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Delticom Sees Client Surge as Tire Buyers Go Online

(Bloomberg) Delticom AG, Europe’s biggest online tire dealer, will boost its number of clients by 25% next year, as shoppers looking for bargains and a tax refund for German commuters help beat a slump in the auto market.

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The retail customer base may reach 3 million by mid-2009, compared with 2.4 million as of Sept. 30, CFO Frank Schuhardt said in an interview. Sales at the Hanover-based company this year will be “in the middle” of a range of 240 million euros ($346 million) to 260 million euros, he said.

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Price discounts of as much as 25% are helping Delticom win marketshare amid the worst crisis for the auto industry since World War II. In Germany, the market for replacement tires, the biggest contributor to Delticom’s revenue, is forecast to decline 4% this year, according to the BRV association for tire distributors.

“Internet dealers are coming from zero and they will for sure gain their market share,” said Juergen Meyer, a Frankfurt- based fund manager at SEB Asset Management, who has bought tires himself over the Web. “They won’t reach 100% but from a low base, one can show terrific growth rates.”

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Europe’s biggest tire manufacturers have lowered forecasts as demand dwindles. Michelin & Cie., Europe’s largest tiremaker, cut its full-year profit goal for the third time in six months in October. On Dec. 10, Continental AG, the second-largest auto- parts maker in the region, lowered its profitability target and plans to scrap its dividend.

Delticom, which will join Germany’s SDAX Performance Index on Dec. 22, declined 7.4% in the three months before today, while Continental shed 51% and Michelin dropped 16%. The Prime Retail Internet Performance Index fell 29% in the period.

On Dec. 9, Germany’s Constitutional Court ruled that a decision to stop subsidies for commuters was illegal. The verdict will “give tires a little jump,” as more frequent use of cars means earlier replacement for tires, Delticom said.

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The ruling will prompt Chancellor Angela Merkel’s government to return 7.5 billion euros to German taxpayers, with as much as 3 billion euros given to 20 million commuters in the first quarter of 2009.

ADAC Survey
More car owners are considering buying tires over the Internet, according to a survey by Germany’s ADAC automobile club in December last year. Twenty-eight percent said they used the Web to compare prices, and 16% said they would buy online.

Consumer will compare prices in times of a recession even more, Schuhardt said. “We have a good chance that the positive and negative effects from the recession will be balanced next year,” the CFO said. He declined to give financial forecasts.

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“We expect drivers to travel fewer kilometers and use tires already purchased longer,” Andreas Inderst, an analyst at Exane BNP Paribas in London, wrote in an Oct. 29 note. “We regard the current weakening market environment more as an opportunity than a threat.”

Delticom says it sells three out of four online replacement tires in Europe. It has 98 online shops in 35 countries, making 90% of its revenue from sales to consumers and the remainder from wholesalers.

That puts Delticom in a better position to expand than local garages and increases its competitiveness against retail chains, said Inderst, who rates the stock “outperform.”

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The company has 23,639 service partners that customers can choose from to have their tires delivered and fitted. The tires can also be delivered to households. Delticom added 485,000 new individual customers in the first nine months of this year.

“It was so much easier to search on the Internet for tires than running to five dealers,” said Jens Hoffmann, a 34-year-old consultant, who bought special winter tires last year for his Volkswagen bus before a trip to Iceland. “They were available right away and quickly delivered.” (Tire Review/Akron)

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