A considerable amount of attention is being paid to tires these days, with caliper-exposing specialty wheels hitting the streets and catching eyes like those midriff-exposing belly shirts. But are tires a lucrative move, or is the argument to distribute and sell them just another retread of an entreaty?
Those in the industry say standard tires carry a thin profit margin and storing tires is about as profitable as selling sno-cones in Antarctica.
But special distributor programs combined with an increase in the specialty equipment market — which leads to thousands of dollars spent just on wheels and tires alone per customer — may shed some new light on the proposition to peddle rubber in your store.
The tire replacement sector of the aftermarket saw significant growth in 2003, according to the Automotive Aftermarket Industry Association (AAIA). Replacement tire sales for passenger cars and light trucks was $17.1 billion in 2003, up from $16.5 billion the previous year. Total replacement tire sales was $21.7 billion last year, up from $20.9 billion in 2002, claims AAIA.
Along with the location of direct competitors, a significant determining factor for selling tires could be the investment in equipment.
The hydraulic lift alone will run between $4,000 and $10,000, not to mention a tire changer and balancer (each unit will most likely cost from $3,000 for low-end gear up to $20,000 for high-end equipment). Tires run the gamut of sizes, especially now that many consumers are supersizing their Honda and Toyota tires, and some technicians say older tire machines may not be able to accommodate the 20-plus-inch tire sizes of some trucks and SUVs.
Training also will set you back financially but is extremely essential, especially when working with thousand-dollar specialty wheel systems.
If you or your customers are considering delving into the tire market, the investment in all of this equipment and training alone may be the only obstacle. But if you already have a lift and a service bay, tires and their replacement could be considered a new commodity — those in the industry say you should never sell tires without offering all of the attendant services, such as installation and repair. Though tuners may order tires online, as is the inclination of the younger generation, our recent Aftermarket Business DIY study confirms that tires are not a popular item with the DIY crowd, so selling tires without putting them on the vehicle should not be an option.
Because of its more demanding yet inefficient storage concerns, compounded with thin profit margins, tires may not be a viable option for local jobbers. Regional and national jobbers, on the other hand, may have the buying power to profit from tire sales.
A CARQUEST official said tires are not being sold through U.S. distributors. Representatives from other program groups did not return phone calls seeking comment.
Original equipment manufacturers (OEMs) have begun showing interest in tire replacement, aiming to sell new vehicle owners that first set of replacement tires.
This doesn’t seem to worry Joe Catalano, president and COO of Strauss Discount Auto, a full-service repair chain in the New York/New Jersey/Philadelphia area that offers tires among its range of parts and services.
Catalano says the dealers’ foray into tire sales is relatively new. “I don’t think they’re a destination for tires at this point.” He admits that profit margins are thinner for tires, but they are, nonetheless, “an important part of the mix.”
Brand may depend on location
The argument for which brand to use has many sides. Exclusively selling a private tire brand could differentiate you from the store across the street selling prominent brands, and going with an independent tire distributor that sells private brands may offer a distinct price advantage.
However, the reach and convenience of a larger tire manufacturer could outweigh its cost. This convenience could extend as far as having someone else keep most of your inventory for you.
Catalano says, at one time, the company was a private label house, offering the Cordovan brand, made exclusively for Strauss. Recently, they’ve expanded their offerings to include brands like Michelin and BF Goodrich. Most of Strauss’ locations store their own tires on site, he adds.
Unlike prominent national tire chains, which are designed to effectively store thousands of tires per store, independent shops and those that perform other types of vehicle maintenance don’t necessarily have that advantage. However, strides are being made.
For example, Bridgestone/Firestone recently forged an agreement with Midas in which the muffler repair chain does not have to carry much inventory. The tire giant delivers its stock virtually on demand through a distribution channel of company-owned and independent outlets.
Bridgestone/Firestone, which reaches about 9,000 outlets, enlisted Midas into its “family channel,” a network of independents and company-owned stores through more than 4,700 points of sale.
This move seemed like a natural fit for Midas, which already has hydraulic lifts in its service bays and has made its mark as an exhaust specialist, says Bob Troyer, director of public affairs for the chain.
“Exhaust systems don’t wear out as frequently as they once did,” he says, adding that about 700 of the chain’s 1,900 shops have started selling an entire range of tires, from standard replacement tires to the performance-oriented. By the end of the year, Midas estimates 1,200 of its outlets will carry tires.
One thing that kept Midas away from the tire business for so long is a problem also cited by others in the industry: many tire distributors don’t have enough reach to deliver to larger chains. Midas worked with some regional distribution programs in the past that did not extend to the Midwest, a detriment to a prominent chain.
The Bridgestone/Firestone program reaches all 50 states, fulfilling orders and honoring “hot shots.” They are even reliable when the customer is standing in the store and you need it now, describes Troyer.
He agrees that tires have a smaller profit margin than other aftermarket goods, but, “In order for us to be a full service provider, we have to offer tires. It’s a natural addition.” While the technicians have the car on the lift, a tire is just another sell they can make.
Because many of its stores are independently owned, Midas also represents a model in which the smaller store is able to take advantage of the buying power of a large corporation.
Tire giant Goodyear also has a distribution network comprising affiliate dealers that enables customers to order smaller quantities of stock from satellite dealers, further chipping away at the warehousing quandary.
“It allows [customers] to be in the tire market without a lot of cash tied up in inventory,” says Jim Davis, public relations manager for Goodyear.
Discount Tire Co., which has more than 520 stores and is family-owned, represents a more simple distribution chain: straight from the manufacturer with no distribution centers or warehouses involved.
“We keep it real simple,” says Mike Bailey, senior vice president of store operations. “We don’t have any elaborate supply chain.”
To combat the thin profit margin of selling tires, Bailey says the company must rely on moving units. “You have to watch your expenses,” he says. “You have to continually sell more.”
Discount Tire, which has been in business more than 40 years, carries a number of major brands, like Michelin, Goodyear and Bridgestone/Firestone, he adds.
Another factor in selling tires is local competition. If there is no tire shop in a five-mile radius of your store, it may be wise to invest in balancers, changers and lifts.
But if there’s a behemoth installer across the street, maybe you should consider off-brands or delve into specialty tires for high-performance vehicles. Specialty tires are considered an entirely different niche than standard tires and offer much higher profit margins but much smaller volume.
Training is key
As part of the Midas distribution program, Bridgestone/Firestone sends trainers to prepare technicians for the transition. The Tire Industry Association (TIA) also offers training, which is more than just learning about installation.
There’s a selling side to tires that’s just as important: knowing which brand or style is best for a particular vehicle and which replacement tires will work with a competing brand are integral to successful tire sales.
The TIA has offered a training program since last October, says Christine Marnett, the group’s director of training. She says even though there are no laws in place requiring tire maintenance and installation training for shops, being properly certified could lower insurance costs and help protect distributors against liability lawsuits.
TIA’s training comprises two different levels: one is an online-based program that takes about four hours to complete; the other is a certification program consisting of classroom time and hands-on work.
“Both training programs cover everything, from lifting the vehicle and making sure you’re picking the right tire to balancing and installing,” she says. TIA’s programs are usually paid for by company managers, who certify instructors to train the rest of their personnel in-house, adds Marnett.
TIA’s training touches upon aftermarket wheels, but unfortunately there are no unified training programs for specialty wheels and tires. Installers often have to obtain this information from the manufacturer, she continues. “That market is so hard to regulate, there’s really no specific program at all for specialty wheels.”
Tuning up the marketplace
As far as supply and demand goes, tires are as necessary as the shoes on your feet.
And like shoes, the market favors the upsell, with high-performance tires a higher priority. Tuners have livened the sales of specialty wheels, but, of course, with it have come more expensive and specialized equipment and training.
“The performance tire and wheel is typically the first thing enthusiasts bolt onto their vehicles,” shares Peter MacGillivray, vice president of marketing and communications for the Specialty Equipment Market Association (SEMA). “It’s immediate gratification. It’s very easy to set up a new set of wheels and tires and it makes a pretty striking impact on their vehicle.”
Sport compact accessories are a fast growing specialty market in a movement also fueled by popular culture, he adds. “They’ve really embraced the whole notion of plus-sizing wheel and tire packages.”
Over the past decade, performance wheel sales have doubled, according to SEMA. In 2002, the custom wheel market brought in $3.2 billion, compared with the $1.4 billion in sales that custom wheels garnered just 10 years prior, says MacGillivray.
The profit margins for premium tires are much larger than the tire repair and replacement sector, he adds. “In general, that’s true for all high end providers.” Tire manufacturers, he says, are “pitching themselves as premium brands.”
These premium brands still don’t move as well as repair and replacement tires just on sheer volume, says Discount Tire Co.’s Bailey. “The broad market is always going to have more volume. It’s always much larger than the specialty market.”
Because the TIA has no specialized training program for high-performance tires, be aware of all liability issues surrounding their sales and try to obtain as much information as possible from the tire manufacturer, especially concerning traits unique to that particular make of tire.
Another boost to the specialty tire market is what’s known as drifting, an extreme sport that originated in Japan in which drivers purposely make their cars skid at speeds of up to 100 mph. Drifting is known to devour high-performance tires, which, of course, is a boon to the person selling the tires — at least as long as it is popular.
Some large manufacturers have taken the plunge into performance-based tires. Bridgestone/Firestone recently announced it would supply run-flat tires for the Ferrari 612 Scaglietti. Goodyear has been pushing what it refers to as “premium passenger” tires, though the manufacturer offers tires for all segments.
Beyond the sport compact tire market, which MacGillivray attests is a profitable move, the truck and off-road vehicle markets are even bigger.
But will selling tires be beneficial to your customers or the stores within your distribution chain?
MacGillivray says just from the performance market angle alone, selling tires is worth the effort. “I definitely think it’s worth taking a look at,” he offers. “If you’re in the automotive business and people are in your shop to begin with, it just gives them one more reason to do business with you.”
As aftermarket competition gets tighter, it’s always beneficial to investigate all possible profit centers, and tire sales may be just the thing you need to wheel in some additional business.
