AKRON (Jan. 10, 2014) — The U.S. economy continued its gradual upward swing in 2013, and retail tire dealers and wholesalers alike are anticipating it will slowly continue to improve—but the increase will be minimal in 2014.
"I'm thinking it's going to be about the same," said Sam Germana, owner of Johnstown, Pa.-based Carman's Wholesale Tire. "We're still chugging along, and we're just looking at what we're doing now, and it doesn't look like there's going to be much change. We're kind of thinking it's gonna be about the same as last year."
Mr. Germana, whose single-location dealership — despite its name —now is about 70-percent retail, said he anticipates about a 1- to 2-percent bump in sales on the books for 2013 vs. 2012.
For Delphos, Ohio-based wholesaler K&M Tire Inc., business is up "fairly dramatically," said K&M Marketing Manager Jeff Wallick, but "a large part of that is due to the acquisition growth we've seen as a company, and a little bit of organic growth, too."
Toward the end of 2012, the firm acquired two distribution centers in Houston and Dallas from Blackwood, N.J.-based Reliable Tire Co. Since then, K&M has relocated the Dallas center to a 200,000-sq.-ft. facility in Arlington, Texas, and opened a location in Oklahoma City, Mr. Wallick said. The company also recently opened a 50,000-sq.-ft. outlet in Fargo, N.D.
"I think if we were to look at same location sales versus the previous year, it's probably slightly up versus 2012," he said.
As for 2014, he said business likely will remain flat.
"Everything I've seen would indicate anywhere from a 1- to 3-percent increase," he told Tire Business. "That's just consumer product. In terms of ag and commercial, I think it'd be hard to say at this point, but I think as construction continues to pick up, new home sales and new home construction continue to build and more and more freight continues to move, that would be a pretty positive indicator for the commercial segment."
Joe Inchiostro, CEO of St. Louis-based St. Louis Wholesale Tire Co., a niche-market ag, ATV and specialty tire and wheel distributor, said things have been similarly slow-growing in the markets his company covers.
"We had some OE contracts that made us healthy this year, but you pull out those kind of outlier deals and we were still marginally up for the year," he said. "I don't think anybody was setting crazy records. Competition is heavy these days, especially as a wholesaler, and a lot of independents out there are getting bought up."
Danny Grover, owner of Grover Auto & Tire in Wiscasset, Maine, said while sales are looking "slightly better this year" than in 2012, he believes sales likely will be about the same in 2014.
"As far as the business goes, we're trying to look for new areas to generate profits, but it looks like it's either going to be the same or less."
Mr. Grover said competition is fierce in his market as area car dealerships have ramped up their own tire and service offerings.
"Everybody is out there after it big time," he said. "I've got my local Ford dealership and the Chrysler dealer that used to be profitable for me now putting $17 oil changes out there and saying their tire prices are gonna beat everybody. It's cutthroat out there, and you've got to watch your margins or you'll just go under."
Tire prices hit a plateau in 2013 — and in many cases declined — in the wake of increased domestic production, slow demand and an increase in Chinese-made tires. That scenario has been "very disruptive" to pricing since the increased tariffs on Chinese-made passenger and light-truck tires expired in September 2012, said Barry Steinberg, CEO of Watertown, Mass.-based Direct Tire & Auto.
Mr. Steinberg said that sales at his dealership were up in 2013, but noted that margins have taken a hit on the tire side with the influx of Chinese brands.
"What happened when the tariff first went off, everybody was getting in new containers with reduced price, so they were trying to cost average their inventory, lowering it, lowering it, lowering it to be competitive," he told Tire Business. "We saw LT 245/75R16s go from $105 in the Chinese brand to $79 in a matter of 90 days."
Mr. Steinberg said the average dealer is "basing everything on his costs, not what the market will bear. So everybody's lowering their price at the import level, distribution level, small distribution level, retail level—everybody's just lowering their prices.
"I think if I was titling a book for 2013 it would be, 'Everybody's Chasing the Four Tire Sale,'" he joked.
And the flow of Chinese tire imports doesn't seem to be slowing down, according to Mr. Wallick.
"That is a trend that we see continuing unless there is some action or legislation taken against that," he said. "It's probably a trend we'll see continue into 2014. Maintaining our premium unit mix and showing our dealers the importance of maintaining a premium unit mix is important for us."
According to Mr. Steinberg, premium tire makers have made their own contribution to the pricing volatility through reduced prices, leaving consumers as the "recipients of the confusion" and making it harder to determine where one tier ends and the next begins.
He cited Michelin North America Inc. as an example, comparing the performance of the company's Pilot Sport All Season 3, which launched earlier in 2013, with its Pilot Super Sport summer tire, which debuted in 2011.
"They had (the Super Sport) out there for, like, two-and-a-half or three years, then they came out with — are you ready? — improved gas mileage, longer lasting, better warranty and less money," he said.
"For Michelin to do that is crazy. They never do that. But they're recognizing that, especially in that ultra-high-performance arena — as Pirelli has, as Bridgestone has, as Toyo has, as Kumho has — the consumer is educated about the fact that you can do a blind wine tasting on a set of Michelins and a set of Kumhos, and you're gonna be really hard pressed, as an average consumer, to tell the difference. This is really depressing their pricing."
Mr. Steinberg said premium tire marketers shouldn't "fear the spread" between their products and the Tier 2 and 3 products, and that they also need to have more confidence in their brands.
"I would think the manufacturers would recognize the fact that they need to have some pricing stability and don't be so knee-jerk responsive to what's going on around them," he said. "Market your tire, price it sensibly, let your retailers and distributors take it to the market and make some money.
"…Granted, is it great that (Continental Tire the Americas L.L.C.) is giving us lots of buy-ins and all this? Sure, that's great," he continued. "But if they lower the price to me $20 and then the market is $20 lower, nobody won anything. We're just selling a $120 product for $100."
Often, when tire prices shift downward, wholesalers end up with the short straw, Mr. Wallick said.
"Generally speaking, when pricing comes down it benefits the dealer in a lot of cases and also the consumer," he said. "I guess the part of the supply chain that tends to get forgotten is the WDs. When we've got a couple of million dollars of inventory on hand in a particular SKU or a particular line, and then pricing comes down 5 or 10 percent, boy, that hurts us.
"We try to do the best we can to be the buffer between manufacturer pricing and the dealers and absorb as much as we can, but it certainly can hurt in some cases," he continued.
Dealers across the board cited government regulation as a major issue heading into 2014, with the Affordable Care Act (ACA) standing firmly near the front of the concern line.
"That is a moving target. That's worse than tire pricing, in my opinion," Mr. Steinberg said, noting that his company self-funds insurance and is in compliance with the healthcare law.
Mr. Wallick said K&M also self-funds insurance, so the law "probably hasn't had as large an impact on us as others.
"At the dealer level, if you're talking about tires and service, it's pretty tight. Business is tough. Consumer spending is improving, but discretionary income, not so much," he said. "In terms of overall profitability for the average tire dealer every little bit counts. And when you talk about healthcare and the costs involved, those guys are subject to the same risks — and perhaps to a higher degree — as retailers across other industries."
For Mr. Inchiostro, the new law hasn't yet had an impact, but he predicts that will change in another year.
"I had to do a quick renew here at the end of the year for my policy so that Anthem (Insurance Companies Inc.) would only raise my rates 5 percent, and that would guarantee me out through November," Mr. Inchiostro said.
"In the absence of that, we were going to have a 50-percent increase. Who knows what it would be today because there's been 20 amendments to the thing since then with extensions for deadlines and this and that."
Mr. Inchiostro called his company a "family-first" type of business, but it will be difficult to maintain the same degree of health coverage if his costs increase.
"Once this plan expires, I'll be thrown into the maelstrom of uncertainty, too," he said.
Mr. Germana also said he is concerned about what the ACA will mean for his business and is looking into coverage options for his 10 employees.
"When your employees are concerned about that, it puts it right on your shoulders," he said. "You've got to be concerned, too. We've been trying to see what we can find at a different rate. We're trying to offer it and still not get buried under how bad it's going to be with prices."
To reach this reporter: email@example.com; 330-865-6148.
How does your shop support the community during the holiday season?
|We collect canned goods||
11% (5 votes)
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