Tire Dealer Profile Study
Profits Still Key: Prices and Margins Both Higher vs. 1999
To stay competitive and growing, there are certain things that tire dealers need to know about their respective markets, what their competition is doing, and even how they might stack up against other dealers from across the country.
That’s why Tire Review’s annual Tire Dealer Profile Study is easily one of the most popular, encompassing and vital research efforts undertaken every year.
This year’s Study was expanded and broken in market segments in order to gather more precise, detailed information about all types of tire dealers and the industry in general. Specific questions with regards to individual tire segments, as well as retreading and the Internet, were included to balance the Study.
Highlights of this year’s Tire Dealer Profile Study are presented here. For information on obtaining complete results of the Study, contact Craig Gifford at 330-670-1234, ext. 274, or [email protected]
The tire dealers who responded to this year’s Study are incredibly diverse and have been for a while. Probably always will be. The average dealer has owned their business for 29.6 years. And while 92.7% of tire dealerships are family-owned, 43.1% of owners haven’t decided on a future ownership course for their business, while 23.6% said they would sell it to a non-family member.
The average dealer sees $1.417 million in total gross sales per year. Retail tire sales makes up 43.5% of a typical dealer’s total location sales, with vehicle service second at 22.9%, and commercial tire sales further back at 12.9%.
As expected then, 49.8% of a location’s tire sales are standard passenger tires, 20% are light truck/SUV tires, and 6.6% of sales are medium/heavy duty truck tires. And 75% of dealers sell used tires, the majority citing market demand as the primary reason why.
Two-thirds of dealers get their business management information from tire trade magazines. Forty-four percent get their info from business magazines such as Inc. or Entrepreneur. Industry trade associations provide 36% of a dealer’s management info, while supplier-provided seminars help 34.8% of dealers.
Slightly more that 57% of dealerships are not a member of any kind of affiliation program, buying group or wholesaling system. However, of dealers surveyed, 16.4% belong to a tire company affiliation program, 15.6% are an associate dealer of a wholesaler, and 11.3% belong to an independent marketing/buying group.
Fifty-nine percent of surveyed dealers rely on the Yellow Pages as a means to promote their business. The next-closest promotional medium was newspaper ads at 47.4%. Radio ads are next at 30.4%, followed by community service (29%) and direct mail (24.2%).
Twenty-seven percent of dealers were had a least a high school diploma. Another 27% had some college experience. One quarter of dealers have a bachelor’s degree while 4.3% have a master’s degree.
Dealers were asked to rate their concerns on a scale of 1 to 3, with 1 the most critical. They responded with profitability first at 1.3, and cost of insurance (1.5) and cost of wages/benefits and getting/keeping employees (1.6 each) close behind.
Using a 1 to 5 scale, with 1 again the most important, dealers rated their most difficult tire sales competition. Mass merchants were ranked as most difficult at 2.6. Other independent dealers and discount retailers were next at 2.7. Warehouse clubs (2.9) are also listed as fairly difficult.
The average dealer has 8.2 full-time employees and two part-time employees. Forty-two percent of dealers have part-time workers. And for 2000, the average sales revenue generated per employee was $164,065.
A typical dealership manager makes $43,399 per year and 65% of them are 100% salaried. A typical tire tech earns $24,711 and 61% are hourly workers. Twenty-nine percent of salespeople are on 100% salary, 27.7% are on salary plus commission and 26.4% are hourly. A sales person averages $33,559 a year in gross wages.
A high percentage of dealers provide paid vacations (74.3%), paid holidays (71.1%) and medical coverage (58.2%) to their employees. Forty percent offer paid sick leave, while 27% have an annual bonus program. Six percent of dealers offer no benefits at all.
Consumer Tire Sales
The average dealer surveyed sells 14.4 standard passenger tires, 7.7 light truck/SUV tires and 6.1 high performance tires per day. Fifty percent of a dealer’s inventory came from warehouse distributors, 23.8% direct from a tire manufacturer, and 17.8% from a private brand marketer.
And 44.4% of dealers were "extremely satisfied" with their primary tire supplier, while 51.5% were "somewhat satisfied."
Pricing (29.5%) was listed as the main reason a dealer’s primary supplier falls short in their eyes, followed by territory protection and support materials (23.1% each). Other reasons given were product delivery times (21.8%), fill rates (14.1%), SKU coverage (12.8%) and profit potential (11.5%).
Dealers were asked to name the brands of standard passenger, light truck/SUV and performance tires they carried and sold, and the percentages each of those brands represent in their sales. In the standard passenger tire category, both BFGoodrich and Michelin were carried by 49.5% of those surveyed. Goodyear was next at 48.6%, with Cooper at 41% of dealers and Bridgestone and Uniroyal at 36.2%.
In the light truck/SUV category, Goodyear ranked first with 47.4% of the dealers, with BFGoodrich second at 41.2%, Cooper third with 37.1%, Michelin fourth at 34% and Bridgestone fifth at 30.9%.
The high performance tire category (H-rated or higher) saw Goodyear in with 34.8% of dealers. Michelin was second at 32.6%, with BFGoodrich close behind at 31.5%. Bridgestone and Cooper tied for fourth at 27.2%.
The accompanying charts here show the percentage each brand represents of a dealer’s sales, broken down by tire type. Translated that means when a dealer carries a certain brand, that brand makes up X percent of his tire sales.
The average dealer carried 3.4 major brands of passenger tires, 2.3 private brands and 2.1 house/associate brands. Light truck/SUV tires also fell in the same order major 3.1, private 2.3, house/associate 1.8 ®“ as did the high performance tires at 2.8, 2.1 and 1.5, respectively.
The dealers surveyed saw pretty much the same average gross profit margin per tire on the major brands they carried, with standard passenger tires earning them an average gross profit margin of 25.5% (up from 23.4% last year), high performance tires getting 24.6% (up from 23.1% in 1999) and light truck/SUV at 24.3% (up from 22.8% last year).
House/associate brands were also tightly grouped with high performance tire earning a 28.9% average gross margin up from 27.2% in 1999), light truck/SUV averaging 28.8% (up from 25.1%) and standard passenger tires at 28.6% (up from 25.4%). Among private brands, light truck/SUV tires scored the highest in average gross margin at 30% (up from 27.8% in 1999), followed by standard passenger tires (29%, down from 29.1%) and high performance (28.6%, up from 26.6%).
When it came to buying criteria why dealers carry and sell certain tire brands ®“ the top reasons given (in order) were: "product quality," "profit margin potential," "supplier relations," "product availability" and "acquisition cost."
When asked what issues motivated their salespeople to sell a particular brand of tire, dealers cited "quality of the product" as the primary influencer 42.4% of the time. "Product price" scored second at 21.2% and "customer request" came in third at 18.2%. "Profit margin" on a particular product was the motivating factor according to only 3% of the dealers.
As for unit sales volume in 2000, 52.1% of average dealers saw an 11.4% sales increase over the year prior. Twenty-six percent were even with 1999 results, and 21.9% witnessed a decrease that averaged 17.1%. A dollar sales comparison between the two years had 57.7% of dealers getting an increase averaging 13.5%. One-quarter of dealers remained the same with 1999, while 17% watched the numbers fall an average of 17.1%.
Now, when it came to why passenger tire customers made buying decisions, "tire availability" was first, followed by "price," "brand," "mileage warranty" and "all-season traction."
For the high performance tire customer, dealers felt the "price" of tires was the No. 1 purchasing factor, followed by "availability," "brand" and "cornering/handling capability."
"Price" and "availability" were again the top reasons consumers chose a particular light truck/SUV tire, followed by "brand," "tread design" and "all-season traction."
One of the biggest questions is how many retail customers will switch brands based on a salesperson’s recommendation. According to the dealers surveyed, 64.9% of customers will make a switch. That, of course, is after 39.7% of all customers walk into the store and ask for a specific brand.
Fifty-four percent of dealers sold neither road hazard nor extended warranties to their retail customers. Road hazard warranties were offered by 38.6% of dealers and extended warranties by 9.1%.
Meanwhile, some 51.7% of customers will buy a warranty if one is offered.
Of the tire dealers surveyed, 64.6% offer tire service to commercial cars, vans and pickups. When it comes to Class 3-6 vehicles, 42.4% provided service, while 36.4% serviced agricultural equipment. OTR equipment (25.3%) and Class 7-8 vehicles (24.2% each) were next.
When it comes to selling commercial tires, 46.6% of dealers handled commercial light truck tires, 26% medium truck tires, 12.5% agricultural tires, 6% sold heavy truck tires, and 3.4% sold OTR tires.
Dealers reported an average selling price of $282.65 for an 11R22.5 medium truck radial, up $7.85 from the year prior; $284.18 for a 295/75R22.5, up $11.02; $305.49 for an 11R24.5, up $14.05; $299.78 for a 285/75R24.5, up $15.35; and $247.90 for a 255/70R22.5, up $12.12.
Of those dealers surveyed who sold medium truck tires, 47.1% said they handled Bridgestone tires, 46.3% sold Goodyear, 44.1% sold Firestone, 43.4% offered Michelin, and 34.6% sold Cooper.
As with consumer tires, the accompanying chart shows what percentage of sales each brand represents to the dealers that carry those brands.
How satisfied were dealers with their commercial tire suppliers? Nearly 45% said they were "extremely satisfied," while 52% said they were "somewhat satisfied."
The dealers surveyed were also asked to rate how important specific criteria were with regards to carrying a specific brand. A 1 to 5 scale was used, with 1 being the most important criteria. "Product quality" and "profit margin potential" tied for first at 1.4. "Supplier relations" and "product availability" also tied at 1.7, and "acquisition cost" came in at 1.8.
Fifty-eight percent of commercial dealers made tire purchases from warehouse distributors. Nearly 21% made them from directly from the tire manufacturer and 13.5% bought from a private brand marketer.
Dealers were asked to rate (on a scale of 1 to 12, with 1 being the most important) what their medium/heavy truck tire customers were most concerned about regarding their businesses. "Tire brand carried" ranked first (4.3) followed by "tire repair" (4.6), "mounting/balancing" and "warranty/adjustment policy" (5.3) and "terms" (5.7).
Using the same scale, dealers were asked to rate their medium/heavy customers’ most important tire buying criteria, and the top five answers were even more spread out.
"Original mileage" was the chief customer buying criteria with a 2.5 score. "Unit cost" was a solid second at 3.4, and "durability" was third at 4.4. "Casing retreadability" (5.4) and "warranty" (6.1) were next in line.
When selling tires to commercial customers, 30% of dealers said "product quality" was the primary influence on their salespeople. Twenty-eight percent sold on "customer request," 18% on "price," 14% on "profit margin" and 10% on "product performance."
Thirty-three percent of dealers posted the same number of unit sales in 2000 as they did 1999. Dealers that did enjoy an increase (45.5%), saw an average one of 15.3%. Dealers that suffered a decrease (21.5%), had an average dip of 17.8%.
Half of all dealers surveyed had higher dollar sales in 2000 compared to 1999, with an average increase of 16.1%. Twenty-two percent of dealers were lower by about 15% on average, and 28% of dealers had the same dollars sales between the two years.
Of the dealers surveyed, 83.5% reported that they produced and/or sold retreaded tires at their dealership. Nearly 14% simply sold retread tires, while 2.5% only produced them. And 27.8% of dealers who are retreading are looking to expand their retreading capacity next year by an average of 17.4 tires per day.
For the dealers who produced retreads, 69.9% were precure and 28.7% were mold cure.
The majority of retreading dealers earned up to $499,999 in sales (49.3%). And 43.4% of dealers questioned saw their business remain level in 2000 as compared to 1999, while 26.3% saw an increase in business.
On average, the highest selling price on a medium truck tire retread was for size 11R24.5, coming in at $113.05 per unit. The cheapest was a 255/70R22.5 at $95.77.
According to 31.6% of dealers surveyed, Bandag was the most-used retreading system. Goodyear and Oliver were second with 15.8%, while Vulcan (13.2%) and Hercules (10.5%) were next.
Ninety-one percent of dealers said their supply of retreadable casings was satisfactory.
Of dealers handling retreaded product, medium/heavy duty truck retreads were the most offered, with 74.7% of dealers producing and/or selling them. Commercial light truck retreads were produced by 51.9% of the dealers who were retreading, and sold by 59%. Light truck/SUV retreads were sold by 43% of dealers, yet produced by only 38% of those retreading.
Fourteen percent of dealer retreaders made passenger retreads, with 16.5% selling them. The largest disparity was in the OTR equipment category, with 21.9% selling retreads and only 11.4% producing them.
In the past 12 months, 68.7% of employees did not received tire repair training, a figure that’s way down from 72.7% last year. Companies such as Tech International, Rema Tip Top, Bandag and Truflex Pang, and the International Tire and Rubber Association were cited as key sources used for training.
Of dealers surveyed, 37.5% say they use their best judgement when it comes to tire repair practices. The RMA Repair Limits standards are second at 36.6%. Thirty-two percent use repair material manufacturer limits, with tire manufacturer repair limits fourth at 24.6%.
For tire repairs on passenger and light truck/SUV tires, dealers charge an average of $18.21 for a one-piece off-the-wheel repair. A patch/plug off-the-wheel repair is $12.59, a patch-only is $11.15, a plug-only is $10.83 and a string-type on-the-wheel repair is $10.65.
For medium truck tires, a section repair is far and away the costliest at $36.65 per. One-piece off-the-wheel repairs ($20.74) and patch and plug off-the-wheel repairs ($20.07) are a close second and third. Patch-only repairs are $18.51, plug-only repairs are $14.06, and string-type on-the-wheel repairs are $13.75.
A section repair was again the costliest for OTR equipment tires at $118.93. The next closet repair was a patch and plug off-the-wheel repair at $55.36. The patch only off-the-wheel repair ($47.42) was next, followed by string-type on-the-wheel repairs ($39.38), one-piece off-the-wheel repair units ($37.60) and plug-only off-the-wheel repairs ($37.08).
Three-quarters of dealers asked turned to Tech for tire repair products. Bandag (63.2%), Rema (62.4%) and Patch (62%) followed close behind. Truflex-Pang gets the nod from 54.9% of dealers, with Group 31 (41.3%) and Safety Seal (39.1) next in preference. A full 70% of dealers also said they also used repair products from sources like Camel and Vipal.
The average dealership has 2.5 computers on site, with 56.6% of dealers connected to the Internet, a number up only slightly from 50% last year.
Of all dealers with a computer system, 88.2% use it for business accounting, 74.8% for inventory control, 63.8% to maintain a customer database, 58.3% for vehicle service information, 44.9% to track vehicle histories, and 41.7% to receiving information online.
Nearly half of all dealers surveyed said they used standard off-the-shelf software to help run their business.
Forty-five percent used software specifically designed for tire retailing, while 6.3% were considering the purchase of specifically designed software.