AKRON (April 23, 2014) — Road-hazard warranties that provide nationwide coverage for tire repair and roadside assistance, among other perks, can produce a small profit for tire dealerships.
But to generate those profits, the store staff has to be committed to selling the add-on item with their tire sales.
For a dealer with one location, selling road hazard warranties can help level the playing field with the national chains and company-owned stores that have a nationwide warranty, according to Dave Crawford, vice president of operations for American Tire Distributors Holdings Inc. and its Tire Pros dealer network, which offers the Drive with Confidence warranty program.
The program is managed by Automotive Business Solutions L.L.C. of Westminster, Colo. Other companies, such as Golden, Colo.-based Sonsio Inc., also manage road hazard coverage programs for tire dealerships. Such programs usually provide a toll-free number through which customers can find a service provider when they are traveling.
Otherwise, at home such warranties serve as a link between the tire dealership and the customer after a tire purchase.
“If you have a flat, I don’t want you going down the street and have someone else fix it,… I want you coming back to me,” Mr. Crawford said.
Generally, the warranty is priced at around 10 percent of the cost of the tire.
“Sometimes customers get leery of add-on sales,” said Clayton Snow of Clayton’s Tire Pros in South Jordan, Utah, noting how retailers offer extended warranties on nearly every electronics product and appliance. “So sometimes there’s the tendency to get leery of that…
“A lot of people buy extended warranties on their vehicles and a lot of people really are comfortable because they want that peace of mind. They buy insurance on a whole lot of other things and they want the peace of mind of knowing that they have protection on their tires.”
Mr. Snow said in his market, most of the tire retailers offer flat repairs, rotations and, to some extent, rebalancing as part of the tire sale without adding extra charges.
“Inherent in the sale is a commitment to free flats and rotations and frequently rebalancing. When that’s inherent in the sale, it does make the sale of the add-on (warranty) a little bit tougher, to be honest.”
However, “if he’s committing himself to doing all those extra things anyway, it also gives him the advantage that when his customer goes traveling or is somewhere besides his store, that they just pull out their paperwork and they are automatically covered and it’s recognized that they’re covered,” he said.
Rocky Giles, owner of two Rocky’s Tire Pros and a partner in a third store in Utah, views warranties as a valuable asset to his company.
‘Not only does it help with revenues and a profit center for the company, if you have the proper program in place, it is absolutely the best value the customer is going to end up with as far as the purchase goes because if done properly, once our customer buys the tire protection plan, their cost of ownership on their tires is literally zero until wore out,” he said.
“My thought is, if you operate your business and care about your consumers, you’re going to take care of their tire problems anyway because (if) you don’t want upset customers, you don’t want to not step in and take care of your customers’ problems and needs. So if you sell the tire protection plan, you have received the funds to take care of your customers out of those funds and most likely, you will do it with a smile on your face and willingly take care of their tire issues and needs….
“Dealers I’ve talked to that are horrible at selling the tire protection plans are still good business people and they are spending more money on warranting and taking care of customers’ tires than I am. They’re just collecting nothing upfront. So they’re still taking care of the consumer, they’re just not taking care of themselves.”
Mr. Crawford estimated more than 80 percent of warranties go to a dealership’s bottom line. “I’ve been tracking this thing since the late ’80s and I can tell you right now less than 20 percent is going to be your actual cost.”
Of course there may be some areas with an overabundance of potholes where such warranties wouldn’t be profitable, he admitted.
“My recommendation back to dealers is, charge customers more. The customer knows there’s a problem and they’ve come in for two or three flats over the year or a couple of blown tires because of bad roads or whatever that might be. Use it to your advantage. Charge a customer 15 percent of the cost of the tire covered,” Mr. Crawford said. The dealers can still argue that the price is cheaper than buying another new tire.
Road hazard warranties cannot be profitable if the dealership staff doesn’t consistently sell the add-on package.
“It’s one of those things where everyone in the store needs to get on board with and believe in and promote,” Mr. Snow said.
He admits he’s not as good at selling service warranties as he should be.
“Mostly the difficulty, I think, lies in the mind of the person selling. I think it’s generally not the customers, it’s the person who’s making the sale that has to have the confidence in it and convince or explain to the customer that there’s value in it. And there is value,” he said.
“The biggest challenge, I think, lies in the salesman and his willingness and his confidence in what he’s offering,” Mr. Snow said. “The opportunities are limitless. For people who sell that faithfully, it makes a big difference to the bottom line. It adds to gross profit. It’s one of the things that helps build and strengthen gross profit in the tire store. And in a day when more and more tire dealers are complaining about low gross profit, it’s one of the most natural things to add to the sale to improve the gross profit.”
Mr. Giles, who used to sell the now-defunct American Car Care Centers Inc.’s Freedom plan, had to deal with a drop in warranty sales when he had a staff turnover about six years ago at one of his stores.
After stressing the need to sell the warranty program during a staff meeting, he said sales still didn’t return to previous levels.
He said he was getting frustrated because when he was on the sales floor selling warranties, the rate of customer declines was average, while other salespeople were not always offering the warranty to customers. He said he finally had to throw down the gauntlet and demand they sell a percentage of warranties to tire sales or lose their jobs.
“I was basically letting them know this is not an option. It’s not your choice. You don’t decide that the company’s customers only get the Freedom plan if me or Reece sells, but if Joe or Frank helps them, they don’t have the option because they are not even offered. That is not your option, that’s not your choice. It’s a requirement that you talk about the Freedom plan on every tire you sell. If you don’t, you’re out,” Mr. Giles said.
Today, he still finds a need to encourage his staff to sell the warranties. In April he is running a contest for employees at his Cedar City, Utah, store because they have had a drop in warranty purchases, he said.
“They’ve been struggling with it, so I put a spiff on tire protection plans and a contest and they’re going to get a spiff on every tire protection plan they sell. But we’re also going to have a bit of fun and whoever sells the least amount of them, we’ve talked about different (embarrassing) things they might have to do…. Bottom line is we want to make it fun and we want everybody to be eligible to receive something. We also want to make it fun in a way that nobody is going to want to be at the bottom of the totem pole.”
Selling a warranty involves more than just asking a customer a question, according to Mr. Giles. Just asking, “Do you want the road hazard?” while closing the tire sale begs a “yes” or “no” answer, he said.
“All it is doing is providing the customer the idea that they have some kind of a road hazard. Is it worth $80 to have this road hazard when it hasn’t been explained what it is? I see more times than not salespeople who are struggling (with sales) just do that very thing: ‘Do you want road hazard?’ ‘No.’ ‘O.K.’ End of story….
“What I like my stores to do is to price the tires — including the tire protection plan — to the consumer and explain to them ‘that price not only includes mounting, balancing and a valve stem, it also includes future rotation, rebalance, air pressure set, flat repairs—and you do have a road hazard protection if you ruin or damage a tire over an extended period of time.’
“And then, there’s value. So it’s no different than anything else. If you can sell a perceived value in the product, you’re not going to have someone as reluctant, because they can see where $80 is well spent,” Mr. Giles said.
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