Altering the Landscape

Dealers Battle Consolidations, Competition For OTR Business

Consolidations, tighter budgets, increased competition. Sounds like any type of industry. But not every industry deals with vehicles capable of moving 100 tons of earth and mineral.

Much like the landscapes it works in, the OTR business has changed over the years. The number of actual mine and quarry operators is dwindling. Costs are going up and everyone is looking to squeeze as much money out of the proverbial rock as possible.

All of this has placed a "heavy" burden on the dealers in the OTR market. They have been forced to change in order to continue navigating a changing landscape. Change isn’t always easy, but it is sometimes necessary for survival.

Getting Smaller
The last several years have seen a lot of mine and quarry consolidation. Bigger facilities buying smaller ones, companies buying other companies in different parts of the country – or in different countries.

"There has been tremendous consolidation," said Bob Purcell, president and CEO of Purcell Tire. "Phelps Dodge has bought a lot of their competition. PL Hanson has come here from the United Kingdom and bought up a lot of companies.

"We’ve seen a lot of consolidation in the lead and copper mines. There hasn’t been quite as much consolidation in gold, but that’s happening, as well," he said. "Price is what’s driving these consolidations. Copper is below its all-time low. Lead has moved up a couple pennies, but still at an all-time low. Even zinc is below its all-time low."

All these consolidations have forced dealers to be more savvy, more astute. Dealers can still garner a lot of business from a big mining operation, but it’s a lot harder and they have to be prepared for it. They need to be better financed and better able to meet their customers’ service needs like never before.

"The consolidations within the mining and quarry segments have yielded a customer segment with a sophisticated purchase behavior," said Chris Rogers, marketing manager for Bridgestone/Firestone Off Road Tire Co. (BFOR). "Successful mining and quarry customers today incorporate performance-measurement and cost-reducing service components in their purchase model.

"These purchase behaviors have directed both the servicing tire dealer and tiremaker to better understand the unique operating conditions of a site and how to better employ the right techniques and products to contribute to lower operating costs for the mine or quarry."

"Consolidation has enabled many of our customers to gather better data to track tire performance," said Dick Wilkerson, executive vice president and COO of Michelin’s Earthmover Group. "This enhances the ability of our dealers to find the best tire for that company’s application.

"In addition, consolidation generally encourages the sharing of ‘best practices’ in tire management across the company’s sites. Though much of this synergy has yet to reach its full potential, there is a definite trend towards further development (between the tiremakers, dealers and quarries)."

Whether or not dealers believe these consolidations are good for the industry, they will still continue to happen. Especially if the economy remains tight, smaller mines and quarries will falter and be scooped up by larger operations looking to increase dominance.

"Consolidation is expected to continue as the large corporations battle for market share and incorporate increased production volume to improve competitiveness," Rogers said. And given certain political and environmental pressures, mines and quarries find it easier to buy for growth vs. trying to open new sites.

The Benefit of Competition
The OTR tire market has changed considerably over the years. Price pressures and continuing "bigger is better" consolidation has made mine and quarry operators more bottom line oriented than ever. They have to work on ever-tightening margins by finding efficiencies everywhere they can, from bigger and faster equipment to better pricing on tires and service.

At the same time, budgets have constricted while demand for service has increased. The smart mining and quarry companies are looking for quality help wherever they can get it, and dealers have become more prepared and smarter about their business.

Consolidation and competition have put greater emphasis on doing the little things right. As stated earlier, dealers need to have the finances and abilities to handle these types of businesses, but they also have to face competition from other dealers, the tire companies and even the mines and quarries themselves.

"In retail, the three most important things are location, location, location. In the OTR market, they are service, service, service," said Purcell. "You have to service these people properly and be ahead of customer requirement from an equipment standpoint."

Wilkerson agrees: "It seems the most critical factors are outstanding service, quality products and trust. Dealers need a very customer-focused approach, bringing the best innovations in products and services that minimize a customer’s cost/hour and maximize vehicle availability."

Quarries and mines have a few ways to go when it comes to getting tires and service. While there are a few that go it alone and try to handle their tires and service by themselves, those are few and far between – weeded out by minimal success. Many purchase their products and service direct from tiremakers, getting cheaper prices but perhaps not personalized service. Which leaves the dealer in the driver’s seat.

"A dealer has a bit of an advantage over larger tire operations like TCI and Wingfoot in that we can offer multiple product categories," said Purcell. "Bridgestone can only offer Bridgestone and Firestone brands. As a dealer, you have to be loyal to your supplier, but if one tire doesn’t work we have the versatility to offer other brands to a customer."

The Best to be the Best
BFOR’s Rogers sees a very simple version of dealer success: be better than everyone else. "To compete, the dealer must have the best equipment, best service personnel, best sales personnel, the best staff and be aligned with a quality manufacturer," he said. "To be the best you must do all the little things that others think are too menial or insignificant. The little things put you ahead."

Dealers have changed because the market has changed. And the market changed because of "an increased demand for the best products and for reliable, high-quality services," said Michelin’s Wilkerson. "Minimizing downtime and reducing total tire costs have become even more critical as commodity (mineral and rock) prices have fallen."

A change in the market mandates a change in dealers in order for them to survive and thrive. Shifting and adapting is what they have been doing over the last several years. And that trend will continue.

"The dealer side of the OTR market has changed dramatically," said Rogers. "Large companies negotiate with the manufacturers for better pricing, one-stop shopping for all products and one invoice. The manufacturer then receives more share of the company’s business and longer term agreements. Lower pricing results in less gross profit, which means that the manufacturer and the servicing dealer suffer. It also results in the dealer working off of credits (from national accounts) with the manufacturer and that hurts the dealer’s cash flow."

Or, as Purcell simply put it, "Dealers may be ahead from an experience standpoint, but the manufacturers have the deep pockets."