Tire dealers stand out among the auto care industry service outlets as one of the only segments to grow in total retail outlet population over the past eight years. Since 2006, the tire dealers have grown in number of outlets by 1.1% to 19,958 locations in 2014, while the rest of the service sector has contracted 0.3% annually over the same period.
The growth in retail outlets is reflective of the 1.8% growth in sales the industry has enjoyed over the past five years, and that growth is expected to continue at 3.6% over the next five years for overall auto service, parts and repair.
Looking at the total for passenger cars, light trucks, medium truck and heavy-duty truck tire sales: after a dramatic post-recession rebound to $37.3 billion in 2011, replacement tire sales have leveled out during the past three years at around $36 billion, five years after the Great Recession low of $25.8 billion in 2009.
Most of the sales rationalization we have observed has been in the medium and heavy-duty truck tire segment, which saw a dramatic 71% increase in sales between 2009 and 2011, but has since receded 36% to $4.6 billion in 2014, while passenger and light truck tires remain within range of their 2011 high at nearly $30 billion.
For the seventh consecutive year, independent tire dealerships dominated the domestic passenger tire retail market, maintaining their more than 60% marketshare, while mass merchandisers have experienced a gradual sales decline down to 13% marketshare, as auto dealerships have steadily been encroaching and growing marketshare, up to 8% in 2014.
Finding trained and qualified technicians, margin pressure, e-tailing, telematics, legislative/regulatory issues and competition from new car dealers are among the top issues that keep independent tire dealers up at night.
Along with this increase in business comes numerous opportunities and challenges familiar to the independent service and repair shops. Finding trained and qualified technicians, margin pressure, e-tailing, telematics, legislative and regulatory issues and competition from new car dealers are among the top issues that keep independent tire dealers up at night. I will focus on the last three.
We were as surprised as anyone while attending the National Transportation Safety Board’s (NTSB) Tire Safety Symposium last December, when the Rubber Manufacturers Association announced that it would be introducing legislation calling for mandatory tire registration. I certainly believe that we have to recommit to increasing tire registration overall to as close to 100% as possible, but I don’t really think legislation is the way to go.
We have a number of concerns that come up with a legislative approach. First, this is another regulatory burden on what are mostly small businesses. Second, mandatory registration opens up tire retailers to tremendous legal liability. Third, from the outside looking in, we wonder why tire manufacturers haven’t done more to incorporate 21st-century technology regarding the ability to track an individual product through the supply chain and, ultimately to the consumer. We think stakeholders can get together and solve this one without resorting to legislation, and we’d be glad to participate in those efforts.
Magnuson-Moss Warranty Act
Speaking of surprises, the Federal Trade Commission’s announcement at the end of May that it was clarifying the interpretations of some provisions in the Magnuson-Moss Warranty Act was welcome news. We’ve only been waiting for about four years for the FTC to respond to comments we helped draft back in October 2011 as part of the FTC’s review of the Magnuson-Moss Act, which called for better communications by the manufacturers regarding consumer warranty rights.
The clarification published by the FTC this past July specifically addressed the prohibition on conditioning warranties on a consumer’s use of a replacement product or repair service tied to the brand. It should go a long way towards clearing up the language vehicle manufacturers and their dealers use when communicating with car owners about warranty coverage and the use of aftermarket parts and services.
And then, out of the blue, there was one more Magnuson-Moss surprise coming from the State of Connecticut. Everyone probably knows by now that Connecticut State Sen. Rob Kane (R-Watertown) introduced legislation that requires new car dealers to deliver to a customer at the time of the sale, a printed explanation of the prohibition on conditioning warranties that are part of the Magnuson-Moss Warranty Act. As soon as the bill was introduced we contacted the senator, offered our support and celebrated when the bill was signed it into law on July 8. We do view this as model legislation and we hope to move this forward in other states.
As the use of sophisticated technology on late model vehicles continues to grow, so does the need for the independent auto care industry to continue fighting for a competitive level playing field with the new car dealers. For years, that battle focused on Right-to-Repair legislation, where the Auto Care Association and the Coalition for Auto Repair Equality (CARE) fought to ensure that independent repair shops had the same access to the tools, software and information needed to repair late model vehicles from the vehicle manufacturers that were available to franchised car dealer technicians.
Many experts in the repair industry believe that the future of diagnostics and repair may be through telematics systems that permit technicians to receive vehicle health information wirelessly while the vehicle is on the road and before the car has arrived in the shop.
The massive pro-competitive effort by the independent auto care industry resulted in a hard fought victory when the Commonwealth of Massachusetts enacted Right-to-Repair legislation in 2012. Subsequent to the victory, a national memorandum of understanding was inked whereby the vehicle manufacturers agreed to abide by the Massachusetts law on a nationwide basis. That agreement also requires that, beginning with model year 2018, car companies to maintain all of their software in clouds that are accessible to independent shops on a subscription basis using a generic laptop computer; and connecting to a car through a standardized interface meeting a Society for Automotive Engineers (SAE) 2534 industry standard.
While the victory on Right-to-Repair was huge, vehicle technology continues to rapidly evolve and so must the industry’s pro-competition efforts. Many experts in the repair industry believe that the future of diagnostics and repair may be through telematics systems that permit technicians to receive vehicle health information wirelessly while the vehicle is on the road and before the car has arrived in the shop.
Having that diagnostic information in advance means that the shop can have the information, tools and parts ready when the vehicle arrives, increasing the efficiency of the shop and the entire chain that supplies the repair shop. This concept even extends to replacement tires, where advanced TPMS sensors can report tire conditions – even treadwear – directly to a waiting tire dealer.
The use of telematics also could have the ability to collect extensive amounts of data from vehicles that will help develop the ability of the industry to predict failures before they occur, further helping the auto care industry better serve customers while increasing supply chain efficiencies at the same time.
Notwithstanding the benefits of telematics, the threat to the independent auto care industry is that currently only the car companies can access the data being generated by embedded vehicle telematics systems. This means that only the OEMs and their franchised dealer network are able to use the data generated by a vehicle to improve its relationship with the motorist and increase the efficiency of car dealer service bays.
The Auto Care Association believes that the long-term survival of the independent auto care industry depends on the ability of car owners to direct information from the telematics system to service providers other than those sanctioned by the vehicle manufacturer.
Permitting universal access would require the car companies to modify their telematics system or at least provide a gateway that would allow information from the telematics system to be sent in a standardized format to entities outside of the manufacturer. The gateway would also permit car companies to protect certain information within the system that the auto care industry does not need in order to repair a vehicle, but could create either security or safety concerns should it be used improperly.
In order to address the issue of telematics access by the independent industry, the Auto Care Association has spearheaded the establishment of the Aftermarket Telematics Task Force. Comprised of most of the major trade groups in the auto care industry, the task force is in the process of meeting with representatives of the OEMs in an effort to better define the concerns of the auto care industry and to determine if a solution can be developed and implemented without the need for legislation.
The task force has attempted to educate the industry and car owners on telematics and how it might impact their privacy and ability to choose where their vehicle is repaired.
In addition to the task force efforts, it is also vitally important that the industry begins looking at this new technology and possible business models that will permit independents to better serve their customers and compete with new car dealers. Additional information on telematics and the task force can be found at www.aftermarkettelematics.org.