This MTD exclusive was provided by Dennis McCarron, a partner at Cardinal Brokers, one of the leading brokers in the tire and automotive industry (www.cardinalbrokers.com).
The year 2021 is drawing to a close. For independent tire dealers across the country, it has largely been a profitable - but difficult - year. With just a few weeks remaining, it’s time to take stock of the last 12 months and start looking at the next 12 months.
The year had many ups and downs. Business volume was strong across the nation, with most dealers up 10% to 15% in sales and margins holding strong. New car sales were down in a big way and prices of used cars are sky-high.
This traditionally has translated into higher repair orders and more maintenance as consumers hold onto their cars longer. And this was the case throughout the year.
The potholes during 2021 were also numerous. Staffing continues to be the biggest threat to dealers’ livelihoods. The pipeline of qualified, eager employees who want to make a living in this business is particularly weak, especially at the entry level.
Professional training - at least at the basic levels - is going to continue to fall on the shoulders of independent shops. Any dealership that saw its bottom-line profits increase in 2021 would be well-advised to plow a decent amount of that back into education for technicians and service advisors.
You’ve likely enacted base pay increases for your employees, which is a natural reflection of the shallow employee pool and high demand for qualified, skilled people.
In situations like this - where we have little control over what the broader economy hands us - I think the best advice is to be generous with highly talented employees who have great attitudes, at any level, and let mediocre employees feel the pinch.
The good news here is that the unemployment rate is already lowering and while we will remain in a talent pool crunch, it won’t be as bad as 2021 has been.
While 2021 was good for sales, expect volume and average repair orders to come back down to earth. Much of the free money from the government is ending. Plus, our industry’s highs and lows are often tied to gasoline prices.
In the United States, consumers rarely budget for gasoline. They may make minor adjustments, such as consolidating trips, but they don’t budget, so an increase in the cost of a gallon of gas takes away from other non-essential purchases. Combine gas prices with inflation and repair orders will get smaller. It’s not the end of the world, but consumer priorities are shifting around.
What will 2022 hold? Well, each year I try to read the tea leaves and I’ve been fairly accurate, save for the pandemic. However, 2022 remains elusive in prediction because the past two years have been so wildly unpredictable and there are about as many forces pushing on the industry as can be imagined.
However, there are a few things to count on remaining at least for half the new year. Shipping and transportation will remain a burden on the tire and automotive industry. Even with extended hours at ports, there are only so many containers that can be unloaded and there is still a shortage of truck drivers. Shipping woes will ease, but will still put pressure on tire and parts back-orders.
Inflation is likely to remain for the first half, as well, and most likely beyond. The good news is our industry is nearly recession-proof. People need to get to work and most cities do not have adequate public transportation beyond their current capabilities. Cars need to be fixed when they break. You will likely see a small decrease in maintenance-related services and an uptick in repairs.
On the positive side, dealerships in northern states - which are projected to see a lot of snow - will likely experience a profitable winter. In addition, snowbirds have been cooped up for 19 months now and the number of destination vacations is predicted to be up, especially those that require road travel.
Employment issues also are expected to improve, although they will still be a sore point, as mentioned earlier.
Ultimately, I predict a decent year, profit-wise, for those tire dealers who can roll with some punches and be nimble.
It won’t be a record-breaking year like 2021 was, but it will come with fewer headaches as we start to unwind the damage of the pandemic.
In the meantime, keep focused on maintaining margins. Tire margins are very healthy across the board and parts margins remain manageable. Also keep an eye on your labor rate. Don’t wait two years to raise it.
You should implement at least four labor rate increases during the new year, with a minimum of $1 per quarter. If you’re already behind, you will need to increase your labor rate even more.
