No dealership can operate without cash. Yet that's what most tire makers expect their commercial dealers to do when servicing nationalaccounts-in effect borrowing from dealers interest-free.
Changing market conditions, however, dictate that tire makers break with tradition and pay dealers in cash, rather than credits, for servicing national accounts.
Unless they do, manufacturers could drive many cash-starved dealerships out of business and wind up with a scarcity of locations for servicing these accounts. Sometimes, in order to generate operating cash, it has even become necessary for dealers to use these credits to buy and then dump tires on the market-even at a loss.
National accounts typically work this way: A big trucking fleet contracts with a major tire manufacturer to supply its tire needs nationwide. The tire maker, in turn, relies on its independent dealer network to inventory, install and service these tires. But instead of receiving cash for this work, the dealer is paid in credits redeemable for the purchase of more tires.
When this policy was established decades ago, national accounts were of lesser importance to the average dealer's business.
But that is changing. The trucking industry is consolidating and fleets must cut costs. They're doing this, in part, through national account programs with tire makers, meaning more such business for dealerships.
Bill Babek, president of the International Tire and Rubber Association, calls this a ``moderate problem'' today but suggests it will become a ``moderate-to-high problem'' in the next few years.
Most vulnerable, he believes, are small commercial dealerships that don't have a large retail operation to generate needed cash. Many could go out of business, ``not from a profitability standpoint, but because of cash flow,'' he said.
It's time tire manufacturers reimburse dealers for servicing national accounts the same way they expect to get paid-in cash.