The on-going OTR tire shortage isn't slowing down Redburn Tire Co. But it has forced the 72-year-old, Phoenix, Ariz.-based commercial tire dealership to make some changes in how it does business.
The unprecedented supply problem -- which is expected to last through next year and into 2008 -- also has forced some of Redburn Tire's OTR tire customers to re-evaluate their tire consumption habits.
All of this has been good for profits, according to Redburn Tire President J.D. Chastain.
"Sometimes you have to re-focus."
Proven success
Redburn Tire services more than 30 mining operations. Most of them are centered in the southwestern United States, but some operate as far north as Montana and as far south as Mexico.
Chastain has been with Redburn since 1973. He's familiar with the boom-bust cycle that dominates the mining business.
In the past, when times were good, they were great, he says. But when mines started to pull back on production, the dealership's profitability would be pulled back as well.
[PAGEBREAK]
"Depending on some accounts, you could see a sales drop of 10%" during a particularly tough year.
"If you had a major customer who was struggling or if gold was way down or a mine would close or a contract would go to somebody else... there were too many wild swings. We still have swings, but they're not feast-or-famine swings. I think we're better positioned now with the diversity of our business."
Redburn also sells medium truck tires and operates four retread shops. "Sometimes when there was a downturn in mining, if we hadn't had other pieces of the pie that we could depend on, we would have been in trouble."
Luckily for Redburn, mining has been on an upswing for quite some time. Even better, mines have never been more loyal to their tire suppliers.
"There's not a whole lot of switching going on," says Chastain. "We actually recommend that customers don't switch even if they want to because they would lose their place in line for allotments.
"In a lot of cases, if they're dealing with Brand X but they aren't happy with it, we're saying, 'Don't get rid of Brand X because the (next brand) isn't going to be able to supply you.' There aren't many contracts going out for bid right now."
Chastain and his partner, Don Leffler, instruct salesmen to allocate OTR tires based on last year's orders. "If they bought 20 of a particular tire from us last year and we only get 16 of those tires, they would receive those tires," explains Chastain.
In a lot of cases, tires are pre-sold. "If we know we have a certain amount of tires coming in, especially on the radial side, they're primarily pre-sold to existing customers." The result is rapid warehouse turnovers.
Due to the acute shortage of radial OTR tires, there's been somewhat of a resurgence in bias-ply OTR tires, he reports.
"Customers have to use some of that to keep their equipment running; they have to do it. These guys are booming and they're going to keep their equipment running one way or another."
[PAGEBREAK]
Changed minds
With fewer OTR tires coming from the factory, Redburn's customers have been forced to re-evaluate how they treat what they currently have.
For starters, drivers are less cavalier about the tires on their machines.
"Mines are doing a better job of saying, 'Hey, not only is the price of this tire 10% or 20% higher -- we can't get any more! If you ruin this tire, we'll have to park this piece of equipment, and if we park this piece of equipment, you won't be able to work.'
"They've really taken it to the next level, which is a good thing; they should have always been doing that."
More customers are requesting on-site tire wear/condition checks and are taking the data they receive more seriously. "They've gotten more into air pressure maintenance, where before in some cases, it was 'catch as catch can,'" says Chastain. "It should have always been that way, but sometimes it takes a crisis like what we're going through to change perceptions."
Due to the shortage, Redburn's OTR tire repair business has increased. "Before, a guy would get a cut in a tire and, depending on what stage the life of the tire was in, (might) say, 'Let's just run it until it goes.' Now they're pulling tires and getting those tires repaired so they last longer."
The dealership has raised its repair rates 10% to 20%, but that's more to help absorb debilitating raw material costs than anything else, says Chastain, who's quick to point out that the last thing an OTR tire dealer would want to do in the current business climate is gouge desperate customers.
"We can't take advantage of these guys because when times are better, they're going to remember that."
Field service remains a critical component of Redburn's strategy. The company operates at least 30 OTR service trucks. OTR service trucks aren't cheap, says Chastain. Some can cost as much as $200,000.
[PAGEBREAK]
Redburn sinks about 10% of its total budget into service equipment and machinery. "We do a lot of service."
Knocking on doors also is crucial during difficult times. Redburn employs five salesmen who exclusively call on new and existing accounts. "Right now, we have the best management team and employees we've ever had."
Among OTR customers, there's a much better understanding of what Redburn does, says Chastain.
"The shortage has allowed us to enhance our relationships with some of these (customers). They know we can take some of these tires and maybe sell them for a larger dollar amount than the contractual agreement we made, but we're going to take care of them."
Supplemental income: Retreading helps Redburn Tire Co. avoid the all-eggs-in-one-basket syndrome
In addition to being a major OTR tire provider, Phoenix, Ariz.-based Redburn Tire Co. is one of the 50 largest retreaders in the United States, coming in at number 47 on Modern Tire Dealer's 2006 "Top U.S. Retreaders" list.
The company has four Bandag plants. They're located in Phoenix; Tucson, Ariz.; Las Vegas, Nev.; and El Paso, Texas. (Redburn moved into a larger facility in El Paso several months ago.)
Redburn currently produces 350 to 400 medium truck tire retreads per day, says Chastain. "We used to be in the OTR retreading business in some of the smaller sizes, but we got out of that in the 1980s." It was hard to keep up with new technology, he explains, and the cost of transporting OTR tires from mine sites back to the firm's retread plants and vice versa became cost prohibitive in many cases.
[PAGEBREAK]
The politics of acquisition: You can lose accounts to consolidation, says Chastain
Due, in part, to industry consolidation, Redburn Tire finds itself servicing fewer mines than ever. The popularity of national OTR tire accounts is another reason.
"At one time, we had mine sites all over the U.S.," says Redburn President J.D. Chastain. "If a particular customer had a job in St. Louis, Mo., we'd follow him to the job and handle his tire work. But there's been kind of a shift (with) these big national accounts.
"What would transpire now is they'd deal with someone else who sells Bridgestone or Michelin or General in that area. Before, we'd go wherever the guy was."
Consolidation in the mining business is a continuing trend. And it doesn't always benefit the OTR tire dealer, according to Chastain. "If you're handling Company B and Company A swallows them up, and you're not already dealing with Company A, chances are you're going to lose that business."
It's possible to re-bid, but typically the acquiring company will place its new property in the hands of its traditional tire supplier, which can leave the purchased firm's old supplier on the outside looking in, he says.
