AKRON (March 26, 2002)—Sometimes numbers just don't tell the whole story.
Aftermarket shipments last year of new medium truck tires, according to the accepted industry data, were down nearly 9 percent from 2000, and estimated production of truck retreads was off more than 5 percent. Sales of trucks and trailers were off 30 percent, with original equipment tire shipments down 37 percent.
How is it, then, that 22 of the 35 largest independent commercial tire dealerships in North America re-ported growth last year—including eight with double-digit growth?
Some of that growth is attributable to acquisitions—at least five of the gainers made significant acquisitions during 2001. But in general, sales gains in a market that's down overall mean somebody's taking business away from his competitor.
As for 2002, the economy is recovering, albeit sporadically by region, with some dealers reporting brisk January sales and others describing them as “pathetic.”
In terms of national business activity, tonnage shipped by truck during 2001 was only slightly below the volume shipped in 2000, according to data from the American Trucking Associations, although the indexed volume is still below that of 1998-1999 by a long shot. During 2001, shipping volume on a month-to-month basis was down for six months and up for six months, reflecting the yo-yo-ing of the economy in general.
Hopefully, 2002 will bring more stability to the trucking industry, as a wave of bankruptcies and consolidations appears to be on the wane, according to various trucking industry sources. One reported that there were nearly 7,700 fewer truckload carriers competing at year-end 2001 than two years earlier.
The bulk of commercial dealers responding to Tire Business' annual survey for this section listed margins, operating costs and new tire pricing as their primary concerns for the current year. One operating cost causing particular concern is insurance.
“Manufacturer-owned stores need to raise their prices and act as if they intend to make money,” said Charlie Allfrey, general manager of Phelps Tire Co. Inc. in Seattle.
“The manufacturers (chains) are making it worse for us all,” said Don Strouhal, chief operating officer for Strouhal Tire Inc. in Hungerford, Texas. “Don't get me wrong, dealers are plenty stupid enough, but any place where the manufacturer stores are strong, prices aren't.”
Strouhal Tire, a star-certified Michelin dealer and a 30-year Bandag franchisee, is experiencing encroachment on its territory from both suppliers' commercial chains—Tire Centers L.L.C. and Tire Distribution Systems Inc.—Mr. Strouhal said.
Strouhal Tire is in a particularly competitive arena with manufacturer-owned chains: It competes with 10 TDS locations, seven TCI stores, 16 Wingfoot Commercial Tire Systems outlets and 19 GCR Tire Centers operated by Bridgestone/Firestone.
Strouhal operates nine full-service commercial outlets along the Gulf Coast and up into Houston, and two retread shops. A year ago Strouhal opened what it calls a satellite location—tire delivery only, no services—in Temple, Texas, to extend the company's reach farther northward.
In one case, Mr. Strouhal said, a salesman from one of the manufacturer chains offered one of his customers retreads for $50 per tire less than Strouhal's going prices.
For Bell Gardens, Calif.-based Parkhouse Tire Inc., the erratic economy underscores the principle that change is constant, and dealing with it is paramount.
“Business has been pretty good out here,” said Jim Parkhouse, president and CEO. “But we're still in the middle of sorting out everything. You have fleet customers going bankrupt, tire dealers going out of business. It's constant change, which has always been there.
“It might be more pronounced than it has been in the past. But if this were real easy, everyone would be doing it,” he said.
2001 proved to be a “very flat year” for Parkhouse Tire, he said, but business has been up for the first two months of this year.
California hasn't had quite the hit that other parts of the country are undergoing, economy-wise, Mr. Parkhouse said, “possibly because we got ours in the early 1990s. This recession is a soft one for us.”
Still, last year's energy crisis in California took a toll on most businesses in the way of increased operating costs, and the Sept. 11 attacks “affected all of us,” he said.
Mr. Parkhouse acknowledged that his biggest concern, hands down, is spiraling across-the-board insurance costs.
“It's ugly—I can't come up with a better word for it.”
Last July, Parkhouse Tire got a letter from its carrier saying to expect a 25-percent increase in insurance costs for areas including worker's compensation and medical and liability coverage. He's now paying better than double his previous rates, he said—“though after 9-11 all bets were off.
“Everyone in every part of the country is facing the same thing,” he said. “It just depends on their policy renewal date.”
For companies that renewed policies before Sept. 11, they won't see a big increase until their next renewal, he noted.
In Mr. Parkhouse's opinion, these rising insurance expenses “tend to work in cycles. They (insurance companies) all will make some money. Then they'll decide to start cutting prices to try to get more market share, and then the rates will go down a little bit. Once they make some money, it should cycle out.”
But he doesn't expect the cost of doing business to ever get cheaper. “It's like the energy crisis here,” Mr. Parkhouse said. “You learn to adapt. People in my stores did a better job of using electricity. We were forced to adapt.”
Somewhat surprisingly, considering the weakened economy, quite a few dealers also mentioned finding and retaining good personnel as a point of concern.
Several dealers noted they picked up business from small to medium-sized fleets that decided to outsource a greater number of their maintenance services. The major suppliers—Goodyear, Michelin and Bandag, in particular—have created programs for their dealers to make tire monitoring easier.
As for the manufacturers' chains:
TCI reported “sizeable” gains in sales over the $360 million reported in 2000, including “buoyant” business in retreads. The size of the TCI network stayed relatively stable, at 121 TCI stores in 39 states and 13 retread plants in 11 states.
Michelin Americas Truck Tires ended up the year with a market share relatively unchanged from 2000, but only after recovering from double-digit sales losses in the first quarter when the firm took a hard-line approach on pricing. After relaxing its stance starting in the second quarter, the company recovered all the ground it had lost in the first few months.
TDS reported sales of $398.9 million, down slightly from 2000, although 4-percent growth in the fourth quarter led Chairman and CEO Martin Carver to state: “Overall, we believe TDS is well-positioned to benefit from improvements in the transportation sector.”
TDS suffered an operating loss last year of $11.1 million as operating costs rose 12 percent. For 2002, the unit will focus on internal process improvements and operating expense reductions.
Throughout the year, the ratio of retreads to new tires declined, impacting the gross profit margin, Bandag said, as retreads typically have higher gross profit margins than new tires.
Among individual dealerships' recent activities and plans, are the following:
c Commercial Tire Inc. of Boise, Idaho, is looking at a new location—its fourth—in Meridian, a suburb of Boise, and planning to expand its Twin Falls, Idaho, Bandag retread plant.
c Cross-Midwest Tire Inc., Kansas City, Kan., opened a commercial center in Des Moines, Iowa, last year—its 14th commercial site overall—and is buying a retread plant in Atlantic, Iowa, to go with its three existing ones, in Topeka and Kansas City, Kan., and Springfield and St. Louis, Mo.
c Tommy House Tire in De-catur, Ill., joined the Best One Tire & Fleet Service program, tapping into a network of 180 outlets throughout nine Midwestern states, stretching from Michigan to Georgia and West Virginia to Missouri.
“We joined because of the strength of the buying power they have,” said President John House, who cited better prices for and enhanced availability of services on the road as well as better buying conditions for products. All that adds up to better service for his customers, he said.
Being part of Best One means Tommy House's two Bandag plants—in Decatur and Pekin, Ill.—are now allied with Premier Bandag Inc., Best One dealers' retread supply arm. Best One is a business cooperative created by the Zurcher Group of Monroe, Ind.
A family business founded in 1945 by Thomas House, the company operates seven commercial tire shops in central and southern Illinois. It is evaluating opportunities for expanding, but Mr. House declined to discuss them at this time.
c Pomp's Tire Service Inc. expanded west and south, buying locations in Sioux Falls, S.D., and Sioux City, Iowa, from Omaha, Neb.-based Alford Tire Co. The deal came about last year after Alford found itself in a recession-induced cash flow pinch, according to Barry Berglund, Alford's general manager.
Alford had built new stores in both locations in the past few years after operating earlier out of smaller, leased spaces, Mr. Berglund said. The Sioux Falls location included a Bandag retread shop, which Pomp's will now operate, Mr. Berglund said.
“We were fortunate to find a good company and a reliable man like Jim (Wochinske, Pomp's president) to take over these locations,” Mr. Berglund said. “The transition for our customers has been seamless, and Pomp's took on all employees at those locations.”
Alford Tire will now refocus its efforts on its home market of Omaha, where the company operates a commercial center and Bandag retread shop. Alford Tire was founded 35 years ago by Bill Alford, Mr. Berglund's father-in-law, who is still very active in the business.
The additions expand Pomp's network to 48 commercial locations in seven states and 11 Bandag retread shops. Commercial sales of $98 million make Pomp's the fourth largest commercial tire dealership in North America.
Sigmund J. Mikolajczyk and Vera Fedchenko, Tire Business staff, contributed to this overview.