ATLANTA—Parts are literally the nuts-and-bolts lifeline of every automotive service shop. When they're available and delivered on time, everybody's happy—from the owner to the installer on down to the customer pulling through the service bay door.
When they're not, it can tend to throw the proverbial monkey wrench into the whole operation.
Although tire dealerships that do automotive repairs view auto parts as a critical component of their business, few probably have looked at those ``pieces-parts'' as a potential profit center.
Mighty Distributing System of America Inc. is hoping to change that way of thinking. It wants dealers to widen their perspective on what it believes could be a lucrative adjunct business opportunity.
The real challenge is getting them to even consider being a wholesale parts distributor, admitted Tracy Sidelko, manager, franchise marketing for Mighty, because ``dealers want a good buying program, or to purchase at a good rate. But they don't necessarily want to commit to providing parts to other automotive businesses.''
Thus far, Atlanta-based Mighty, a supplier of automotive aftermarket parts in 44 states, has convinced seven tire dealerships to become franchisees in its ``vertical integration'' concept.
Actually, make that six if you consider that the first tire operation to sign on, Savannah Tire, Brake & Alignment Centers Inc. in Savannah, Ga., contacted Mighty back in March 1993 about the possibility of joining its distribution network.
The six-store retail chain was ``looking for a way to buy parts better and more cheaply,'' Ms. Sidelko said. ``Once we signed them up and saw how successful they've been and how well it's worked out for us, we started to pursue other dealers.''
It's worked so well that Savannah Tire added a second Mighty parts distribution franchise in 1997.
Over the last few years, Mighty has added Purcell Tire & Rubber Co. in Potosi, Mo.; Florida Tire Inc. in Orlando and Sun Tire Services Inc. in Jacksonville, Fla.; St. Louis-based AutoTire Car Care Centers Inc.; Plaza Tire Service Inc. in Cape Girardeau, Mo.; and, most recently, Jeff Pohlman Tire & Auto Service Inc., Hamilton, Ohio.
Ken Voelker, Mighty's president, said the economic benefits for a retail tire chain hooking up with Mighty are ``powerful.''
``Our successful relationships built over the last five years provide a solid platform for the future," he said. "We view this integration concept as a strategic partnership opportunity for tire retailers with vision.''
Mighty is attempting to sell dealers on the proposition that a parts business is a natural fit with what they're already doing: It not only offers compatibility and potential for further growth, but also requires less of an investment than would be needed to open a new tire store, for example.
The key to success with a Mighty distributorship lies in getting a good manager/sales person to run the business, Ms. Sidelko noted. It must be a separate division within a company and cannot simply be a ``buying front'' set up to sell only to the dealership's own stores. ``We want franchisees to sell to other installer businesses.''
And that can create a sticky situation when it comes to selling parts to a competitor.
Ms. Sidelko said Savannah Tire Owner Hurley Cook told her he gets around that hurdle by being ``completely open, honest and straightforward with a customer,'' acknowledging that although the parts business is owned by Savannah Tire, ``there are also some competitive benefits to having the same quality lines as your competitors have....''
``It's the lines and the prices that make the difference,'' she continued. ``I guess it depends on how good a sales person you are.''
Unlike some of its larger parts supplier competitors such as AutoZone, NAPA and Carquest—which wholesale and retail—Mighty is strictly a wholesaler that sells only to professional automotive installers.
System-wide, it had sales just under $100 million last year.
The company was founded in Maryland in 1963 by Dallas Wallace, who began selling tire supplies to service stations and garages. According to Mighty, as the business matured and grew throughout the 1960s and 1970s, the company added product lines and distributors after deciding on franchising in 1970 as a business growth strategy.
Willingness to grow
Like most franchisers, Mighty offers exclusive geographic territories, normally based on county lines. In some large cities, like Chicago, the company has established several franchisees in separate but exclusive boundaries within the metropolitan area.
The cost to obtain a Mighty franchise is in direct proportion to the size of the territory, based on the number of registered vehicles in an area, Ms. Sidelko said. Normally, the company charges a fee of 3.5 cents per vehicle. A typical territory generally has between 500,000 and 1 million vehicles.
The company has no criteria concerning the size of potential franchisees, she said. ``If someone's business is on the small side, but they're interested in growing it, they'd need enough money to invest in the parts business and still have the working capital to keep it going.
``But the more locations a tire dealership has, the more benefits they'll reap from their parts operation.''
John Ronsick, owner of the 19-store AutoTire chain, noted that the cost to enter the program ``was paid for in the first several months,'' as was his original investment in parts inventory.
Though a Mighty franchisee could have only a single tire store, ``we generally look for dealerships with multi-units because they've demonstrated a willingness to grow,'' Ms. Sidelko added.
Mighty offers a ``growth strategy that produces benefits for the existing business,'' she said, ``by utilizing things it already has, such as warehouse space, computer equipment and delivery vehicles. So it makes sense to integrate the two businesses.''
However, a big dealership can also run into problems trying to juggle its tire and auto service operation while at the same time running a parts business.
``Sometimes, if it's too large, it becomes hard to manage,'' Ms. Sidelko acknowledged. Also, there may be territorial issues if the dealer/Mighty franchisee supplies parts to a number of his store locations which are in another Mighty franchisee's territory.
``But those are challenges we're working through as we expand,'' she said. Again, the key is good management of the parts business by personnel solely dedicated to that operation.
Mighty claims it pioneered the concept of delivering efficiencies through a ``manufacturer to you'' approach that has consolidated the traditional three-step parts distribution system.
Instead of a chain from manufacturer to warehouse distributor to parts jobber to installer, Mighty said its distribution system goes from manufacturer to Mighty distributor to installer.
Its product lines are segmented in two categories: underhood, including filters, belts and tune-up products; and undercar—braking products, ride control and chassis parts.
The firm's customer base includes tire centers, quick lubes, tune-up shops, brake shops, muffler shops and fleets, along with traditional service stations and garages.
Ms. Sidelko said Mighty provides ``a stocking service with a high level of customer service—we consider ourselves inventory control specialists.''
In order to support a new franchisee, Mighty furnishes assistance in a number of areas, Ms. Sidelko said. That includes providing:
Significant initial—and ongoing—training on product lines and selling, such as week-long classroom sessions in the beginning along with field training and help with the franchisee's initial ``sales blitz.''
Help establishing a parts warehouse, determining initial inventory requirements based on potential customers and vehicle demographics, and placing an initial order.
Help in setting up computer equipment.
Support in maximizing market penetration and identifying opportunities to specialize in market segments such as quick lube, tune-ups, undercar or fleets.
Assistance in business planning, inventory control, local promotions, and financial and personnel management.
``We'll send out as many people as are needed to get a tire dealer started and also help them organize the transition of their stores,'' she said.
Mighty also provides a comprehensive operating policy manual with information regarding day-to-day operations.
The company said its sales and marketing department has developed traditional and electronic product catalogs and suggested pricing ``that is market sensitive.''
Technical support includes the Mighty Technical Hotline, videotapes, manuals, tech tips and clinics.
With that help, some dealership chains have produced ``swift, powerful financial returns from a modest investment,'' the company stated.
Robert Purcell, co-owner with his wife, Juanita, of 63-year-old Purcell Tire, recently told Tire Business that the dealership had been buying auto parts from various suppliers.
``We were looking for something similar to Mighty's program, so it looked like a good opportunity and fit real well with our business,'' he said.
With a total of 52 commercial and retail locations in the U.S., including 17 retail outlets in the Phoenix and Tucson, Ariz., markets, the dealership buys a lot of parts. After joining the Mighty organization, it established a separate corporation, Purcell Parts System Inc., and tapped a manager to run it.
``We own the business entirely,'' Mr. Purcell explained, ``but we signed an agreement to buy parts strictly from Mighty. They have excellent availability and quality, so it works out very well for us.''
While a ``considerable chunk'' of Purcell Tire's parts sales go to its own stores, the company has been actively pursuing business with other companies.
Mr. Purcell happily reported that the first month of his new venture was ``nicely profitable.''
The concensus among three other dealers who became Mighty franchisees was similar.
A promotional videotape provided by the company featured ``testimonials'' by Savannah Tire's Mr. Cook, Mr. Ronsick of AutoTire, and Dick Erickson, who owns Sun Tire.
Each dealer, Mighty declared, became a Mighty Auto Parts distributor ``as a way to add to and improve their tire businesses.''
``This is not just a parts supplier—it's an inventory control system,'' Mr. Cook said on the tape. ``That's the value added to what we're selling with Mighty. There's a lot of people selling parts and we compete with them everyday.
``But we're selling the additional value of controlling their inventory.
"Most of them are dying for someone new because the basic parts house out there is not (providing that service).''
All three, according to Mighty, found the program ``a way to capture the margins previously going to parts suppliers, and a way to build a separate high-margin business within the structure of their existing organizations.''
``What's appealing,'' Mr. Erickson said, ``is that it's a way to sell within the marketplace beyond our own operations.''
Explaining AutoTire's entry into the parts business, Mr. Ronsick said: ``If we don't continue to grow, we could become stagnant or move backwards....''
``Parts and labor are going to be a bigger and bigger thing in the tire industry to make the margins,'' Mr. Erickson said, ``and we don't have to accept lower margins.''
Since becoming a parts distributor, he reported his volume ``is up more than 20 percent.
"But our goal in the future is 10 percent per year.
"And it's amazing, once people realize a way to implement that, it usually ends up being better than 10 percent.''
``As most entrepreneurs, we're fairly independent people,'' he continued, ``and I wasn't sure I was willing to have someone tell me how to run my business.
"As I got into (Mighty's program), that's not been an issue.''