DETROIT (Dec. 26, 2001) — Just as it instigated no-interest loans to get new-vehicle sales rolling, General Motors Corp. also has a fix for the service side of the business: selling tires in dealer service departments.
But because tire profit margins are low, car dealers have not been as eager to sell tires as they have been to promote 0 percent interest programs to sell vehicles.
The auto maker introduced its “On a Roll” tire program in March, but only 1,300—or 27 percent of the 4,800 dealerships eligible for the program—have signed up.
Bill MacLear, merchandising manager of GM parts, said dealers lose business to independent aftermarket shops because they don't sell tires and don't go after brake work aggressively. He said a tire program can kill two birds with one stone because technicians can check the brakes when they replace the tires.
“We have several programs to increase service and parts sales,” Mr. MacLear said. “This (the On a Roll program) is the single biggest among them.”
Big push at NADA
GM intends to promote the On a Roll program, through which it offers dealers competitively priced tires and advertising support, at the National Automobile Dealers Association (NADA) convention in January.
GM's push to get dealers into the tire business came partly as a result of research by Boston Consulting Group that concluded 75 percent of maintenance customers service their cars where tires are sold, and 78 percent of maintenance customers buy tires from the first person who recommends a tire purchase.
“We want dealers to offer the tire service so customers don't start a (maintenance) relationship someplace else,” Mr. MacLear said.
Dealers must be enrolled in the GM Goodwrench Plus maintenance program to sell the tires, pay a one-time fee of $999 and invest in equipment such as wheel balancers and tire changers.
The car dealerships that have committed to making On a Roll a success say it is worth the time it takes to get employees to buy into the program because their service departments are seeing increases in both new and repeat business.
“Dealers have allowed all the aftermarket independents to steal our business,” said Tom Laugesen, parts manager of Mike Shaw Automotive Group in Denver. “We didn't want to do exhaust, so the exhaust shops got the customers and started doing brakes and shocks. We didn't want to do tires, and the tire stores went into brakes and shocks and tune-ups and took away our business. We were ignorant enough to let them do it.”
Why they balk
The biggest objections to selling and stocking tires are that tires are dirty, bulky and costly; profit margins on tires are slim; and technicians specializing in complicated diagnostics, engine and transmission work balk at changing tires.
“Dealership technicians are not your typical mechanic,” said Jeff Siegfried, fixed operations director of Friendly Chevrolet in Fridley, Minn. “Changing tires to them is like pushing a broom.”
Mr. Siegfried has had to pay bonuses to technicians to instill enthusiasm for the tire program. He gives them an extra $2 for each tire changed. Though it takes roughly 45 minutes to replace the tires on a vehicle, Mr. Siegfried pays the technicians for two hours of labor.
Friendly Chevrolet's tire racks are 16 feet high and take up about 240 linear feet along the dealership's garage wall. Because the racks are just 3 feet deep they are not in the way, he said. While Friendly Chevrolet has $43,600 invested in a tire balancer, two tire removers and a front-end rack—the required equipment for the On A Roll program—it is equipment the dealership already owned. The program requirements are easy to meet, Mr. Siegfried said.
Lower profits but extra business
Mr. Laugesen, of the Shaw group, said the profit margin on tires is just 10 percent, though he likes to net no less than 30 percent on parts. But tires bring the shop extra business. Most of the tire sales represent new customers and maintenance beyond the tire sale, he said.
At Friendly Chevrolet, Mr. Siegfried said tire sales have climbed dramatically since he began the On A Roll program. In October he sold 200 tires, up from just 23 in June.
Mr. Siegfried intends to hire a dedicated tire salesperson and tire-changer from a competing local tire store to further increase tire sales. The same strategy of hiring a dedicated accessories specialist helped increase Friendly Chevrolet's average monthly accessories sales to $80,000 a month, from just $4,000 a month in 1999.
Mr. Siegfried, who stocks about $13,000 worth of tires, said he is turning his tire inventory at the rate of four times a year, compared with six times a year for his entire parts inventory. But he expects tire sales to increase demand for other parts because about 80 percent of the tire customers buy other maintenance and repair services.
“This program,” he pointed out, “is not just about tires.”