AKRON—When Ford Motor Co. initiated a major advertising campaign last summer that billed each Ford and Lincoln-Mercury dealership as "America's newest tire store," independent tire dealers in the U.S. were upset, as one might expect. Ford said its goal is to sell 6 million tires per year by 2001 through the service departments of many of its 5,000 U.S. dealers.
While this retail channel may be relatively new to U.S. tire dealers, their compatriots in Canada have faced this challenge for a long time.
Canadian tire dealers now say auto manufacturers there are becoming more aggressive in advertising tire sales—and in developing wholesale tire business, too.
Don Frisby, owner of Frisby Tire Co. Ltd. in Ottawa and past president of the Ontario Tire Dealers Association, said he's noticed auto dealers promoting tire sales more and more in the last two or three years.
"When they start advertising, you know they're serious," he said. In Ottawa, the advertising is primarily in newspapers, he added.
"A lot of pressure (to sell tires) is being put on car dealers, especially by GM (General Motors Corp.), in this market," he said.
Mr. Frisby hasn't noticed any effect on his dealership's retail business, but he estimates his sales to auto dealers have dropped 10 to 20 percent in the last two years.
One car dealership that has gotten into the tire business in a big way is Dueck Chevrolet, Cadillac, Oldsmobile Ltd. in Vancouver, British Columbia. Dueck has a tire department with annual tire sales of about $1 million and is the largest Michelin/Uniroyal outlet in western Canada, said Jeff Davidson, tire department manager.
Mr. Davidson, who previously worked 10 years for an independent tire dealership, said Dueck's tire department sells about 10 sets of tires a week to walk-in customers. However, the auto dealership also serves as a wholesale outlet for about 20 tire dealerships in the Vancouver area.
The tire department's operation is integrated with the service department, Mr. Davidson said, and Dueck's five service trucks make daily deliveries of both auto parts and tires to area service facilities.
Most of Mr. Davidson's wholesale customers are dealerships that want to sell Michelin's brands, but don't want to join the Michelin Alliance (formerly called the Royal Care) program in Canada. That program requires that more than half of a dealer's tire sales be Michelin brands.
Mr. Davidson said non-Alliance dealers are "willing to pay an extra (percentage) point or two" to get Michelin products for their customers.
Located in downtown Vancouver and serving dealers within about a 20-mile radius, Dueck's tire department can deliver special orders within a couple of hours.
Mr. Davidson's department also provides aftermarket wheels and tires for the dealership's new-car customers. He said "sizing up" to 18- and 20-inch wheels and tires is becoming popular with Dueck's customers who don't like the original equipment.
Upgrading the tires and wheels on new cars is "one of the few things we can do without altering the new-car warranty," Mr. Davidson said. Dueck's auto sales personnel also receive a commission on tires and wheels they sell.
"Most people don't equate auto dealerships as tire shops," Mr. Davidson said, and Dueck hasn't advertised very much for walk-in tire customers. However, Dueck plans to construct a 180,000-sq.-ft. facility by the middle of 2001, he said, which will include a 6,000-sq.-ft. tire warehouse and a more visible tire department.
"Walk-ins are not a market we pursue aggressively," he said, "but in the new location we will."
The Big Three auto companies (GM, Ford Motor Co. and DaimlerChrysler A.G.) all have active programs in Canada to promote tire sales through dealers.
DaimlerChrysler's program has been in operation for about 30 years, a company spokesman said, featuring Michelin brands and a private brand called Autopar, which is made by Michelin. The company said all of its 555 Canadian dealers sell tires.
DaimlerChrysler considers tires an important part of its service to customers, the spokesman said.
Reg Kehler, vice president of Western Canada Tire Dealers, the regional dealer association, and owner of Reg's Tire Service Ltd. in Brandon, Manitoba, said DaimlerChrysler actively wholesales the Autopar brand to small tire dealerships in rural Manitoba. They even provide these dealers with inventory on consignment, he said, at very little risk to the dealer.
Ford's tire program in Canada began in 1991, originally promoting Firestone tires, a Ford spokesman said.
More than 300 of Ford's 568 Canadian dealers participate in tire sales, he said, and now offer Goodyear, Michelin and Uniroyal brands, as well as Bridgestone's popular Blizzak winter tires.
He was unable to provide specific sales figures, but said, "(Tire) sales are brisk."
GM of Canada began a tire program for its dealers in 1994, a company spokesman said, and dealers can order tires through GM's parts sales system.
The "vast majority" of GM's 800 dealers participate in the program and can order products from each of the three tire companies (Goodyear, Michelin North America and Bridgestone/Firestone Inc.).
Unit sales of tires increased 32 percent in 1999 over 1998, he said, and 1998's unit sales were 14 percent greater than the previous year.
"There's been a push on for Goodwrench service advertising," the spokesman said, and a lot of that advertising has promoted tire sales. The amount of advertising for the Goodwrench service program has been increased each year since 1994 in an effort to build recognition across Canada.
Canada's independent tire dealers are concerned with the quality of service auto dealerships provide tire buyers and the ways they advertise tire service.
"Auto dealers are selling a fair number of tires," said Dale Parsons, owner of Grasons Excel Tire in Vancouver, "but they're misapplying them like crazy."
He said most car dealers aren't experienced at selling tires and some of their customers are being shortchanged. For example, he said, an auto dealer convinced a customer to put a set of Uniroyal ASC passenger radials on a Chevrolet Astro commercial van, and the tires wore out in about 10,000 miles.
Mr. Parsons said auto dealerships' tire advertising is strictly price-oriented, often featuring low-priced tires solely to build traffic. Mr. Kehler agreed.
In November and December, "GM heavily blitzed the Winnepeg market like a Goodyear campaign," Mr. Kehler said. GM's ads appeared on TV, radio and in the newspaper, he said.
"GM has been by far the most aggressive to date" in terms of tire sales advertising, he said.
The recent GM advertising blitz featured Uniroyal tires, but also promoted other major brands.
Mr. Kehler said GM's advertising has affected his dealership's sales and margins. Customers would see GM's TV ads and ask him, "Can you match this deal on TV?"
Ford hasn't made "a big splash yet," he said, but based on what Ford is doing in the U.S., "we're expecting it."
Tire-selling by auto dealerships does represent a competitive threat, and tire dealers shouldn't close their eyes to it, said John Goodwin, executive director of the Ontario Tire Dealers Association. In London, Ontario, where Mr. Goodwin is based, this type of advertising is appearing in the newspaper two to three times a week, he said.
"There's a lot more (advertising) in Toronto," he said.
Mr. Goodwin said the OTDA has a committee investigating the ads auto makers and mass merchandisers are running. Some ads claim to sell tires at 50 percent off list price, but he asks rhetorically, "Who sells at list?"
He said Canadian law forbids advertising discounts from a specific price unless a vendor has sold a majority of units at the undiscounted price before the advertising begins.
Mr. Goodwin acknowledged that auto dealers are starting to gain a small amount of market share in tire sales, probably increasing a couple of percentage points in the last four years.
Mr. Parsons said he doesn't think he's lost any retail business to auto dealers in Vancouver, but he said tire dealerships have lost wholesale business because the tire makers are selling directly to auto dealers.
"The rubber companies aren't doing the independent dealer any favors," he said.
Mr. Frisby of Ottawa was more blunt: "I consider this a very, very serious threat to our business—the most serious in the last 10 to 20 years."