Oklahoma dealer makes the quick lube business work for him: Getting that car or truck up on the rack can lead to big ticket sales, says Tate Boys

May 1, 2005

Few segments of the automotive industry are growing as rapidly as the quick lube business.

Quick lube shops seem to be sprouting up everywhere. There are more than 16,400 quick lube locations currently in operation, according to National Oil & Lube News. These outlets are expected to post overall gross sales of more than $7 billion this year.

Some heavy hitters are fighting for a piece of the quick lube pie -- including oil manufacturers, Wal-Mart Stores Inc., national auto parts chains and, of course, tire dealerships.

Competition is fierce. But Craig Tate, co-owner of Tate Boys Tire & Service LLC in Bartlesville, Okla., isn't intimidated.

Tate and his brother, Chuck, are going head-to-head with quick lube operations by running two quick lube lanes of their own. They've discovered that performing quick lubes does more than generate profit. The service also leads to new business.

Smart buying

Tate Boys Tire has been performing oil changes since the company opened 16 years ago. The dealership has a quick lube lane at each of its two locations, one in downtown Bartlesville and another, newer shop on the outskirts of town.

Like tires, the oil change segment has gotten more complex over the years, according to Craig.

"There are so many different grades of oil now," he says. "There are so many different selections of oil. The biggest thing is staying on top of it -- the different viscosities, the different brands, the synthetics.

"If you look at tire SKUs compared to 15 years ago, they've probably quadrupled. And it's the same with oil.

"We never really worried about oil SKUs, but we (have) to do that now."

The Tates buy oil from two distributors, an out-of-state firm, Hudson Brothers, and an Oklahoma City, Okla.-based company called CDI. Both wholesalers truck oil to the dealership's locations.

Tate Boys Tire stores oil on-site. Its downtown store has four tanks -- two 300-gallon drums, one 150-gallon drum and one 50-gallon drum. Its other outlet has three 300-gallon tanks, plus a 50-gallon unit. "We also stock by quart (usually 50 cases at each location).

"As we continue to grow, I want to make sure we have uniform buying -- to get in bed with one person. I don't know if that's possible or not, but it's something we're looking at."


Competitive advantages

Tate Boys Tire primarily added quick lube lanes to increase its car count, according to Craig. The company averages about 26 oil changes a day downtown and more than 35 a day at the dealership's second location. Each location sees about 70 vehicles a day overall.

Quick lube service "is a convenience for our customers. We pride ourselves on being a 'one-stop shop' for people.

"Oil changes are the most frequent (service) that customers do on their vehicles, besides putting gas in them."

Tate Boys Tire competes directly with a Wal-Mart that offers oil changes and two independently owned quick lube shops, one of which "has changed ownership four times in five years."

The smaller shops advertise minimally, he says. "One advertises in a little coupon section that comes out once a quarter. The other does advertising to a very small degree."

Tate Boys Tire is much more aggressive. "We do direct mail, TV, radio and newspaper. We send out coupons for $3 off an oil change around holiday days and big travel periods. We try to hit different intervals."

Craig doesn't view Wal-Mart as a threat. "Wal-Mart's customers are different than mine. As far as quality of work, nobody in the industry can argue that Wal-Mart does as good a job as independent tire dealers. Our customers expect more from us than what they'd get at a Wal-Mart.

"We're a customer service-oriented business. Our customers who have done business with us expect us to catch things that normal service providers wouldn't -- whether the wipers are bad or their belts are bad or their tires need to be rotated.

"That's the difference between guys like us and your 10-minute oil change shops. They have high turnover, their pay isn't as high and they don't have the profitability that independent tire dealers do.

"We pay our guys 30% above the market average. We have some guys who have been with us since they day we opened. We want to make sure we don't send someone down the road (to a competitor)."


Expert service

"We have one specific bay in each store that's devoted to oil changes," says Craig. Each includes a rack that can hoist up to one-ton trucks. (The Tates had to buy a new lift for each store.)

"We designed it to where it was convenient for our techs -- to have the oil filters, drain pans and the rest of the equipment right there."

Conversion cost the brothers $5,500. One of the dealership's suppliers, ConocoPhillips, paid for the lanes' reel systems "as long as we bought X-amount of oil from them." The company also carries Castrol and Pennzoil brand engine oil.

The average oil change at Tate Boys Tire takes 20 minutes versus 25 to 30 minutes before the quick lube lanes were created. The time saved may not seem like much, "but it means more profit," says Craig.

With dedicated oil change lanes, "we're not going to pull a set of tires, we're not going to work on a suspension system, we're not going to tie up that bay."

An even mix of cars and light trucks and SUVs roll through the company's quick lube lanes.

Changing a pickup truck or SUV's oil can take more time than doing the same on a standard car, says Craig. Some oil filters are harder to reach, "especially with newer vehicles. They're putting more engine underneath the hood. There's less room to work and that definitely ties up more of our time.

"Some off-road light trucks have skid plates that you have to remove in order to get to the oil filter. If you leave the plate on, take the filter off, (and) drain oil onto the skid plate, that oil can leak onto the customer's driveway."

The Tates do not charge extra for more time-consuming jobs. Their flat oil change rate, $19.99, applies. "A lot of places have different prices on oil changes. We lump ours together."


Growing demand

The proliferation of quick lube operations doesn't surprise Craig. "It's tied to the money spent on preventative maintenance. The amount of money Americans spend on preventative maintenance is astronomical -- especially in today's market, where you're paying $40,000 for a truck. People want to take care of their vehicles."

Many, he says, are simply unable to perform their own maintenance since vehicles are becoming increasingly complex. "In some cases, you can't find an oil filter unless your vehicle is up on a rack!"

Environmental regulations are more prohibitive, as well. "You just can't drain your oil on the curb and replace it yourself. What do you do with that oil?

"People are just going to have it changed instead of having to go out and get the right tools, lay down on the ground, etc."

Price plays a major factor in where customers buy oil changes, he says, but so does convenience. "The quick lubes here advertise 10-minute oil changes. If you have two guys devoted to an oil change -- they have a guy on top and a guy in the pit -- you can get it done in that amount of time."

Other opportunities

Tate Brothers Tire makes about $8 on every oil change. But the big money comes from fixing mechanical problems that are discovered during the process, according to Craig.

Each vehicle that comes in for an oil change receives a thorough safety check. "We check tires and their air pressure. We check to see if those tires need to be rotated. We check for any fault that we can find in those tires. Since the Firestone recall, people are more conscious about their tires. That's the first thing we look at."


An under-carriage inspection follows. "We look at the differentials, we check universal joints, we check for any loss of fluid. Of course, we check belts and hoses.

"And when we check fluids, we just don't check their levels. With transmission fluid, we check the content of that fluid to make sure it's acceptable, that it's not burnt. With radiator fluid, we check PH levels. We also check the air filter and wiper blades."

Techs find problems that need to be addressed about 50% of the time. They inform vehicle owners immediately.

"I know a lot of stores never let their customers into the service area," says Craig, "but we bring them out and show them what's wrong while the car is up on the rack. There are a lot of people who have been taken advantage of and that's something we will never do.

"If there's a leak in the engine, we want the customer to see it. That way they don't just take our word for it."

Nearly a quarter of the mechanical problems Tate's techs find are beyond their mechanical scope (the dealership doesn't rebuild motors or transmissions). "We make sure customers know, 'Hey, this isn't something we do. We're not trying to get money for our own pockets. We're concerned about you.' They appreciate that."

Tate Boys Tire also offers loaner cars for customers who don't want to stick around the shop while their vehicles are being serviced. "Your retired people love to come in and talk with us, drink coffee and visit with other customers, but the majority of people want to be doing something else at the same time. It's a rush-rush world."

He advises other tire dealers who are thinking about joining the quick lube fray to follow his lead. "If you're in a market that's saturated with quick lubes, maybe you'll be able to get more people into your shop by doing something different, like courtesy cars."

Craig says his perspective on the true value of oil changes and other services has evolved over the years. "When I first started, I looked at the business and said, 'We don't make any money with oil changes.' But I didn't see the big picture.

"Oil changes aren't going to make your payroll or insurance payments. It's about car count" and discovering new repair -- and profit -- opportunities, he says.