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They don’t always want to sell tires, but… Auto dealers need tire sales and service to keep customers coming back to their service departments

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They don’t always want to sell tires, but… Auto dealers need tire sales and service to keep customers coming back to their service departments

What’s a tire dealer to do? With car dealers selling more and more replacement tires -- many of them once marketed by tire dealers -– they have a problem.

In fact, some auto dealers not only sell replacement tires, they give them away!

It’s true these “free” tires come at a price. To get them, car buyers must have their vehicle serviced at the dealership where they bought it and come in regularly for tire rotation and other maintenance specified by the tire manufacturer.

It’s true these customers usually pay more there for the service than they would at a tire dealership or independent repair shop. But this requirement helps car dealers keep customers, who would likely go elsewhere, coming back several times a year to their service department.

So, while these “free” tires may be no bargain, they are certainly a great marketing tool. And they cost tire dealers not only tire sales, but also service profits.

Phil Kelly, president of California General Tire, a 45-year-old dealership in Sacramento, Calif., says auto dealers in his area have been “in and out of the tire business over the last 40 years,” but never on as large a scale as today.

Auto dealers in Western Europe have been selling tires for years and have about a 20% share of the replacement tire market. In areas such as Great Britain and Germany, the car dealers’ share is much larger than that, up to 50% and more.

According to Modern Tire Dealer’s 2006 Facts Issue, auto dealerships account for 3.5% of the domestic passenger tire retail market. That figure may rise to perhaps even 7% by 2010, according to Eric Brown, Goodyear Tire & Rubber Co.’s director of car dealer and specialty markets.

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Mike Van Sicklen, Bridgestone Firestone North American Tire LLC’s national sales manager for purchase/resale military and government sales, says auto dealership sales run 10% to 12% of his company’s replacement business.

Except in rare cases, all of these sales are through the company’s “Family Channel” of dealers and distributors. Van Sicklen says his company has turned down a large amount of business by declining to ship tires directly to car dealerships.

Goodyear participates in tire distribution programs with General Motors Corp. (and its Saturn Corp. division), Ford Motor Co. (and its Mazda Motor Corp. division and Premier Automotive Group) and DaimlerChrysler (through its Mopar T.I.R.E. Works).

None of the tires are sold directly to car dealerships, but go through normal channels (dealers, distributors, company-owned stores).

Bridgestone Firestone tires are sold through 4,000 “supply points” to General Motors, Chrysler, Ford Canada, Nissan, Honda, Toyota, Subaru, Mazda and Saturn dealers in about 15,000 locations throughout North America. The dealers and distributors who supply them to car dealerships are paid a “generous commission” and encouraged to help auto dealers perform tire replacement and maintenance by providing training, assistance and advice.

About 85% of these tires are delivered to car dealers in two hours or less, Van Sicklen adds.

Policies on direct sales by manufacturers to car dealers vary. Andy Martino, owner of Martino Tire Co., a major Goodyear dealership based in Miami, Fla., says he was “shocked” last February when Goodyear told him the company was going to begin supplying tires directly to Rick Case Honda, a large auto dealership in his area, and one of Martino’s good customers.

Martino Tire has 25 retail stores, a large commercial operation and six distribution centers throughout Florida. It had been supplying some tires to auto dealerships for several years, but Martino says his business has lost substantial revenue overall as a result of car manufacturers getting into the replacement tire business.

A considerable number of tires sold by car dealers come from distributors such as Cleveland, Ohio-based Dealer Tire LLC, owned by former retail tire dealers Scott and Dean Mueller.

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Dealer Tire began business in December 2000 to distribute tires directly to auto dealers. In March 2002, the Muellers sold their 19 tire stores in the Cleveland and Columbus, Ohio, areas to Tire Kingdom Inc. and concentrated all their efforts on wholesaling.

Dealer Tire now supplies tires to Toyota, BMW North America, Lexus, Mercedes Benz, Volkswagen, Audi, Nissan, Kia and Mopar T.I.R.E. Works dealers from 19 warehouse locations covering the United States. It is the principal replacement tire supplier for Toyota dealers.

Though the dealership doesn’t solicit other business, it does supply some franchised dealers of other car manufacturers who request it, says Dealer Tire executive Peter Judy.

Dealer Tire declines to reveal its sales volume, its replacement tire market share or the number of auto dealers it supplies. But these numbers are significant.

Toyota Motor Sales U.S.A. Inc. uses Dealer Tire to distribute tires to the 75% of its dealers who participate in its Toyota Tire Center (TTC) program.

Steve Reynolds, the company’s sales and marketing manager, says the number of replacement tires provided to its dealers has been growing by “double digit” percentages each of the four years TTC has been in effect.

“We offer exact replacements for tires on the vehicles as well as alternative tire types to give our customers a good-better-best replacement tire selection.”

Reynolds says the program helps keep customers returning to Toyota dealerships, where they get service from company-trained technicians and genuine Toyota replacement parts when needed.

Michelin North America Inc. is among others who use Dealer Tire as one of its distributors.

Tom Peebles, Michelin’s general business director for new cars, says a combination of direct deliveries, distributors and tire dealers supply Michelin tires to auto dealers. But direct delivery to car dealers is by far the smallest of these distribution channels.

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Michelin has distribution agreements with Ford, General Motors, Chrysler and Porsche AG, says Peebles. He declines to say what percentage of the company’s replacement tires sales are at auto dealerships.

Industry-wide, however, Peebles says that sales of all replacement tires in auto dealerships have increased an estimated 200% since 2000, and that this growth is expected to continue.

The market is changing, Peebles points out, but it does open up some opportunities for resourceful tire dealers. There are chances to supply specific tire and wheel fitments to auto dealers’ customers or to establish close relationships with car dealers and open up opportunities to work with them when special tire expertise is needed.

Tire manufacturers as well must adjust to new market conditions, he concedes. For example, he says Michelin brand tires enjoy a high level of customer loyalty; accordingly, the company works to ensure that these tires are available through all channels for the customers who request them to replace their original equipment Michelin tires.

Pirelli and Hankook tires also are sold through auto dealerships.

Ford, which set off the latest round of car dealer tire sales in 1999 with its Around the Wheel program, has agreements with Goodyear, Michelin, Continental Tire North America Inc., Hankook Tire America Corp., Yokohama Tire Corp. and Pirelli Tire North America Inc. to supply tires to its dealers. The company offers those namesake brands plus Dunlop, BFGoodrich, General and Mohawk tires also produced by these manufacturers.

Ford says these tires are obtained from a combination of sources, including directly from tire manufacturers, through wholesalers and from tire dealers. “Sales are expected to grow over the next few years,” says a Ford spokesman, who would not provide an estimate of the annual growth percentage.

Some 88% of Ford dealers, about 4,000 in all, participate in the corporation’s optional Around the Wheel program. Many of these tires are supplied by tire dealers.

General Motors spokesman Tom Henderson is less forthcoming.

“The tire business is a good business,” he says “and it has been going well in the last three years or so. But basically we’re not in the tire business. It’s not our game.”

The Goodwrench Tire Program is voluntary, he adds.

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Many tire dealers say they don’t like auto dealer competition, but often feel it’s better to provide the tires, even at discounted prices, than to see someone else get the sales.

Continental distributes virtually all its replacement tires for car dealers through independent tire dealers and pays them a commission for selling them to the auto dealers.

That’s the word from Andreas Gerstenberger, vice president of sales and marketing for Continental’s passenger and light truck replacement business.

Gerstenberger says Continental, as the largest original equipment tire supplier to Ford in North America and Mexico, enjoys a significant share of replacement tire distribution to Ford dealers through its Around the Wheel program. The company also supplies substantial numbers of tires to GM and DaimlerChrysler dealerships.

Auto dealers maintain they need tire sales and service to keep customers coming back to their service departments and help offset revenue lost by the decline in warranty business from today’s better-built vehicles.

And, since there are 15,000 to 20,000 auto dealerships in the U.S., there is room for several sources of supply, Gerstenberger believes.

Bruce Docter, who runs 13 Nebraska Tire stores scattered throughout the state, says many tire dealers in smaller towns provide most of the tires to auto dealers in their areas.

He has found that smaller car dealers often don’t have the space to maintain their own tire inventory and may not be close enough to distribution points to get prompt delivery of tires from other sources.

They also may not have service department personnel with the skill or desire to deal with tire maintenance.

Docter can see the difference population density makes in direct tire sales in Nebraska, where most of the 1.5 million population is concentrated along the eastern border of the state.

He concedes that his tire sales to auto dealers are at discounted prices, but he’s found a way to more than compensate for this loss of revenue, at least in the short term. Nebraska Tire now sells balancers and other tire equipment at substantial profits to the car dealers who have jumped into the tire market and to other smaller tire outlets such as gas stations and independent repair shops.

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A Missouri tire dealer contacted asked not to be identified.

“Yes we do it,” he admitted when asked if he supplies tires to auto dealers in his area. “No, I don’t like it!

“It’s self defense,” he continued. “Do I like making $8 on a tire I sell to a car dealer instead of a $20 margin? What do you think?

“Everybody’s in a bind. Car dealers need more revenue from their service department since they’re doing less warranty work these days. Tire manufacturers need to move as many units as they can just to compete.

“Somehow this whole setup is wrong!”

At Fred Martin’s Ford, Mercedes and Suzuki dealership in Austintown, a suburb of Youngstown, Ohio, replacement tires for all three brands are supplied by several area tire dealers and one wholesaler.

Martin says his dealership sells about 30 sets of tires per month plus some individual replacement tires. He adds that it’s a profitable part of the business and it keeps customers coming back for service as well.

Unless otherwise requested, the dealership usually provides the same brand and type of replacement tires as those currently on the vehicle.

David Dobbs is in charge of daily operations at the 36 Dobbs Tire and Auto Centers in the St. Louis area.

These stores sell some replacement tires to auto dealers, but not a large volume. “Selling a few tires on this basis is just not worth it,” he says.

But Dobbs’ outlets also do tire work, such as flat repair, for some auto dealers who prefer to farm out this business.

In Portland, Maine, Dick Aronson, owner of Century Tire Co., tries to work with a number of car dealers.

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“We’re not available to run one or two tires to an auto dealer,” he says, “but we do work with tire suppliers.” And there are some benefits to this cooperation.

Car dealers send wheels to the three Century Tire stores which mount and service them. “It’s a growing part of our business,” Aronson says.

Regardless, Aronson admits he wishes tire sales at auto dealerships didn’t exist and says “most auto dealers I know aren’t thrilled to be in the tire business, either.”

Century Tire even supplies tires to Patriot Subaru, a dealership just down the coast in Saco, Maine, that provides free tire replacements for the life of any vehicle purchased there.

One tire dealer joked that he’s considering getting even by giving cars to his regular tire customers.

David Frame, president of City Tire Service in Zanesville, Ohio, says “We’ve jumped on the (tires-to-auto-dealers) bandwagon, but we don’t like it.” The dealership usually provides car dealers with the same brand of tires they are replacing.

But City Tire and two other tire dealerships in which Frame is half owner remain friendly with car dealership service managers in the area and often handle tire problems when these managers can’t or don’t want to deal with them.

One City Tire employee is specifically assigned to work with auto dealerships. Some of these dealerships provide wheels on which City Tire mounts and/or services tires. They also deal with damaged lug nuts or other tire difficulties beyond the auto dealership’s expertise.

This is done at profitable rates that help to defray some of the profits lost in tire sales.

While most tire dealers have accepted the new competition situation, however reluctantly, two who were contacted refused even to discuss the situation.

A multi-store dealer in California said, “I just won’t comment on the whole subject” and a South Carolina operator growled, “I have no opinion!”

Today there’s little doubt that car dealerships are in the tire business to stay.

The rules have changed and tire dealers concede they have no choice but to adapt and live with the situation. That’s what most of them have decided to do!

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Tires for life! Buy a new vehicle, and the car dealership will keep replacing the tires for free when they wear out. But strings are attached

A number of car dealerships have gone beyond just selling tires. They are giving them away under a program many call “Tires for Life!”

Buy a new car from these dealers and they’ll keep replacing the tires for free when they wear out.

Details vary from dealer to dealer, but one requirement is common to all in such programs. You must have all your maintenance for both car and tires done at the dealership where you bought the vehicle. And you must follow the maintenance schedules recommended by the manufacturers.

One such dealership is Patriot Subaru in Saco, Maine, a small town on the Atlantic coast between Portland, Maine, and Portsmouth, N.H. Owner Adam Arens says the program has been working well since he opened the business nearly three years ago.

Unlike some such dealerships, Patriot Subaru places no time limit or mileage restrictions on its free tire replacements. Arens says he’ll provide free replacement tires even for customers who drive their Subaru's 300,000 miles or more.

He gets the tires from area tire dealers and from a national distributor. The dealership usually mounts tires of the same brand as the OE tires on the car. They must be of equal or better quality as the ones taken off.

Arens looks at the program as a safety measure for his customers.

“The two most important safety features on a car are its brakes and tires,” he says. The regular checkups required under the program ensure that qualified service techs keep track of both.

The program helps to ensure his service center stays busy. He’s also found it stimulates repeat business in Subaru sales. Arens feels it also helps emphasize the quality image of the Subaru name.

In Libertyville, Ill., a Chicago suburb, Sessler Ford operates a similar free tire replacement program for both new vehicles and for used cars purchased when less than two years old and still under factory warranty.

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At Sessler, the free tire deal lasts for seven years or 100,000 miles, whichever comes first.

In addition, car buyers are given a card, similar to a credit card, that gives them 10 cents credit for each dollar they spend on parts or service at the dealership. Up to $500 worth of these “loyalty rewards” can be applied toward the purchase of a new vehicle at the 45-year-old dealership.

The first oil change is free, as is every second oil change after that for the next 20. Since Ford specifies changes at 5,000-mile intervals, that covers them for 100,000 miles.

Owners of vehicles more than two years old can buy the same free tire replacement service for $49.95 as long as they go to the dealership for all auto and tire maintenance.

The free tire program did not work out so well at McLarty Auto Mall in Texarkana, Texas, however. The auto mall sells Ford, Chrysler and Dodge vehicles.

Owner Todd Shores offered free replacement tires to customers who bought both new and used vehicles for as long as they owned them, but required them to come in for prescribed auto and tire maintenance.

The mall dealerships replaced the original tires, usually with tires of the same brand, but sometimes with Cooper tires since Cooper has a tire plant in Texarkana and some customers requested them.

Shores bought the replacement tires from both distributors and local tire dealers, whoever offered him the best deal.

The program excluded commercial vehicles. Later, the dealerships excluded cars with expensive low-mileage speed-rated tires.

Since drivers in the Texarkana area tend to put high mileage on their vehicles, many did not get their vehicles into the auto mall for service at the mileage recommended by the manufacturers.

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Shore says he forgave those who were slightly over the limits, but things got out of hand. And in cases where he felt he needed to enforce the rules and cancel the free tire deal customers were very unhappy.

Finally, at the end of 2004, the auto mall dealerships dropped the program.

“I don’t regret trying it,” says Shores. “It brought us new customers who have stuck with us. But the whole thing had run its course.”

McLarty Auto Mall still sells replacement tires at all its dealerships under supply programs run by auto manufacturers. And Shores still buys tires from both distributors and local tire dealers.

The volume of business has slacked off in his service department, but Shores says many of those who began coming in during the free tire program liked the service and continue to have work done there.

Lloyd Stoyer retired as editor of Modern Tire Dealer in 2000. That same year, he was inducted into the Tire Industry Association's Hall of Fame. He resides in Canton, Ohio.

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