Surviving the recession
Retreading is one segment of the commercial tire market that seems to thrive during tough times. However, despite the value proposition they offer to customers, retreaders are just as vulnerable as new tire dealers when the economy is struggling.
Rising raw material, energy and labor costs — as well as the burden of meeting higher customer expectations — have created additional challenges. For most retreaders, cost-cutting is no longer optional. Keeping customers’ costs down has become equally imperative.
CTD recently spoke with decision-makers at several of the nation’s largest retread operations to find out what they’re doing to survive the recession. Here’s what they had to say:
Gary Van Blaricom, CEO and president, Eastern Iowa Tire Co., Davenport, Iowa: “We’ve cut operating hours. We may work four 10-hour days instead of five eight-hour days, which conserves on lighting and other associated expenses. There have been many weeks where we’ve cut hours to 32 vs. 40. Our people fully understand that you can only do so much cleaning.
“Electricity is a major cost in our operation. We’ve worked with our utility company to get on a different rate, which has given us a lower cost per kilowatt hour. We’ve installed variable speed compressors. They’re much more energy efficient. Instead of running fully loaded they will only run based upon demand. The savings from the compressors alone have been 30%.
“Additionally, we’ve put in newer style, small fluorescent lights, which put out more light than mercury vapor lighting. Our utility company co-opted 90% of the cost of these fixtures. It’s a program they already had in place, but you have to dig to find out about these things. It’s not something they’re going to tell you about.
“From the sales side, we’ve honed in on treads we think are more appropriate for the economy we’re faced with. It’s a two-fold thing: one thing we’ve done for the last three years is push fuel-efficient drive and trailer treads. And we back that up with information that’s been ascertained from tests that our suppliers — Bridgestone Bandag, Continental and Yokohama — have done. When fuel costs were high, interest (in fuel-efficient treads) was very great. Even with fuel prices back down to somewhat closer to normal, interest is still higher than what you might expect.
“The second thing we do is sell economy treads. If it’s a price buyer or a smaller fleet, we lead with those treads because the initial purchase price is lower and our gross profit is considerably higher. The cost of the economy treads, because of weight per foot, is very attractive to the retreader, and customer acceptance is very high, especially among smaller fleets. The guys who own 10, 15 or 20 trucks... they’ll purchase economy treads.
“For anybody with fewer than 50 trucks, the number one (challenge) right now is acquisition cost.
“We run sales reports on a monthly basis and it’s not surprising that we see purchases continually going down for retreading.
“One of the reasons is the cost of retreading has grown rapidly and the cost of new tires — especially imports — has gone down drastically. The customer would rather buy a new tire if there’s only a $30 difference between a cap-and-casing and a new tire.”
Jim Fletcher, Pete’s Road Service Inc., Fullerton, Calif.: “There’s only one number that really matters, and that’s what your customer will pay. Everything below that is just accounting. The market is going to determine your selling price, but it’s your cost that determines your profit. We’re working on that other side to decrease our cost.
“We’ve reduced the hours our guys are working. We’re trying to improve our efficiencies. We’ve bought some new equipment — different hooks, different rims... opportunities to do different sized tires and to do more of them at one time. We’re trying to do a little bit of everything. We’re concentrating on being very competitive and getting our product out there.
“We really don’t do any national accounts to speak of, but we are investigating that. We’d like to do more national accounts as we have excess production available. Some of our accounts are wobbling a bit. We’ve lowered our price. Like I said, the market sets the price; you have to be competitive.
“I haven’t cut any tire guys or sales people. Where I have cut is the administrative support. We’ve had to move people down; people from admin are now back in the stores, working the counter and doing whatever it takes to get it done. We’ve always said, ‘If you have a three man operation, you run it with two.’
“Our supplier seems to be stepping up a whole lot more in working with us. They’re investing in our future as well as theirs. It’s always a partnership. It’s short-term thinking if you beat up your suppliers for your own benefit.
“We’ve always lived well below our means. I was raised with a Depression mentality. My dad said, ‘Regardless of how good it is, it can all go to hell at any time.’
“Probably the only thing I didn’t listen to him about was when he said, ‘Don’t keep any money in the bank!’ We’re in a unique position in that we own all of our equipment outright. We have a lot of capital.”
Kurt Emans, president, Easter Tire & Retreading, Lima, Ohio: “We’re doing more with less — using part-time people in the plants for our entry level positions. Instead of running five nine-hour days we’re running four eight-hour days.
“We’re keeping a very close eye on supplies, from uniforms all the way down to coffee. Our product mix is basically the same. Just-in-time inventory is big. We’re ordering (tread rubber) twice a month just in time to order the next two weeks’ supply. Instead of trying to have inventory for 30 to 45 days, we’re trying to turn our inventory every 15 days.
“It’s all about expense management — watching your bottom line, watching your waste, watching everything. When the market gets soft, retreading normally picks up.”
Jerry Bauer, president, Bauer Built Inc., Durand, Wis.: “We’re looking at all areas from a cost standpoint. We’re in the process of installing a whole new (computer) system that should provide us with a number of efficiencies. A lot of our back office processes are going to be much easier and smoother. Whether it’s your phone systems or your utilization of the Internet, there’s a lot of new technology out there, and we have to make sure we take advantage of it.
“We’re doing everything we can to increase our volume because that gives you a broader base to allocate your fixed costs. We’re doing a lot of things to expand our business, between the kinds of programs we provide and making sure we’re putting out a good product.
“I think anybody in the environment we’re in who wants to grow their business and thinks they can do that with their current customers is kidding themselves. At least in 2009, I don’t think the majority of our customers’ business is going to grow substantially — not enough to satisfy our appetite for growth. So we’ll have to go out and find some new business, whether it’s an increased percentage of the amount of business we’re currently getting from our existing customers or by going outside of our geographical territory and gathering more business from different markets. I don’t think you can limit it to any one thing. You have to explore all avenues; that’s our approach. The alternative approach is to say, ‘Well, let’s downsize. Let’s bring our core business down to our revenue stream.’ We don’t want to do that.” ■
Hints for hard times: Four ideas to help you hold your own
“It’s sad that hard times force us to do things we should have already done,” says Gary Van Blaricom, CEO and president of Davenport, Iowa-based Eastern Iowa Tire Co. Here are four things you can do to help your company hold its own during the on-going recession:
1. Watch your receivables. “Work your receivables on a weekly basis,” says Van Blaricom. “Don’t let anyone get out too far. It’s very difficult to tell a long-term customer, ‘I’m sorry, I can’t let you go any further until you get your account paid down,’ but if we’re smart, we better do it.”
2. Cut expenses everywhere you can. “We have to find ways to be more efficient than we’ve ever been before.”
3. Consider taking on smaller accounts. “Work on people who might only have a couple of trucks. I’m not saying call on them every week, but stop in and leave a card. That’s something that’s helped us to some extent.”
4. Provide more data. “One thing retreaders absolutely must do is give customers more information to help them make intelligent decisions.”
He says, “I think our biggest challenge will be to help the customer determine what his best course of action is.”
To see the list of the Top 100 Retreaders in the U.S., click here.