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Dealer Debate: Tires Only Or Tires & Service?

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In the world of independent tire dealers, there are two primary ways to conduct business: Sell tires and wheels only or sell tires and wheels plus full-blown automotive service.

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In recent years, there have been debates about which format fits today’s marketplace best. Here are two views offered by veteran tire dealers and the organizations they represent. The question-and-answer story that follows reflects their personal views.

First, let’s familiarize ourselves with the participants.

George Hoellen is president of T.O. Haas Tire in Lincoln, Neb. Hoellen, who has been in the tire business for more than 30 years, oversees 29 stores – 23 in Nebraska, five in Kansas and one in Iowa. Hoellen’s business currently consists of 75% tires and 25% automotive service, but he is aiming to boost service work and put that ratio at 60:40.

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Pat Logue is managing director of retail operations for Buffalo, N.Y.-based Dunn Tire. He oversees 26 stores in western New York and Pennsylvania. Dunn Tire has eight stores in Buffalo, eight stores in Rochester, four stores in Syracuse, three stores in Erie and three more in Fredonia, Jamestown and Olean, N.Y. Dunn Tire’s business model is based on 95% tire/wheel sales and 5% service, which includes only tire mounting, rotation and alignment checks.

Why did you choose to go market with your respective business models?

Logue: “Even the ‘boxers’ can’t take care of their tire business properly. There are simply too many SKUs, too many things to know about TPMS, too many types of customers and bigger wheels and tires. We see the evolution of the tire business playing right into our strength as the tire professionals in a large, regional, niche market.

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“To us, the most valuable piece of property we have is the tire bay. We continuously train and retrain our people and are sharply aware of upcoming new vehicle technology. We view training as a key investment in our claim to being tire professionals.

“We have the locations (26 stores) and the resources to buy the necessary equipment and pay for the necessary training to stay on top of our business plan. For example, we were one of the first tire dealers in the country to put nitrogen in all of our locations, which was a $250,000 investment.

“The downside of our market, and the beauty of our market, is that we aren’t in California. We don’t have a lot of super-tricked out vehicles as a regular part of our business. Although we do take care of special customer needs, we see mostly Chevys and Fords.

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“Our tires/wheels format is based on an out-the-door pricing program, something we call the ‘Freedom Plan.’ The customer pays one price, which includes nationwide road hazard protection, free tire rotation, free flat repair and free computerized alignment. We also offer winter tire storage in the summer at most of our locations and summer tire storage in the winter.

“We see most of our customers every 5,000 miles for a free tire rotation; we see them for winter tire fitment and, later, for winter tire storage. It’s all part of our customer retention program, and the OE market has helped us. When vehicle makers began to put wider performance tires and expensive wheels on new models, it was a simple matter to sell our customers the latest winter tire technology and winter storage for their wide tires and expensive wheels.

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“Our stores are dedicated 95% to the tire/wheel business and 5% to automotive service. We want to make certain our customers are taken care of in terms of maintenance. But, we aren’t suddenly going to change our footprint in the tire business because it doesn’t make sense. The cost would be prohibitive in terms of brick and mortar, and we’d be giving up our position at the tire professionals, which is something we will never do.”

Hoellen: “Since 1984, T.O. Haas Tire has offered a number of undercar services, such as alignment, suspension, ride control, brakes and oil changes. That has always been a part of our business mix.

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“But, in late 2004 and early 2005, we really started looking at the tire industry to determine how it was evolving. Who were the long-term players going to be as the automobile manufacturers continue to increase their presence in the replacement tire business? We looked at how tire sales were trending, studied our database and looked at our customer retention numbers.

“It became clear that, despite a healthy tire and automotive service business, we needed to find a better way to stay connected with our customer base on a much more frequent basis. If customers only came in for an occasional tire rotation or a balancing job, we weren’t seeing them as often as we’d really like to see them.

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“We learned in our studies that customer expectations today call for a tire store that offers a broad base of services. The decision was made to grow the automotive service end of our business by offering more preventative services that would benefit the customer.

“At the beginning of 2006, we added transmission flush machines, coolant flush machines, plus a renewed emphasis on power-steering flushes and brake-line flushes. At the same time, we started the process of measuring the success of adding these services, and we learned it’s not an easy process. It takes time because you are changing the dynamics of your organization. It’s also a process that requires more training for your sales force and techs.

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“We are looking at 2006 as our rollout year for additional automotive services. So far, the news is good. Although we are not reinventing the wheel, we are buying new tools, such as Mitchell1 On Demand, for our stores. This software gives our techs all the repair procedures they require, proper service intervals and OEM recommendations, as well as recalls.

“Already, some of our stores are seeing an increase in invoice count and dollar-per-invoice averages. By the end of 2007, we expect an increase in net income of 20%. We expect that the addition of these new automotive services will be paid for in four years.

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“But, that is not what drove this concept. We see our efforts to expand our automotive service as a change in business philosophy. We believe that if we improve the things we do, and if we do a good job of communicating the benefit of doing business with us, the rest will follow. It’s really up to us.

“It’s all part of rebranding T.O. Haas into something more than it is today. We must make certain that customers know who we are and what we do. As part of this process, we needed, first, to make sure that our people are behind the new concept and that they are confident we are on the right track.

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“I believe we are starting down the right path and banging the right drums. Our goal is to avoid having disappointed customers. We don’t want them to experience a broken hose, flat tire or broken belt during a family vacation. We believe it’s our job to alert the customer to potential problems. If we fail the customer, we have failed ourselves.

“Today’s customers expect the tire dealer to do more. Once upon a time, a dealer could slam dunk an oil change and let it go, but this is no longer about a simple oil change. It’s about training our people to pick up on potential problems and call them to the customers’ attention. We must make sure our techs understand that taking care of the customer is what this is all about. It’s serious business. Our future is wrapped up in our ability to get our people – as well as our customers – to buy into the concept.”

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How does your business model impact overall profitability?

Logue: “We started with tires and wheels as our format and believe in the profitability of this niche. This is how we started. This is where we believe the money is. Any format change would mean a significant structural change to our organization. I don’t see senior management going down the road to increasing automotive service. Such a change would work against 30 years of establishing ourselves of being the tire professionals.

“With our format, we are geared to purchasing new tire-service equipment on a predictable, regular basis. Our tire pros are paid well and receive fringe benefits. Moreover, our company was born and bred in the tire business. Now, we believe it’s time to harvest that investment in time and experience as the tire business becomes more and more complicated.”

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Hoellen: “As we track what we’ve been able to accomplish in 2006, there is no question that our income is up, and our cash flow is much improved. It all boils down to seeing our customers on a more frequent basis.

“When we decided to add to our automotive service profile, we also knew we were changing the way our people and our customers viewed doing business. That can be problematic until everyone is educated, a process that is continuing. We also knew that, if we weren’t reacting to customer expectations, we were no longer going forward; we were going backward. There is a lot of validity to this statement, even though it sounds like a clichÉ at times.

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“We know that the tire dealer landscape has changed in the last five years. At times, you don’t always seem to know what you think you know. The more we studied our marketplace and our organization, the more we knew we had to evolve the organization.

“There is no question that the addition of preventative automotive services is already a positive thing for T.O. Haas Tire and that it will continue to have a positive impact on all our stores, month by month, as we get better at understanding change, our goals in each market and our customer’s needs. I’m 100% convinced that we have taken the right direction for our company.”

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So, you’re sticking with your current format?

Hoellen: “Absolutely. We are making it work. We are identifying strengths and weaknesses on a store-by-store basis by asking our managers: ‘What makes sense to you in terms of our new concept?’ We are not forcing them to accept a cookie-cutter program if it doesn’t work for them in their marketplace.

“What we have done is ask our people to make a commitment to being successful in the preventative portion of the automotive service industry. When we started our new program, we were 75% tires and 25% automotive service. Our goal is to get to 60% tires and 40% service without losing any of our tire business.

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“Here’s an example of what I’m talking about: When we looked at the oil-change part of our business, we saw that change was necessary. We have stepped up our offerings to include different quality levels of oil changes. Customers seem to appreciate that. We are also checking cabin filters, even though many customers aren’t aware that their vehicles are equipped with them. We tell them; we sell them.

“To that point, we have implemented what we call a ‘Courtesy Inspection’ program. We do it for every customer free of charge; it’s an automatic service. The Courtesy Inspection checklist includes items like wipers, lights, brake lights, turn signals and batteries. There is nothing more frustrating to good tire and automotive service customers than to let them down by not mentioning they need a new turn-signal bulb. Our job is to catch the failed turn-signal bulb and replace it.

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“We must also maintain a high-level relationship with our customers. We believe the longevity of today’s tires works against the amount of customer contact. In our business, it’s all about customer contact. I’m not saying you can’t be successful in the tire/wheel business only, but you will have to generate a heck of a lot more customer contact.

“When we added additional automotive service capability to our already existing tire business, we learned that we don’t have to deal with quite as many customers. At the same time, we are increasing the quality of the relationship with our customers. Thanks to a stronger, more educated relationship with our customers, we aren’t seeing as many price shoppers. It’s more about quality over quantity.

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“We are also looking hard at the ‘graying’ boomer market. Do our hours of operation still make sense to them? These are busy people, yet we limit them to getting their cars in here between the hours of 7:30 a.m. to 5:30 p.m. Monday through Friday and 7:30 a.m. to 1 p.m. on Saturdays.

“This market segment – made up of many with two-income households – will never see a T.O. Haas store open for business. They drive by us when we’re closed. We know this may mean another change. We have to be available to them when they want us to be available, not the other way around.”

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Logue: “We are staying with what works for us, where the focus is always on the customer. For example, we produced a brochure on TPMS before the 2007 vehicles started to appear and put those in our stores for customers to read and take home. In other words, we alerted customers to a new device on their vehicles, and we educated them.

“We also made sure they didn’t blame us for TPMS by making sure they understood that this was a government-ordered mandate. Of course, we have had at least three TPMS seminars for our techs and are planning yet another. When TPMS is a problem for our customers, we are the answer. Like nitrogen inflation for all customer tires, this is part of our customer-retention program.

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“Although the major tire companies like to advertise that you can buy one of their tires for $85, that doesn’t include the many services we provide. Our tire might list for $100, but when you compare what you get for that price – which includes between $20 and $29 per tire – the majors can’t compete. That’s how we position ourselves.

“In our market area, which includes some very rough winters and potholes, we still fix about 50,000 flat tires yearly. That’s another part of our customer-retention program. People know where to get their flats fixed. Additionally, every customer who leaves here with a new set of tires also receives a customer portfolio with a postage-paid postcard. There are nine questions for them to answer, to give us a grade. If we see anything negative, we personally call them. We get a 6% return on our postcard mailings and read all of them.

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“We also spend a lot of money on advertising – roughly 6% of our retail sales to be precise. Dunn Tire is looking for world-class customers, and we want them to know how we treat tire buyers. And, we want them to tell others about their positive experiences. If we make a mistake, we want them to tell others about how we made things right.

“It’s part of our creed to get people in and out of our stores within 40 minutes. If it snows, customers want snow tires. If they want to change an EMT tire, we are ready to take care of them. If they have a TPMS issue, we are ready to handle it. We are always ready for the customer.

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“We have purposely stayed away from automotive service because nine out of 10 complaints we receive can be traced back to work in that area. Customers have friends and relatives who are auto techs, and pretty soon, you have several opinions about how a job should and/or should not have been handled. So, we backed away from it so that we could concentrate on what we do best.

“Another area of concern in the automotive service area is keeping the bays busy. There is nothing worse than an empty bay with a highly paid auto tech just standing there. We see that in new car dealerships in which the company is struggling to make money, and the tech is making very little. Unlike that scenario, we are constantly finding new ways to use our existing facilities and keep our personnel busy.

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“At one time, we did New York State Vehicle Inspections. Then, New York made some changes to the way the inspections were to be done. Again, we backed away because we wanted to see what the impact of those changes would be. Today, we’re expecting to get back into the state’s inspection business because we think we can do it with our present format. Most importantly, it eliminates us from having to say ‘no’ when asked if we do state inspections.”

Which business model will stand the test of time?

Logue: “We believe the marketplace is evolving toward us. This is now a sophisticated business with lots of new technology. We’ve positioned ourselves as the tire pros, we’re out there with the lowest-price guarantee and we’re dead serious about our marketing strategy.

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“We have a good education program for our people and our customers. I also believe we have a solid customer-retention program due, in large part, to our constant effort to communicate with customers. The Achilles’ heel in any business is losing contact with customers. We don’t let that happen.

“We are not giving away anything in quality or service, and our customers know they are going to get a better deal at Dunn Tire than anywhere else. We are the tire professionals. That is our philosophy, and we will never give up that position. For these reasons, we believe the tire/wheel format is valid and will stand the test of time, as it has here for the last 30 years.”

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Hoellen: “I believe the tire and automotive service format will be more successful over the long term than tires alone. It’s good for the tire retailer who needs a good mix of services. We are now seeing some tiremakers in the price-driven part of their lines looking at an increase in demand, and they can’t keep up. The law of supply and demand is going to tell them that, if they aren’t able to supply tires now at current low prices, they ought to be able to increase their price a little and still meet demand. It’s going to be interesting in 2007 as the tire business continues to evolve.

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“We are counting on our very direct effort at building relationships with our customers. Over the long term, that will be the deciding factor in the success of our business. We will continue to educate ourselves and our customers, and we will be sharply focused on what’s happening around us. Our belief is that we must be the best we can be; the rest will take of itself. This is not a time for us to worry about what everyone else is doing. You can lose your focus that way.

“If anything, I believe that, down the road, we will be offering more automotive services than we are now. In our business, our market, it just makes good sense to make it as easy as possible for customers to let us take care of their vehicles – from tires and wheels to automotive service.”

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