Commercial dealers: Are you offering customers the most complete range of tires possible? Do you consider yourself a ‘full-service’ dealer with the ability to recommend tires for every sort of commercial application?
If you already offer medium truck and OTR tires, it may be worth your while to consider other segments of the commercial tire market, too. In fact, there’s one that some may overlook small OTR tires.
It’s a niche market that can provide that ‘finishing touch’ to a dealership’s core commercial offerings. Servicing vehicles fitted with small OTR tires can easily complement an existing commercial tire business. And, now might be a good time to look into the opportunity.
The definition of a small OTR tire varies by tire manufacturer, which can lead to confusion. For the purposes of this article, though, we’ll define small OTR tires as those encompassing sizes 10.00-24 through 16.00-24 and 15.5-25 through 23.5-25 and fitted to a range of small vehicles used in the construction and maintenance industries.
“Demand for small OTR tires continues to increase on a regular basis,” says James Tuschner, director of marketing at Denman Tire Corp. “The market correlates with the construction industry mostly, but not exclusively,” he says. “Snow removal and landscaping are other markets that affect demand.”
“The construction industry is still booming,” adds Mike Castaneda, assistant vice president of aftermarket sales at Greenball Corp. And, tire dealers in the Gulf Coast region are experiencing especially high demand due to rebuilding activities associated with the recent hurricanes, he says.
Jay Ogden, senior tire development engineer at Titan Tire Corp., says the small OTR tire market is a “very profitable segment,” even though he sees the market leveling off this year.
For Raeanne Henderson, a partner at Pinky’s Tire Service in Ventura, Calif., small OTR tires are an appropriate complement to the business’ basic offerings. The commercial dealership, run by Henderson and her brother, Leon, sells mostly medium truck and large OTR tires and does the majority of its service work at customer locations.
While small OTR tire sales make up only about 30% of the business at Pinky’s Tire, Henderson says that segment has helped encourage the development of long-term, valuable relationships with commercial customers. When customers come to Pinky’s Tire for medium truck tires, Henderson lets them know she can also supply tires for backhoes, graders, snow plows and other small service vehicles one might see at a construction site or along the highway in other words, small OTR tires.
So, how can a dealer tap into this potential relationship-building profit source? The answer can be summed up in two words supply and service. Call them the two ‘S’s of the small OTR tire market.
All About Service
Like other commercial tire segments, the small OTR tire market is all about service. If you’re a commercial tire dealer, you already understand the negative impact that downtime has on your customers. Every minute a vehicle is down means lost revenue and wasted labor resources.
In fact, downtime is so costly for construction- and maintenance-oriented businesses that these customers will often pay a premium to keep their equipment running. That helps keep margins healthy for small commercial dealers.
Service can also be a competitive advantage. “Small independents are the ones that survive in this business because of their fast response times,” says Castaneda.
Pinky’s Tire is a good example. The dealership operates 24 hours a day with five service trucks that travel regularly to customer locations. “Most of the work is done out of the truck, on site,” says Henderson. “If you can be there right then and there you will rarely get a disgruntled customer saying you overcharged him.” The dealership adds a service-call fee to the price of the tire, but few customers complain. “If they are good business people,” she says, “they know they are losing money when the crew is standing.”
Service is what makes the small OTR tire market profitable, according to Castaneda. “Profit comes from labor in this business,” he says. “Though small OTR tires are becoming commodity products, margins of 20% are allowable.”
However, to get those attractive margins from adding labor fees, a dealer first has to invest in a service truck and the proper mounting equipment. Installation, according to Castaneda, is one of the major roadblocks to getting into the small OTR tire business. Though tire mounting can be done mostly with hand tools, some servicing know-how is required.
Henderson agrees. Selling small OTR tires is “not something you can just decide to do,” she says. “It takes some training and requires some special tools. There is a variety of equipment that takes these tires, and you have to know about all of the different types of vehicles.”
All About Supply
Even with the right equipment, though, a dealer won’t succeed in the small OTR tire market without the right inventory coverage. When revenue-producing equipment is down, waiting for a tire to ship from a warehouse is not an option. The customer has to have that tire immediately.
“When commercial customers call for a tire, it means a piece of equipment is down,” says Tuschner. “That’s why fill rates are so critical.”
Thankfully, a dealer does not have to maintain an enormous inventory of tires to be successful in this tire segment, according to Tuschner. Unlike passenger and light truck tires, small OTR tires come only in a few sizes and ply ratings, he says. And, there are three basic categories grader (G), earthmover (E) and loader (L) and two basic tread designs dirt (2) and rock service (3).
What’s more, Tuschner says that only three sizes and ply ratings of Denman’s E2/G2/L2 tire line (a sub-category of small OTR) represent 60% of its E2/G2/L2 sales.
For good coverage of the E2/G2/L2 market, Tuschner recommends commercial dealers carry at least a grader and a loader line as well as five basic sizes and ply ratings. Those include: 13.00-24 G2 12-ply; 14.00-24 G2 12-ply; 17.5-25 L2 12-ply; 20.5-25 L2 12-ply; and 15.5-25 L2 12-ply.
As for determining which tread designs to offer, Ogden at Titan Tire recommends surveying the local area to learn about the most common applications. “A construction site application requires a different tread pattern than highway usage,” he says. “Take a tour of the area. Make contact with builders,” he suggests.
And, don’t forget rental companies. “There is a huge market in the companies that rent out construction equipment, such as tractors and backhoes,” Ogden says.
Supply is especially important in certain regions, according to Ogden. “The time span for construction in the northern states, for example, is shorter than that of more southern states,” he says. Having that tire when it’s needed is even more critical when the construction season only lasts a few months.
Does that mean the small OTR tire segment is a regional business? Not necessarily. Though Ogden says demand might be higher in parts of the Midwest and on the West Coast because of the hot construction market in those areas, Tuschner says the small OTR tire business is nationwide. “We sell those tires throughout the country,” he says.
Tuschner says Denman can help interested dealers learn the ins and outs of the business, including which line items to carry in stock. “The market is a bit specialized,” he says.
“Some knowledge must be communicated by an educated salesperson for a dealer to stock and sell these tires successfully.”
And, knowledge, Tuschner says, will make or break the business. “Generally speaking, small OTR tires command higher profit margins than passenger and light truck tires because there are not as many people in the market,” he says.
Those that are successful in the market use small OTR tires as a way to round out their commercial tire offerings. “Medium truck tires are our forte, but small OTR tires provide a nice complement to our business,” says Henderson. “It’s best to be able to take care of all of a commercial customer’s needs.”