The Changing Landscape - Tire Review Magazine

The Changing Landscape

Under normal circumstances, it’s challenging enough to market your business to customers and keep profits moving in the right direction. But add to that the current recession economy, and today’s tire dealers are facing a whole new set of challenges. Even though they may feel attacked from all sides – by faltering profits, the credit crunch and fewer customers – tire dealers can still survive and thrive in today’s unfriendly marketplace.

Feeling the Pinch?
Remember back in 2006 and 2007 when you had more business than you could handle, with an abundance of tires in all sizes and applications? A large part of your business in that period was probably from tire sales, mounting and balancing. If you are a typical tire dealer with an average size business, you’re probably feeling a pinch from a lower business level on all fronts – tire sales and service.

Let’s examine the reason for your drop in business. During the last half of 2008, fuel prices soared to an unheard of level of more than $4 a gallon. Though that backed off in late December to $1.50 to $1.75 nationally, it now appears that we will be entering another period of fuel price increases during the first half of 2009 that could go back up to the $2.50 level. Couple this with a lack of consumer confidence brought on by a downward trend in business and massive job losses, and the results can harm any shop.

Auto Industry Hurting
The automotive industry had a disastrous drop in sales that resulted in a rash of car dealer closings. New vehicle retail sales in 2008 amounted to roughly 10.8 million units. That’s two million units below the 2007 level, according to J.D. Power and Associates. About two-thirds of that decline is attributed to consumers delaying vehicle purchases. J.D. Power says that consumers kept their vehicles four months longer in 2008 compared to 2007. The other one-third decline came from reduced leasing activity as consumers pulled back and lenders exited the leasing business.

Tens of thousands of automotive manufacturing employees lost their jobs and the fear is that if auto companies fold, more than 2.5 million more jobs will be lost.

The National Automobile Dealers Association estimates that there were 900 fewer auto dealerships at year-end 2008 than 2007, down to 20,770, and there will be a net loss of another 1,100 car dealers in 2009.

With hundreds of car dealers closing, those that remain will be focused on survival, which will likely mean less attention on tires and more on service. Learning how to think strategically is vital. For example, Towbin Hummer in Las Vegas is dropping the Hummer brand and opening a Smart car dealership. Towbin also sells other brands – Dodge, Rolls Royce, Bentley and Infiniti. Tire dealers must follow this innovative thinking in selling their tire brands.

Tire Industry Slump
Tiremakers have all experienced a worldwide decline in demand comparing 2008 to 2007, and this isn’t expected to get any better until possibly the second half of 2009. This decline has caused production cuts at most U.S. plants. Bridgestone, the world’s largest tiremaker by sales, has cut its full-year net income forecast by 82%. Goodyear closed 92 of its stores at the end of 2008, resulting in 500 full-time workers and 100 part-time workers being let go. Bridgestone Bandag Tire Solutions laid off 60 employees. National unemployment, in all sectors, has been hovering at 7.5% and will likely climb even higher.

U.S. tire shipments in 2008 declined by more than 7% compared to 2007 – and a 1%-2% decline is predicted for 2009, according to the Rubber Manufacturers Association. Total U.S. tire shipments were below 300 million (290 million) for the first time since 1997, when shipments were 290 million units. RMA predicts that a further decline of shipments to 287 million is anticipated in 2009.

Stock Market Drops
The roller coaster ride of the Dow Jones average went from a high of 13,000-plus down to 8,000, the worst percentage drop since the Great Depression. Our financial institutions had to be bailed out with loans of up to $750 billion. The auto industry went to Washington with their hats in their hands asking for a bailout of up to $30 billion, which finally has rounded out to at least $14 billion. President Barack Obama is calling for up to a $825 billion dollars in funds to help put people back to work in public works programs, building bridges and schools and repairing highways, just as President Roosevelt did in the early 1930s.

Retail sales have dropped off precipitously, highlighted by a falloff of approximately 3.5% during the 2008 holiday season.

A few contrarians forecast a brighter picture, however. They believe more miles will be driven because of a temporary drop in fuel prices and a drop in raw material prices. However, these counter-market forecasters are in the vast minority.

Surviving, Thriving
Many tire dealers are weathering the economic storm through a tight focus and new and creative thinking. With a drop in the level of tire sales, dealers are focusing on a new level of service, including increased mechanical repairs and the sale of non-tire items. They have learned that customers are not buying new cars as frequently as in the past. Consequently, they want to make their current cars last longer. That translates into more service and possibly more sales of less expensive tire lines.

Tapping into emerging market segments (minorities, age groups, etc.) is also a survival tactic that can create more sales and service. That’s why tire dealers, more than ever before, must utilize all the tools at hand to identify and commit information to their databases, plus build new relationships with new market segments. Dealers need to chart service offerings to best fit those needs – and still make a profit.

A look at successful dealers can help determine what should be done. Tire Review asked three dealers in three completely different parts of the country – the West, Midwest and South – about how they are maintaining their business levels – or at least staying even. Their answers were quite different because of their varying locations and mix of customers, but each provided insight for success.

The Story of Three Dealers
Mark Griffin is a partner in Tandem Tire & Car Care, headquartered in Dubuque, Iowa, with two stores in Dubuque and one each in Maquoket, Clinton and Cedar Falls, Iowa, as well as one in Potosi, Wisc. Tandem has about 70 employees in its locations. Tandem’s 2008 story, which Griffin believes will continue in 2009, is largely positive.

“Our sales were up in 2008. We’re in a service area that includes Iowa, Northeast Illinois and Southwest Wisconsin. This area has been economically strong,” he says. “We don’t face the problems of large urban areas because we have cities that are 100,000 population or less, in addition to a large farmland area.”

Griffin says three out of six stores are located in farm communities. “Corn and bean prices have never been better. Farms have Bobcats and pickup trucks, in addition to tractors, all of which give us an opportunity for more and better tire sales and service. We also have medium truck sales, including milk and grain haulers. On the retail side, our automotive service has increased.”

While there has been a decrease in passenger tire sales, light truck/SUV tire sales saw an upswing. “Because manufacturers have increased tire prices, there has been a price appreciation that has allowed better margins for us. This has allowed us to buy right and benefit from inflation. In addition, we sold our wholesale division,” says Griffin.

Tandem has been selling more tire chains, in addition to more wheels for agricultural vehicles and trailers. The company buys its retreads from an outside supplier, and also has been selling more used tires. The used tires are thoroughly inspected and Tandem tells buyers what can be expected from them, he notes.

Marketing Plus Economies
Griffin says Tandem has decreased its advertising over the past year. “We don’t place any print advertising, but do place spots on local radio stations. We’ve used direct mail in the past and continue to do this. We have a good database by ZIP code of existing and former customers. We send direct mail pieces to them.”

Through American Care Care Centers, of which Tandem is a member, a rearview hang-tag that contains a coupon is placed on the mirror of each customer’s car to generate increased return business.

Tandem utilizes a number of methods to save money, including an efficient paperless business system, waste oil furnaces to save on heating costs and a purchasing and usage monitoring system for shop supplies.
Griffin says that Tandem has not found it necessary to change its business hours. “We strongly believe that convenience is a very important thing to our customers,” he says. “We offer free pickup and delivery to customers and sell this on the phone. We also believe that we must give value added services to customers and furnish them with free car washes when they visit us for service.

“Above all,” says Griffin, “we believe that building relationships is the most important concept to our business in regard to becoming part of the community, from the standpoint of being members of local service clubs and supporting worthy causes.”

Way Out West
Community Tire and Auto Service – with seven Arizona locations in Phoenix, Glendale, Prescott Valley, Casa Grande, Cottonwood, Wellman and Yuma – sees the situation in a slightly different way. Howard Fleischmann, owner/partner of Community Tire Services, says car count has declined along with per ticket average over the past few months.

“We feel the issue is based on people freezing on purchases because of the country’s current financial unrest. Also, credit card companies have tightened their credit,” he says. “On the bright side, we believe this will change as soon as tire replacement, repairs and maintenance increase because they’ve been ignored by some drivers for quite a while.”

According to Fleischmann, Community Tire’s position is to do what it does well and try not to get confused about what it is. “We have added some new services, including nitrogen inflation and extended repair warranties, to support our current tire and repair customers. However, we have not changed our focus.”

Fleischmann says Community Tire – a 2007 Tire Review Top Shop Award finalist – is focused on its current customers and asks them to bring in more customers just like them. “Our thought is if they are our customers and feel secure with that relationship, they will bring us others who will also be a great fit. We have just designed a bounce back coupon for $20 off a new customer’s first visit, only when invited by one of our current customers,” he says. “We follow that up with a thank you note to the recommending customer and a $10 off next visit coupon for the recommendation.”

Community Tire offers frequent promotions such as “Ladies Day,” in which women can stop in for a basic oil change that includes free tire rotation, vehicle inspection and a complimentary chair massage. “We are also taking a very active role in local chambers of commerce and making ourselves very visible in the communities we serve,” Fleischmann says.

“We are watching the basics, continuing to focus on working safe, keeping insurance claims in check, watching overtime and measuring production of repair technicians. We are also watching our advertising and promotion expenditures and finding more efficient ways to drive traffic,” he says.

Community Tire has not changed its operating hours at this point. It has just created a questionnaire to be included in its monthly e-mail newsletter asking current customers to tell what they are looking for from their tire and repair facility.

Fleischmann said, “We have begun a very aggressive credit card program through Bridgestone Americas to help those who don’t have a credit card. We refer to this as a dedicated customer card and give rewards to the customers that use them. Since the card can only be used for automotive service, the opportunity for a larger sale is significant.”

The South Shall Rise
Atlantic Tire & Service has locations in Durham and Cary, N.C. Fortunately, Atlantic’s level of sales has remained constant, with no drop in either tire sales or service. This mirrors the economy in many parts of the South, where the influx of new manufacturing and distribution operations has propped up the economy. Says Anthony Blackman, president of Atlantic: “We’ve actually had our best sales year since our opening 10 years ago. We haven’t had to change the focus of our sales and service offerings.

“We feel winning the 2008 Top Shop Award from Tire Review has given us a unique marketing edge,” Blackman says. “We are now able to include references in our advertising and marketing that we are a nationally-recognized award winner for our industry. We have also received publicity from local journalists. Additionally, we plan to open our third location in Raleigh in the summer of 2009. This has allowed us to market to a broader prospective customer base.”

Blackman finds in tough economic times like these that the more advertising you do, the better your business. Atlantic Tire focuses on consistently soliciting new business relationships. “Neither of these actually save money, but they create a larger revenue reserve for unforeseen turns that may lie ahead,” he says.

Blackman believes Atlantic Tire’s community involvement, including the participation of many Atlantic Tire employees, has been the hub of its success.

Tips For The Future
All tire dealers can learn from each other and should look at new ways to retain and increase business to help them through this unpleasant economic period. Here are some ideas to get started:

• Sell a wider variety of products and services, including wheels, nitrogen, used tires, extended warranties and anything else that your customer base wants. (Even tire chains, where applicable.)
• Improve your record keeping through better computer systems.
• Sell retreads.
• Expand into market segments you are not currently serving. Events and promotions can help with individual groups.
• Survey your customers to learn which advertising and promotion programs are effective.
• Develop better purchasing and inventory systems that save money.
• Track production efficiency of your technicians.
• Offer value-added services, like free car washes and free pickup and delivery.
• Build better relationships with your customers and your community.

The coming year will be tough for tire dealers, but through hard work, more creative marketing, expansion of product and service sales and enlisting customers as partners, it can be a profitable year.

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