AKRON (Jan. 3, 2002)—Tire dealers should take particular note of a study cited by General Motors Corp. that shows how important tire sales are in determining automotive service revenue.
Rather than viewing tires as a low-margin product, the world's largest auto maker sees the sale of replacement tires as a way to bring additional profits into the bays of GM dealerships.
Tire dealers frustrated by the low margins on tires might find the GM study will make them more appreciative of what tires can mean to their dealerships.
Through its “On a Roll” tire sales program, GM is encouraging its dealers to sell more tires in order to retain customers once the warranty on their vehicles expires.
Citing the results of the study, conducted by the Boston Consulting Group, GM noted that three out of four car owners have their vehicles serviced at the same outlet where they buy tires. What's more, an even greater number of customers—78 percent—buys tires from the first person recommending such a purchase.
Usually that's a retailer other than the auto dealership.
In failing to stress tire sales to their customers, according to the auto maker, GM dealers are forfeiting lucrative automotive service business to a variety of competitors including tire dealerships. As one GM executive put it: “We want dealers to offer tire service so customers don't start a (maintenance) relationship someplace else.”
With its On a Roll program, which debuted in March, GM now has 1,300 participating dealerships selling tires. This represents 27 percent of the 4,800 auto dealerships eligible to participate. Ford Motor Co. has a similar tire sales program, no doubt for the same reason.
GM's tire sales program obviously will increase competition for traditional tire dealerships simply because there are now 1,300 additional outlets selling tires.
But the other very real issue for tire dealers is that GM aims to draw and retain customers who previously would frequent an independent service outlet. In doing so, the auto maker will enhance the service revenues of its auto dealers at the detriment of tire dealers and others.
In sizing up their operations, dealers shouldn't underestimate the value of tire sales in enhancing their service revenues.
When the economy will turn and rise out of recession is anyone's guess, although many prognosticators are forecasting a recovery in the second half.
But we know one thing for sure: People will continue to drive their cars and need tires and service, which bodes well for tire dealers in the future.
We wish all of our readers a healthy and prosperous 2002.