Survival of the smartest
Without question, 2009 was one of the most difficult years independent tire dealers have faced in a long time. For many, survival was the name of the game.
As 2010 begins, most, if not all, of the same challenges remain. With that in mind, we recently asked several tire dealers:
1. What will be your biggest challenges in 2010?
2. How do you intend to overcome them?
We discovered that dealers are not holding their collective breath for a miraculous recovery this year. However, they are taking key steps to keep their numbers and margins up.
New brands, more units
Tom White, co-owner of Tire Source, a five-outlet passenger and light truck tire dealership based in Akron, Ohio, says his company faces several immediate challenges.
Number one, Tire Source has to find a product to replace Goodyear Tire & Rubber Co.’s Republic passenger tire line, which was discontinued earlier this month.
For years, Tire Source marketed Republic as a “quasi entry-level tire,” says White. It was a big seller. “Our guys believed in it.”
White and his partner, Drew Dawson, are talking with their wholesale distributor about selecting a line to replace Republic, “but we haven’t made a decision.”
They would like to keep it in the “Goodyear family,” notes White. “I understand how SKUs are going up and how manufacturers are trying to find an even balance that makes good business sense.”
Boosting unit sales will be another priority. Tire Source’s units were down double digits in November. “Part of it is the economy, obviously.”
White reports that more customers are buying two tires instead of four to save money. “I think the demand is still there, but they’re putting it off as long as they can. We’re seeing that become the norm.”
How do you spur more sales? “That used to be a no-brainer. We’d say, ‘Goodyear has a good credit card deal — no interest for six months, maybe a year.’ But people are not tuned into opening more credit cards.”
They react the same way when confronted with large auto repair estimates, he adds. “Before, if someone needed $700 or $800 worth of work, they’d say, ‘I can’t do it right now.’ We’d say, ‘We have this credit card. You can do it over time and just pay it off.’ People are just leery of opening credit cards.”
They’re also more price-conscious. “We hold our guys to a gross profit blended amount that we like to achieve. In December, we kind of knocked that down a bit and said, ‘Let’s get out there and match deals.’”
Tire Source will continue to match prices. “We’ve done it before, but not as aggressively as we’re doing it now.”
The dealership also will continue to manage its store inventory levels. “We’ve evolved almost to a just-in-time system. We have roughly 300 tires in stock per store.”
Slightly more than 100 miles southeast of Akron, Tom Richey, owner of Pittsburgh, Pa.-based Laurel Gardens Tire Service, has two goals: keeping up with the never-ending multiplication of tire sizes while holding his shop’s inventory to a manageable level.
“I’m very frustrated because sizes are out of control,” he says. “My inventory two, maybe three years ago was 5,500 tires at X amount of dollars. Now it’s 1,500 fewer tires at the same dollars.”
Richey says Pittsburgh is a wholesaler-heavy market, which works to his advantage. “We have eight to 10 wholesalers coming into town every day. Instead of carrying 12 of something, we might carry four or eight. But if you sell something today, you have to make sure you’re replacing it tomorrow.”
Richey stocks more sizes than in the past — 200 spread across 4,000 units vs. 150 sizes across 5,500 units.
The goal is to simplify without sacrificing comfortable margins, he says. “My gross numbers were exactly the same in 2009 (vs. 2008), but my net profit was twice as much. We haven’t dropped our prices at all. I don’t think you have to.
“We have that economy tire, we have import tires — in other words, inexpensive tires. We’re using Chinese tires as entry-level and more people are buying them. More people are looking for used tires. Everybody’s tightening the belt a little bit.”
That includes Richey himself, who plans to sink less money into advertising in 2010. “We’re watching our ad expenses. We’ve trimmed it back. We’re using our co-op money only.”
Laurel Gardens Tire will continue to advertise at bingo halls, in church bulletins, and other low-cost, grass-roots venues.
Diagnosis: 100% profit
Maintaining healthy tire margins has always been a priority at Taylor’s Discount Tire & Automotive in Greensboro, N.C., and that will continue to be the case in 2010, says Scott Robinson, the single-location dealership’s president.
“We need the ability to acquire tires from our wholesale distributors at a price that will enable us to sell them and make a decent profit compared to the large chains.”
Taylor says his company sold more than 45,000 units in 2009. “We’re not having trouble selling tires. We’re having trouble selling tires profitably.”
Meanwhile, Robinson is chasing profit opportunities in other areas, including auto service.
“We just hired our sixth mechanic. We’ve always done mechanical work,” like brakes, suspension, water pump replacement and other repairs. “We’re going to focus more on computer diagnostics.”
Taylor’s Discount Tire has offered computer diagnostics for years, but only started charging for the service two months ago.
“We’re now able to convert check engine lights into repair orders,” says Robinson. “We’re doing $300 to $400 worth of diagnostics per day. Before, we were pulling codes for free and giving customers estimates. If they wanted to fix it, we’d do the work. If they didn’t, we were out our time and effort.”
Most new car dealerships in the Greensboro market charge $80 to run a diagnostic check. Robinson charges half that amount. “It’s on our menu board and on a sign in our window. Our customers feel comfortable paying it because we have a great reputation.”
Car dealerships don’t concern Robinson. Chains like AutoZone and Advanced Auto are more dangerous because they don’t charge for diagnostic checks, he explains. On the other hand,
Robinson notes that the chains’ lack of service capabilities and automotive expertise plays into his hands.
“We tell customers, ‘It’s worth what you pay for it.’ When AutoZone pulls a code for free, they just tell the customer, ‘You need this.’ The customer will buy the part, bring it down here, we install it and it doesn’t fix the problem... they may have spent $200 on a part when all they needed was a $2 hose.”
Diagnostic work is 100% profit, according to Robinson, “minus what I have to pay my technicians. It really has raised our gross profit margin” — and not a moment too soon.
He believes pent-up demand for auto repair work will break loose in 2010.
Out west in Quapaw, Okla., Ron Thrasher, executive vice president of Burggraf Tire, says keeping his dealership’s distribution centers stocked with product will be a challenge. Burggraf Tire has two warehouses.
“We have a lot of momentum going right now purely because we have inventory,” he says.
Thrasher reports that some of the dealership’s suppliers have had availability problems.
“We’re just keeping orders in the system. We’re also increasing re-loads between our distribution centers. We’ve gone to twice a week at our distribution center in Texas to help keep their inventory beefed up.”
To keep sell-through at a high rate, the company now offers daily delivery to customers. “Our competitors were offering daily service. American Tire Distributors, Tire Centers LLC — they were already out there. We just had to get our share of the pie, and we’ve developed local routes to pick up additional business.”
Another successful technique that Burggraf Tire will continue to employ throughout the new year is offering weekly specials on certain tires. “Every Monday we come out with a special. We don’t make a lot of money on it, but we give our dealers (a chance) to take advantage of it.”
The program has been so well-received, “we find dealers calling on Fridays and asking, ‘What’s your special for Monday?’”
Used tire blues
Used tires are a big part of Buffalo, N.Y.-based Mr. Fox Tire Co. Inc.’s business. Problem is, the single-location dealership is having a hard time finding second-hand rubber at decent prices.
Fox Tire usually buys units from out-of-state used tire brokers, but supply is tightening, says co-owner Eric Fox. “People are driving on their tires longer.”
And due to recent price hikes on new tires, demand for what’s left in the used tire pool has increased. “Prices have doubled and tripled. It’s something we’re concerned about.”
The family-owned dealership —which caters to a predominantly lower middle class customer base — is filling the gap with economy, entry-level new tires, including Chinese-made products.
But tariffs have made stocking some Chinese tires cost-prohibitive.
When the White House’s tariff decision was announced last September, “we bought an extra 1,500 units, trying to get whatever we could at a reasonable price. We’re still finding deals, but (the tariffs are) a big concern.”
Fox’s most pressing concern is the future of Buffalo’s economy, which has been slammed by high unemployment.
“Personally, I think it will get a little stronger, which is crucial. Hopefully it’s on the rebound, but it sure doesn’t look like it (at the moment). Retail, in general, seems so desperate right now.
Clothes, furniture — my wife keeps telling me, ‘You should see the deals!’”
Has Fox been tempted to cut prices? “Our prices are lower than our competition across the board, but we take it case-by-case. If it takes going down a few dollars to make a sale, we do it. We honestly take each customer on a case-by-case basis.”
That’s what Fox Tire will continue to do, he adds. ■