Tire wholesalers are closely monitoring their accounts receivables as a sluggish economy coupled with spiraling operating costs are impacting some customers' ability to pay.
Ross Kogel, president of Tire Wholesalers Inc. in Troy, Mich., said this has impacted his business in a couple of ways.
``We're seeing more bad checks and have had to tell some customers we just won't take a check anymore. It's cash only, after a couple of times (when the customer's check bounces),'' Mr. Kogel said.
Tire Wholesalers, which services customers throughout Michigan, has had to become ``very strict'' in regard to credit limits, ``because people are getting into trouble,'' he said.
A veteran of 32 years in the wholesale tire business, Mr. Kogel said he thinks many such customers are relative newcomers who have never dealt with a slow economy. ``They weren't around in 1982 and '83. They started later than that when things have always been on the upswing and growth has always covered everything.
``Some people have difficulty discerning the difference between cash flow and profits, as silly as it sounds, and now they're having trouble because of that,'' he said.
Mr. Kogel said he's heard much the same thing from his wholesaler counterparts as far away as California.
This is not a crisis from the wholesaler's point of view, he acknowledged. ``It's just a matter of having to be a little more on your toes and paying more attention to your knitting. Close people down a little earlier and let them know you're interested. It's when you let them get (in debt) too far that it becomes an issue,'' he advised dealers.
John P. ``Jack'' Gallagher of Gallagher Tire Inc. in Levittown, Pa., said he too has observed a slowdown in accounts payables and other customer difficulties related to the economy.
``There are some (former customers) out there who are just disappearing,'' Mr. Gallagher said. ``We're starting to see more bounced checks, too.''
Mr. Gallagher said he thinks the cost of doing business is causing most of the difficulty for wholesale customers. ``It's not necessarily that their sales are off,'' he said. ``But some guys just don't know their true costs.''
Insurance costs are a major problem for nearly every business, Mr. Gallagher believes. ``In the last three years, the cost of my auto insurance has gone up between 400 and 500 percent. My liability insurance (cost) has gone up about 150 percent-and I've never had a liability claim in 35 years. Meanwhile, I discontinued my umbrella policy. It just got too expensive. Then there's the cost of health insurance and you know where that's going.... I could go on and on.
``Not only are the insurance companies knocking you (the customer) for the cost, they pay claims they shouldn't pay. We tell them it's a bad claim, and they'll go and settle it anyway. It's easier for them.''
His advice to fellow tire dealers: ``Know what your real costs are and make sure you're getting enough gross profit to cover them.''
Robert Smith, executive vice president of the North Carolina Tire Dealers & Retreaders Association, said the economy also has impacted wholesale dealers and their customers in his area.
``Anytime you have a sluggish economy it relates directly to accounts receivables,'' Mr. Smith told Tire Business. Accounts receivable payments have slowed and dealers need to keep a close watch on credit, Mr. Smith agreed.
Unfortunately, wholesalers and other dealers often are tempted to further extend credit rather than tighten up on it when the economy threatens the continued viability of their customers.
``Everybody in business has to live on credit and most wholesalers issue a line of credit to customers,'' Mr. Smith said. ``It's when the line is exceeded that trouble can develop.'' Wholesalers owe it to themselves and their businesses to prevent that from happening, he said.
Not every wholesale dealer contacted by Tire Business is experiencing increased difficulty collecting accounts receivables.
``Collecting receivables is always tough,'' said Frank Burns Jr., manager of Jersey Wholesale Tire in Parlin, N.J. ``But I don't think it's gotten any worse than usual.''
The company carries virtually every tire brand and services customers in the New Jersey and New York state areas. Mr. Burns has been with the company for 14 years.
Roland Lesieur of Maynard & Lesieur Inc. in Nashua, N.H., said he too has not seen any increase in accounts re-ceivable difficulties. In general, he said, collections have ``not been bad at all.'' Nor has the dealership experienced any significant increase in bad checks. If anything, he said, ``I think people are paying better'' than during similar economic periods in the past.
The market in his area has been difficult for most of this year, but sales seem to be picking up lately, Mr. Lesieur said, adding: ``We've had a relatively good month sales-wise, and Oct. 26 was one of our best Saturdays ever.''
Nevertheless, those wholesalers expressing concern over the rising cost of doing business will get no argument from the 73-year-old tire industry veteran, although he admitted to having contributed to the situation over the years.
``I've created overhead that's too high for the sort of business we're in,'' Mr. Lesieur said.
One of the company's problems is trying to satisfy out-of-town customers wanting special and immediate delivery on orders as small as one or two tires-an expense the company can ill afford considering the thin gross profit on tires these days.
Had he known years ago what he knows today, Mr. Lesieur said, the dealership would have followed a different and potentially more profitable path.
``We'd probably be in mechanical service rather than wholesaling tires,'' he added half seriously.