simply retail outlets for buying gas, food, and tires. “Truck stops are actively pursuing fleets at their locations,” he says.
Best-One is emphasizing its focus on tires and service for trucks and truck tires to customers. “It’s our core business and we are expert at it,” says Glesing. “There haven’t been a lot of wins from the truck stops but they’ve certainly been disruptors in going out and saying here’s what we have to offer, come and do business with us.”
Truck stop chains are providing fuel rebates and immediate reimbursement to fleets for reaching certain levels on tires, retreads and fuel in their networks. Tire buying programs that tie into fuel purchases are having an impact on commercial dealers industry-wide, according to Glesing.
Lindsey Beer, chief strategic officer and a third-generation member of the Zurcher family that founded Best-One in 1948, says the ability of truck stop chains to offer multiple services and products appeals to truck operators.
“Where we are focused on our service, our flexibility and our expertise, the one thing the truck stops bring to the table is the one-stop shop. We’re not going to get into the oil business or the convenient mart business; it’s just a way we’re different. Both of us bring advantages to the table. I don’t think anybody feels we’re losing customers to truck stop chains, but the convenience factor does affect things.”
Pricing remains a major area of concern. Responses to the survey question asking if dealers were able to pass along manufacturer price increases ranged from “yes” to “somewhat” to “slightly” to “in some cases but not all.”
National wholesalers are adding to margin pressures at Graham Tire. “Gross margin continues to be impacted due to overall competition,” says Mickelson. “This is the result of price increases from manufacturers, from competition from import tires, and increased competition in our markets from national wholesalers that distribute agriculture and medium commercial tires.” Graham Tire has 22 outlets in Iowa, Minnesota, Nebraska and South Dakota. Most of the stores serve retail, commercial and wholesale customers.
Shortages of major brands
Several survey respondents said they were experiencing shortages of inventory on major truck tire brands, and specified the Bridgestone, Firestone and Continental brands.
“There are definitely inventory shortages on certain sizes and tread designs,” says McCarthy. “It really causes issues for a dealer. It causes more expense because we need to move product around to make sure our customers get it. We might receive it in one facility and then have to deliver it to 10 other facilities just so we have the right product where we need it.”
In response to MTD’s inquiries, Bridgestone said its Bridgestone Americas Tire Operations division “has experienced strong sales of commercial truck and bus (TBR) tires, leading to short-term supply constraints on select TBR products. We are acting quickly to increase supply and manage product availability to ensure our customers have the high-quality products needed to run their operations. Our sales and account teams are in constant communication with our customers to keep them updated on product availability and provide any additional information they may need.”
Continental Tire the Americas LLC’s Tom Fanning told MTD: “Continental, like many premium truck tire brands, is seeing a high level of demand for our available inventory.” Fanning is vice president of sales and marketing for Continental’s Commercial Vehicle Tires in North America division. He said, “In 2016, we produced more than 8 million commercial vehicle tires worldwide. Based on rising customer demand, we are in the process of building a new plant in Clinton, Miss., which will manufacture an additional estimated 750,000 truck and bus tires annually once construction is completed, giving us additional capacity.”
Dealers invest and expand
Despite the marketplace challenges, commercial tire dealers added stores, services and equipment in the last 12 months.
Allen Park, Mich.-based Belle Tire Distributors Inc. merged its commercial division with Tredroc Tire Services Inc. of Elk Grove Village, Ill., in October 2016. In the last few months, the company has added locations in Louisville, Ky.; Eddyville, Ky.; and Nashville, Tenn., to bring it to 29 stores and the No. 11 spot in this year’s Top 25 Commercial Tire Dealers in the U.S. list.
Snider Tire Inc., which goes to market as Snider Fleet Solutions, acquired 27 commercial locations from Michelin North America Inc.’s Tire Centers LLC (TCi) subsidiary. The deal was finalized in early July and puts Greensboro, N.C.-based Snider Tire in the No. 6 spot with 81 outlets.
In December 2016, Green Bay, Wis.-based Pomp’s Tire Service Inc. purchased Cross-Midwest Tire Co. in Kansas City, Kan. Pomp’s Tire gained 14 stores and is in the No. 5 spot on this year’s list with 42 commercial and 52 combination outlets.Nebraskaland Tire Co. Inc. opened a new commercial store in Scottsbluff, Neb., on June 1. It is the company’s second outlet in Scottsbluff. Construction of the store enabled the company to convert the original store from combination commercial-retail sales and service to a retail-only store.
“The old store had been a Goodyear retail store and was not conducive to commercial service. It was hard for trucks to get in and out,” says Carson Wright, vice president. The new store sees more drive-in traffic versus the old outlet, which handled mostly service calls. The company, which does business as Nebraskaland Tire, Kansasland Tire and Coloradoland Tire, is ranked No. 24 with four commercial stores and 21 combination stores.
Sumerel Tire Service added a warehouse and two drive-through bays at its Wilson County Tire outlet as well as more service trucks and employees. Rice Tire Co. is adding six bays to its store in Frederick, Md. The company also joined the Independent Tire Dealers Group.
Stratham Tire Inc. installed a new buffer at its Londonderry, N.H., retread plant and added a service truck for road service. The Brentwood, N.H.-based company has 14 combination commercial retail stores and one commercial outlet.
Erlanger, Ky.-based Bob Sumerel Tire Co. Inc. opened two truck centers in West Virginia and a stand-alone wheel powder coat plant in Wooster, Ohio. The company holds the No. 15 spot with 12 commercial and nine combination outlets.
Valley Tire Co. Inc. opened a combination commercial-retail and truck mechanical outlet in Altoona, Pa. The Charleroi, Pa.-based company is No. 22 in the rankings with 11 commercial stores and four combination outlets.
No. 18-ranked Commercial Tire Inc. opened commercial outlets in Ellensburg, Wash., and Orem, Utah. The company, which has 12 commercial and 27 combination stores, also moved its commercial store in Ogden, Utah, to a larger facility and added retail tire sales. No. 9-ranked Bauer Built Inc., which does business as Bauer Built Tire, opened a new commercial tire center in Mankato, Minn., in January 2017. Bauer Built has 20 commercial and 14 combination stores.
Pete’s Tire Barns Inc. is in the No. 23 spot with 19 combination stores. The Orange, Mass.-based company added more employee training, new aluminum truck wheel polishing equipment and made many upgrades in its two Bandag retread plants.
Outlook is optimistic
Investment in buildings, equipment and people suggests dealers are optimistic about the future of the commercial market and their own businesses.
In the last 12 months, Best-One Tire and Service opened a retread plant and commercial outlet in Great Bend, Kan., as well as a commercial store in New Haven, Ind.
Says Glesing, “I think the remainder of the year will be strong, and I think 2018 will be strong commercially. I think asset utilization will hover around 90%, I think tonnage will be up, and I’m hoping freight rates will also match the increase in tonnage.”
The Best-One distribution network has more than 250 retail and commercial partner locations in the U.S. Partners are store managers who have ownership in their outlets.
“We want the men and women who are running our locations to be stockholders because we believe that if they are, they are more apt to create raving fan customers both externally and internally,” says Glesing. “We continue to grow in our markets, we continue to grow our retread plants, and we continue to grow our fleet customers.”
Graham Tire entered the Fremont, Neb., market in 2016. “Last year we opened a commercial-only location in Fremont, which is a new area for us,” says Mickelson. “We saw an opportunity in what we think is a good market and a location to grow and expand that commercial business.”
The rest of Graham Tire’s stores have a good mix of both ag and medium commercial, according to Mickelson. “We’re located in many rural markets and the entire agriculture market is very important to us. The ag and OTR tires continue to increase in size and that has resulted in more expensive service trucks and equipment needed to physically handle these products.”
Beasley Tire entered three markets in southeast Texas in 2016. The company opened combination commercial-retail stores in Pleasanton, Victoria and Corpus Christi to bring its store count to six. “We’re seeing good growth, we’re meeting our targets and we’re happy with what we’re seeing,” says Beasley of his three newest stores. His company, which is part of the Michelin Commercial Service Network, will come close to doubling its revenues from 2016 to 2017.
“Houston is not as dependent on oil as it was 30 years ago. However, in south Texas we lost a good bit of revenue when the oil market fell about two years ago,” says Beasley. “We’ve been able to recover that and we’ve brought ourselves to be less dependent on oil revenues at these locations. Take it when it’s here and do without it when it’s not.”
Beasley plans to diversify his company’s commercial service offerings at all locations in order to “add to profit opportunities” over the next 12 months.
Hurricane Harvey did not flood any of Beasley’s stores or the new retread plant on the Eastex Freeway in northern Houston. An open house to celebrate the retread plant is set for Nov. 29. “We have a tremendous group of employees, we have good relationships with our vendors, and we’re willing to modify and change with the times,” says Beasley.
McCarthy Tire opened seven locations in 2017, increased capacity in its retread plants and opened an additional retread plant.Recent acquisitions include the commercial division of Scranton-Dunlop Inc., known in the marketplace as Sandone Tire, in Scranton, Pa., in May. At the end of June, McCarthy Tire purchased P.J. Dooling Tire Co. of Philadelphia, Pa. McCarthy notes, “We now have some of the best talent in the industrial tire industry working with us. That part of our business is growing, and we see it continuing to grow.”
In August, McCarthy Tire bought six GCR Tires & Service locations from Bridgestone Americas Inc. The stores are located in Baltimore, Md.; Mount Joy, Pa.; Albany, N.Y.; Binghamton, N.Y.; and Horseheads, N.Y. The company, which has 34 commercial and 12 combination stores, is No. 7 in the Top 25 Commercial Tire Dealer rankings.
McCarthy Tire’s geographic coverage extends from upstate New York to Atlanta, Ga. “We’re looking for opportunities within our existing footprint,” says McCarthy.
“A lot of dealers have built great businesses and have no succession coming up. At some point they look to get out. There are a lot of opportunities for companies like ours to grow.” McCarthy has six fourth-generation family members working in all facets of the business who, he says, “are itching to go for those opportunities.”
All business segments are up in sales year to date. The company has added truck mechanical service at a number of its locations, and its mobile mechanical offering is growing as well.
“More fleets are outsourcing trailer repair and mobile trailer repair and mobile tractor maintenance to us because they have trucks domiciled in an area where they don’t have their own maintenance facilities. And,” says McCarthy, “it’s tough to find good people.
“Everybody is looking for mechanics. In a lot of areas we’ve been able to attract good mechanics, and therefore, we have the people to supply the services our customers need.”
McCarthy is bullish on the future. “I feel there’s going to be more consolidation in our industry, meaning the big dealers are probably going to acquire some of the smaller dealers. Granted, we have competition from truck stops and online companies. Even manufacturers such as Continental are growing their own company-owned locations. But we feel that if we deliver great products and give the best service we’ll continue to grow.” ■BestDrive Aims for Eight More States by the End of 2018
In the last 12 months, BestDrive LLC has opened a retread plant in Salt Lake City, Utah, and service locations in Columbus, Ohio; Cincinnati, Ohio; Indianapolis, Ind.; Boise, Idaho; and Kansas City, Kan. A grand opening celebration for the newest BestDrive outlet, which is in Denver, Colo., and already open for business, is scheduled for Oct. 27. Counting the Denver store, BestDrive, a subsidiary of Continental Tire the Americas LLC, has 22 commercial tire centers.
MTD asked Managing Director Sonny Simpson what’s ahead for his company and the industry.
MTD: How have your new locations increased retreading capacity and service offerings?
Simpson: The expansion into Utah, Idaho, and Colorado significantly added to BestDrive’s ability to service customers in the western region of the U.S. The only existing BestDrive facility in the West as of last year was the Phoenix, Ariz., location, active since 2012. With the new locations, BestDrive is able to offer near coast-to-coast service for long-haul fleets. And we’re also providing service to the large number of local and regional fleets concentrated in the western states.
The three Ohio and Indiana service locations filled a gap in the in-demand region between the BestDrive retread facility in Taylor, near Detroit, Mich., and its locations in Illinois and eastern Missouri, including one retread plant in Jacksonville, Ill. Approximately 27% of all fleets in the U.S. are located in the Midwest, according to the U.S. Tire Manufacturers Association, so this has been an area where we’ve concentrated to put in greenfield locations.
MTD: Where do you see opportunity?
Simpson: In the West, we are active in replacement off-the-road and industrial specialty tires, something that we didn’t see as much in the East and Midwest. We’re looking to continue to grow that segment. We’re also providing retreading services out of our Salt Lake City location.
BestDrive’s end goal is to provide a nationwide service footprint for long-haul fleets, while also serving the local and regional customers around each store location. By providing new tires and retreads, especially retreads that match the original tire with our ContiTread product line, we’re able to service the entire lifecycle of the tire.
We also help our customers implement the latest technology, something that Continental is known for. For example, we’ve got the ContiPressureCheck tire pressure monitoring system and Continental’s VDO RoadLog for ELD (electronic logging device) Mandate compliance. One of our areas of expertise is helping fleets select the technology that makes sense for their business, to help them achieve their lowest overall driving cost.”
Fleets don’t always have time to research every piece of new tire-related technology on the market. We know tires are one of the top costs for a fleet, so any cost-saving technology could be interesting to them. Dealers have an opportunity to partner with fleets and provide expertise in that area, becoming more than just a tire supplier and really providing total tire management.
MTD: What are the primary challenges for the industry?
Simpson: Low-cost imports are the primary challenge when it comes to our retreading business. Some fleets are now accepting one-time use, lower quality tires, because they are less expensive up front, rather than investing in a quality tire that can serve multiple lives through retreading. We also see the price of natural rubber continuing to climb, which drives up prices of both new and retread tires, which we know is a challenge for both fleets and dealers. But our biggest challenge is to attract and retain top talent, to recruit qualified professionals. Working in a retread facility or service location is hard work; it’s not fun, it’s not glamorous. You have to have a passion for what you do, a passion to give every customer your best work on every single tire.
MTD: What is your outlook for the industry?
Simpson: Independent tire dealers are a necessary component of tire distribution. You can’t only have wholesale distribution, and Continental realizes that. We provide service to the customer and on-the-ground expertise in tire selection and new technology. Sales figures are showing that BestDrive has experienced sustained, continuous growth so far and we expect that to continue. We’re looking to expand into eight additional states by the end of 2018.
My outlook for the independent tire dealer and retread industries is positive. The market saw a high number of Chinese tires imported last year in anticipation of the tariffs. Those tires have a significantly shorter life cycle than a premium tire, and I believe they will cycle out pretty soon here. Once that happens, buying patterns will stabilize. Some fleets that got burned will go back to investing in high-quality tires. And they’ll go back to retreading those casings two or three times instead of throwing a worn-out new tire into a landfill. Continental casings, for example, are designed so they can be retreaded up to three times, depending on conditions. That’s how a fleet will achieve its lowest overall driving cost.
To see the 2017 Top 25 Commercial Tire Dealers in the U.S., click here.