Economic indicators point to the possibility of a general downturn - if not a full-fledged recession - taking place in the United States sometime next year.
“I recently heard someone say, ‘A recession is coming like a hurricane,’” says Joe Ramsay, the owner of Venice, Fla.-based Pit Stop Auto Repair. “But we don’t know if it’s going to be a category one hurricane or a category five hurricane. There’s going to be some destruction. We just don’t know to what extent.”
How can you prepare for a possible dip and the impact it could have on your profitability? Fellow dealers share their advice in this MTD exclusive.
Keep your people. Butler Tires and Wheels has four locations across the Atlanta, Ga., area, where the majority of its “prep work” will happen in anticipation of an economic downturn, says Dani Freedman, the dealership’s vice president of marketing. “I think we are at a difficult time right now because inflation is at its highest and supply is at its lowest.
“Typically, if you were preparing for a recession, you would start lowering prices, letting people go and really tightening everything up.”
Craig Dobrin, vice president of operations at the dealership, says cutting employees is the “last thing” Butler wants to do.
“There have been two or three other tire shops” in Butler’s area that have slashed head count, rendering these companies unable to service customers effectively, he reveals. “We want to be well-staffed enough that we can blow (customers’) minds with service.”
Freedman and Dobrin emphasize that both customers and employees need to be taken care of during economic downturns. Butler also is looking at other actions that worked for it during the COVID-19 pandemic.
“When the pandemic first started, Craig took sort of a gamble,” says Freedman. “He started taking a lot of our working capital and investing it in more inventory. He started stacking our warehouses with about a million dollars (of tires and wheels), which allowed us to effectively quadruple our central warehouse inventory.”
Freedman says Butler also is using this time to do some “housekeeping. We are making sure not only that the staff are the best they can be, but that the stores are in shipshape (condition) and inventory is in order.”
“We want to continue doing what we are doing and just find a way to do it better and be a little more efficient,” adds Dobrin.
Adjust, adjust and adjust again. John Sparks, president of Sparks Commercial Tire Inc., a five-location dealership based in Findlay, Ohio, says the scariest thing about today’s economy is the “unknown.” That’s why Sparks’ biggest piece of advice for other tire dealers is to adjust and readjust, as needed. And watch inventory levels closely.
“We just don’t know what’s going to change,” he says. “Will everything going on overseas affect us? Will it not? Is manufacturing going to be impacted? I don’t know. I don’t have a crystal ball.
“But I do have ways to prepare, like keeping an eye on inventory levels - and adjusting those, when needed - and preserving cash.”
To combat inflation, Sparks Tire has had to reevaluate some of its operating procedures. “With the fuel surcharges and everything else that we’re seeing, we’ve had to readjust some of our service rates and things like that just to try and lighten the blow,” says Sparks, who adds that surcharges also impact his supply of tires - another area where readjustment might be needed.
The dealership maintains close contact with its suppliers and customers.
“We can talk to our major customers and find out what they’re forecasting for production or what economists or people that they listen to are forecasting for the next six to 12 months and try to adjust not only for our inventories, but any kind of capital outlay that we may be looking at.
“Whether it’s (investing in) new equipment or doing something differently based on what our customers are saying their outlook is, we try to adjust to keep efficiency up.”
Continue to diversify. “One of the things we’re really focusing on is keeping our customer base diverse,” says Brian Chase, executive vice president of Frederick, Md.-based Rice Tire Co., which has 11 combination retail/commercial locations.
“We make sure we don’t have all of our eggs in one basket in terms of one, two or three customers. And we are pretty well-diversified between our local book commercial accounts and our big national account fleets. We do a lot of government work and we still do a fair amount of retail.
“And that’s been a focus for us - not to get too heavy in any one direction, so if there’s a downturn in trucking, we’ll have a lot of government business to keep us going,” as well as other accounts.
“The challenge now is you have to invest in people and you have to invest in equipment in order to find new customers and service them.”
Stay positive. Headquartered in Queensbury, N.Y., Warren Tire Service Center Inc. has 15 locations and employs 147 people. The dealership, which has been operating for nearly four decades, knows what works for it when an economic downturn is looming. Warren Tire Service has made big investments in properties, vehicles and equipment.
“We own (the properties of) 11 of our locations,” says Robert Kellogg, the company’s president. The rest of the dealership’s stores are leased.
Kellogg feels that he and his team could go “for a few years cutting those expenses back drastically, if needed.
“Our biggest expense - like any business in our industry - is payroll. In the past, we have incorporated hiring freezes during recessions. For example, during the 2008 recession, we had nine people retire or leave the company for various reasons in a year’s time and that worked well to keep expenses in line with (our) 8% loss in sales during the same period. We eventually replaced those positions as business picked back up. Note that we did not have any layoffs. In fact, in our 39-year history, we have never needed layoffs.”
He says the tire industry is a good one to be in at the moment. “We have steadily thrived and grown our business - including during the 2008 recession - and every challenge has been met with a successful outcome."
Stay tuned to moderntiredealer.com for more tips from fellow dealers.
