Ever since service stations moved away from vehicle service and repair and converted their businesses to convenience stores, independent tire dealers have captured a greater share of the auto care industry’s maintenance and repair market.
Today’s 25,000-plus independent tire dealerships, employing 178,000 people, continue (for the sixth consecutive year) to dominate the $36 billion domestic passenger tire retail market with more than 60% of sales.
Looking back not that long ago was the 2008-09 recession, which had a dramatic impact on the U.S. consumer tire retail market. However, these two years were followed by two robust sales years of $31.2 billion in 2010 and $37.3 billion in 2011, registering year-over-year increases of 20.9% and 19.6%, respectively. After a slight sales dip in 2012, the demand for tires in 2013 increased nearly 4%.
Looking forward, the general overall auto service, parts and repair sales for tire dealers for this year is projected to reach $17.2 billion, with an annual increase of 3.7% through 2017.
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 might keep independent tire dealers up at night. I will focus on the last three.
Telematics: The Connected Car
Few topics draw more attention from auto care professionals than vehicle telematics and the impact of embedded communication systems on the future of the industry. Vehicle manufacturers are appealing to the desire for connectivity and convenience by introducing technology that beams content into the vehicle, such as traffic, entertainment and parking information.
But that same technology is used to extract information from the vehicle – location, speed, air bag status and diagnostic data – which is stored and/or shared back to the automaker.
The network is naturally closed and supposedly secure, and favors communication with the OEM and its dealer network. This amounts to the vehicle manufacturers being “online” with their product while the independent auto care industry remains out of that loop – “offline,” if you will. With the embed- ded technology, the playing field for service and maintenance opportunities is no longer level.
In the short term, technology innovators have developed a variety of connectivity solutions that either plug into the OBDII port or make use of smartphone technology – or both. This interface with the vehicle enables remote diagnostics and other vehicle management services. The cost of this technology is coming down and cellular data plans for vehicles are quite affordable. But our industry is still sorting out the business model because, regardless of the cost, charging the consumer anything to receive diagnostics and maintenance reminders is a tough sell.
Our best hope for the long-term future of connectivity is in a standards-setting initiative called the Vehicle Station Gateway (VSG). The VSG is essentially a standardized layer of software that would manage communication between any authorized party and the on-vehicle network. The current VSG proposal includes provisions for security, authentication, communication traffic management and data standardization.
Most importantly, the VSG proposal calls for non-discriminatory access to the vehicle network. That will assure that independent service providers – like tire dealers – will have fair and equal access to telematic networks.
The vehicles of tomorrow will be the subject of connectivity with multiple roadside audiences. Of course the auto care industry is interested in vehicle operations data and diagnostics; the “intelligent transportation system” is interested in location, speed and other safety parameters; insurance companies are interested in acceleration, braking and hours of operation; California will be interested in compliance with emission regulations; and the list goes on. Tiremakers may even want to leverage the technology to capture performance data for R&D purposes, or to address quality concerns, or complete the loop from factory to fitment.
The case for a single, standardized Vehicle Station Gateway is driven by a lower cost and ease of deployment versus multiple network interfaces. On-board safety and security is actually enhanced by focusing all efforts on a single solution. And, as a public policy matter, it will become impossible for the vehicle manufacturers to discriminate over who can access the vehicle network. Ultimately, telematics will become a “Consumers’ Right to Choose” issue.
Competing With Car Dealers
Servicing the vehicle fleet of the future will pit the independent repair shops and tire dealers against new car dealers that will promote having all of the latest diagnostic and repair technology from the car companies to work on their highly sophisticated, computer-driven vehicles. So far independent shops and tire dealers have been able to hold their ground based on better service, convenience and prices, but the future will not allow them to rest on their laurels.
Technicians working in independent shops will need access to the most up-to-date tools, software and repair information in order to compete with dealerships to provide any type of service beyond simple maintenance. The cost to obtain these resources and to keep them updated, already very high, likely will only grow.
In 2013, the Auto Care Association and the Coalition for Auto Repair Equality signed the Right to Repair Memorandum of Understanding that requires car companies to make available to independent shops – at a fair and reasonable cost – the same information, tools and software available to their franchised dealerships.
Of major importance, the MOU requires that car companies, beginning in model year 2018, house all of their diagnostic and repair software in a cloud where it would be accessible to independent shops by subscription on a daily, monthly and yearly basis.
Under this scenario, a technician working at an independent shop will have the ability to download all of the software for a particular vehicle to a generic PC and then connect to the vehicle using an interface meeting either a SAE 2534 or ISO 22900 standard.
Once fully implemented, this requirement has the potential to reduce tooling and software costs for shops, while providing them with greater capability to cost effectively service a wider variety of vehicles.
In addition to the information and tool challenges, shops will need to ensure that their technicians are properly trained to work on today’s highly sophisticated systems. A commitment to training for independent tire dealers will be crucial for them to compete with car dealers that have direct access to car company-developed training.
Car companies will pose additional challenges to independents by pushing the perception with consumers that only their parts and dealer service facilities should be used to maintain and repair their high-tech vehicle. But it is one thing to say that they can better service the vehicle, it is quite another when they are telling consumers that using anything but the dealer or genuine OE parts might void their new vehicle warranty.
Legislative, Regulatory Protection
Enacted in 1975, the Magnuson-Moss Warranty Act (MMWA) makes it illegal for a company to condition a warranty on the use of a non-original part or service. Yet, the Auto Care Association has seen a growing number of examples where car companies have either inferred or explicitly stated that using a non-OE part would void their new car warranty.
Recently, Kia issued a technical service bulletin to its dealers saying that consumers will not be eligible for warranty coverage if a non-Kia oil filter was used.
Fortunately, Consumer Reports picked up on the Kia TSB, but unfortunately it advised its readers to only bring their Kia back to the dealer. The Auto Care Association has filed a complaint with the FTC regarding the Kia oil filter TSB as well as other car company actions and scare tactics that appear to violate the MMWA.
Thus far, the FTC has yet to respond to these complaints.
Making matters worse, car dealerships also are playing the game, putting consumers in the middle by saying that they will not cover a warranty failure because maintenance was performed at independent shops. Often independent tire dealers, who have done nothing wrong, must cover the repair or risk losing the customer forever.
It is critical that tire dealers and repair shops provide their customers with information regarding their MMWA-protected rights under new car warranties. A good resource for this is a consumer alert published by the FTC which can be found at: consumer.ftc.gov/articles/0138-auto-warranties-routine-maintenance
The Tire Aging Issue
Another issue that faces tire dealers is the question of tire age. In fact, the tire age controversy is shared across the auto care industry as certain safety advocates continue to press for time limits on tire service life.
The lack of agreement among the various tire and vehicle manufacturers only creates more confusion; some say tires should be taken out of service at six years from the date of manufacture, while other say 10 years is correct, and still others claim a tire’s age is irrelevant.
While tire age questions continue to generate publicity, this association believes that retailers have to follow their tire manufacturers’ recommendations. We were also glad to see that NHTSA, with some degree of finality, issued its tire aging report in March, stating that, “At this time, the agency does not believe it is necessary for motor vehicle safety to add a tire aging requirement to its light vehicle tire standard…”.
Still, many suspect that this matter is far from resolved, so tire dealers and the industry will have to redouble their efforts to educate customers and help them through often-confusing opinions and information.
I believe the future looks pretty darn good for independent tire dealers. Why?
- Average annual miles driven is on the rise
- Consumers are still holding onto their vehicles longer
- Roller coaster gasoline prices are smoothing out
- New agreements guarantee access to diagnostic tools and information for independents
- Projected steady growth into 2017 for vehicle service and parts sales
There certainly are some great opportunities in the vehicle service market for tire dealers. But taking advantage of those opportunities will require greater commitment and effort to meet the challenges of vehicle technology, competition and consumer demand.