SAN JOSE, Calif.-Blame unfavorable foreign currency exchange rates and competitively priced U.S.-made tires for the recent decision by the management of Tire Masters Inc. (TMI) to exit the wholesale tire business. The firm found itself in a quandary: Larger wholesale competitors were sapping TMI's business, while large dealerships like AKH Co. Inc./Discount Tire Centers and Les Schwab Tire Centers Inc. continually expanded their West Coast retail operations.
TMI, admittedly ``inexperienced'' in retailing, did not see that avenue as a viable consideration.
So rather than fight, the company, a subsidiary of Japan's Nissho Iwai Corp., decided to quit.
Katsuhiko ``Kurt'' Marumoto, 54, the company's president and CEO for the past year-and-a-half, told TIRE BUSINESS that the decision to fold the business by year's end won't leave TMI customers in the lurch.
On Oct. 1, Competition Parts Warehouse (CPW), a San Jose-based wholesale distributor of tires, wheels and auto parts, reached agreement with TMI to acquire Tire Masters' warehouses, inventory, equipment and assets in Mesa, Ariz., and Cerritos, Calif.
Mr. Marumoto said that by the end of October, TMI will transfer inventory and assets of its four remaining California warehouses-in San Jose, Sacramento, Fresno and Newbury Park-to nearby CPW facilities, which also will hire some former TMI employees.
From Oct. 3, CPW began accepting inquiries and orders from Tire Masters' customers and dealers, Mr. Marumoto said.
He said the fate of two other TMI warehouses-in Kent, Wash., south of Seattle, and in Portland, Ore.-has not yet been decided, but the firm is negotiating with another company to acquire the operations. He foresees at least three months before that deal may be finalized but said TMI will nonetheless close those locations by Nov. 30 at the latest.
CPW, which operates only in California, is not interested in those warehouses, he added.
Mr. Marumoto said CPW ``will be able to successfully operate in each (TMI) location-they are much more experienced in this industry than we are.''
A statement issued by CPW said the company plans to increase the size of its existing facilities as well as expand the Cerritos and Mesa warehouses in its quest to be a ``one stop shop'' for the needs of the independent tire dealer and auto parts jobber.
The future of Tire Masters' only foray into retailing-a wholesale/retail operation in Hawaii called Interstate Tire Warehouses-also is up in the air.
TMI is negotiating with at least four potential buyers, including an employee group, for that operation, which does business as Consumer Tire Auto Centers. Mr. Marumoto said he expects to reach an agreement within 30 to 45 days.
After recently closing four locations in Hawaii, TMI still has four stores operating there, as well as a wholesale distribution warehouse.
While TMI's departure from the wholesale scene may have surprised many of its customers and dealers-the company distributed the Nitto brand mainly on the West Coast-Mr. Marumoto said Nissho Iwai, which also owns Nitto Tires, is primarily an import/export trading company.
``Our original plan in TMI was to distribute Japanese-, Korean- and (other) foreign-made tires,'' he said. ``However, foreign currency exchange rates have not been favorable to us, so imported tires have become non-competitive in the marketplace. This is one reason for closing the company.''
The TMI president also explained that the company was ``not so interested in developing retail outlets-we don't have the know-how,'' and some of TMI's competitors, like CPW, were becoming too strong for TMI to keep pace.
On the other hand, ``warehouse clubs or mass merchandisers did not buy even one unit of tires from us,'' Mr. Marumoto said, and gas stations-some of TMI's largest customers-``are now mostly franchisees or are owned by oil companies. They receive their tire supply directly from tire manufacturers or through the oil companies.''
Five to 10 years ago, imported tires were 10 to 15 percent below the prices of American-made tires, he said.
But today, though some consumers are ``willing to pay more for the high quality of the Nitto brand,'' he said U.S.-made tires are very competitively priced, which inevitably hurt TMI's chances to succeed.
TMI has had sales of between $70 million and $80 million annually, Mr. Marumoto reported.