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What Really Matters: Tire Dealers Can Uncover Profits by Redirecting Their Focus

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Over the past few years, I have had the pleasure of serving some of the best tire dealerships in the U.S. and Canada. Last year alone, we coached more than 1,000 tire dealerships. The majority of the owners wanted something to change. They could identify exactly what it was but could not move it by themselves.

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Real success happens when the leader gets everything to work in concert. Staff, guests, facility, products, finances, pricing – and too many other things to mention here – must come together to form that masterpiece.

Great leaders are only a little bit better than good leaders, but that minute difference creates unbelievable results. In this semi-regular column, we’re going to examine the difference between good and great leaders. You’ll be able to compare yourself to best practices and diagnose why you are potentially leaving profits on the table.

The most basic challenge, though, is defining “business success.” Some are motivated by money, some by free time, some by being the biggest, and even more by their time in business.

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Great leaders are able to keep their associates, guests and family happy. Complicating things, though, is all of the different definitions of “happiness.” Although I agree that money isn’t everything, if you can’t afford to take time off when you want, build a facility and team that delivers “legendary service” and help all your associates retire comfortably some day, you are not a great leader. Step one: Admit it to yourself. Step two: Look for a mentor.

‘In’ or ‘On’

Let’s begin by talking about net profit before taxes. This is the true measurement of all business success – cash left over for the owners and their families. However, some leaders enjoy their business so much that they don’t care about net profits. They like to work so much they forget why they own a business. Unfortunately, their families suffer.

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How can you get out of that trap? The answer is simple: Work “on” your business instead of “in” it. That’s the way to financial freedom and freedom of choice. If you’re at the counter every day, you’ll never have time to focus on fixing your business. Your business was supposed to give you a life, not take it away.

A great-running tire dealership can create cash profits of 20%-30% of sales without the owner ever working “in” the business. That owner may work 80 hours a week “on” it, though.

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We define “tire profit” as the margin on the rubber, plus add-ons like mounting and balancing, road hazards and cash discounts less the labor to perform the job. Unit sales bonuses stay with the company. As you know – or should know – you make the real money on the buy, not on the sale.

“Service profit” is defined as total parts and labor sales minus parts and the labor cost fully loaded. I will discuss this in detail in an upcoming article. For now, keep in mind that holding 54% on service is very attainable, though it takes constant focus to maintain that profit level.

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One of the main differences you might see with my math is that I look at loaded labor cost (including tax and benefit costs) as a cost of goods. Labor is responsible for the single biggest cost increase you’ve faced in recent years. If you look at gross profit fully burdened with labor loaded, it will force you to focus on shop productivity by tech, the archenemy of every tire dealership.

Where Opportunities Lay

Tires are king. Tire sales are the golden goose that produces the opportunity to reap golden eggs – automotive service. The tire and wheel business delivers greater car count and creates more cash profit in less time than a repair-only shop investing tons of money in advertising. Theoretically, you probably wouldn’t even want to do auto service.

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But that theoretical business model is unlikely to prosper in the real world. Consumers today are looking for one-stop shopping. In the end, you – and only you – can decide if you have left money on the table. As a first step, simply take our target of 20% net profit minus your net profit on sales, look at the difference in dollars, and ask yourself: “Do I want to do something about this?” And, don’t sell yourself short.

In the final analysis, ask yourself another question: If you’re not taking home three times more than someone else would give you for working in the same job – without the stress – is it really worth it?

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Chris “Chubby” Frederick is CEO of Automotive Training Institute (www.autotraining.net) and a regular contributor to Tire Review.

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