Tire dealers have a stake in the eventual outcome of several industry battles currently being waged by tire makers, Cooper Tire & Rubber Co. Chairman, President and CEO Tom Dattilo told those attending the Tire Industry Association's President's Breakfast with the President in Las Vegas, Nov. 6.
In a wide-ranging speech before a largely dealer audience at the Specialty Equipment Market Association/International Tire Expo, Mr. Dattilo pointed to a number of issues likely to affect both dealers and manufacturers in days to come.
Among these are:
* Efforts to reassure consumers about the safety and reliability of tires after more than two years of massive tire recalls, costly class-action lawsuits and negative headlines about tire-caused accidents;
* Far-reaching and costly government regulations mandated by the Transportation Recall Efficiency, Accountability and Documentation (TREAD) Act, passed by Congress two years ago during the tire recall hysteria; and
* Continued assaults by product liability lawyers who, he said, likely will turn their attention to tire dealers if and when they're unable to reach into the deeper pockets of tire makers.
Dealers an integral link
Cooper's chairman also offered words of advice to dealers struggling to pilot their businesses through these turbulent times.
``We regretted seeing our proud industry tarnished by the media frenzy and misunderstanding about the safety of tires that accompanied the various recalls and bad press'' over the past two years, Mr. Dattilo said. ``When any major player in the tire industry is diminished, all players are diminished.''
One positive outcome, he said, is that consumers finally are showing concern about tire inflation and tire safety. ``People, ordinary citizens, are realizing what great engineered products tires really are...how important (tires) are to their safety...and that (tires) are not a commodity,'' Mr. Dattilo said, adding that he applauds TIA's efforts to enlist tire dealers to help ramp up that message.
``You have the power to talk about this every day with your customers! I hope you can and will do that,'' he told dealers.
Mr. Dattilo cited results of a 2002 J.D. Power and Associates' replacement market study showing that 36 percent of the buyers surveyed had purchased their tires at independent tire dealerships. ``That's twice as much as the next biggest channel,'' he said.
When asked what made them happy with their tire purchase, buyers cited satisfaction with the retailer's people as the No. 1 reason. Service was a close second; the dealer's reputation and facility also played a major part. Poor service was the No. 1 reason given for buyer disloyalty.
Tough `Act' to follow
One event Mr. Dattilo said will have a huge impact on the entire industry in coming years is the TREAD Act, passed by Congress in 2000 in the midst of the public concern brought on by tire recalls.
Not the least among the additional new regulations mandated by the TREAD Act is the pending establishment of new minimum safety standards for passenger tires-something that is expected in 2003.
As currently proposed, the new standards would require the redesign of some tires and possibly could eliminate non-speed-rated tires from the U.S. marketplace due to their inability to meet more stringent speed and endurance testing.
RMA estimates that complying with the new passenger tires standards could cost manufacturers as much as $1 billion for one-time modifications and then require annual expenditures approaching $400 million.
In the meantime, discussions have begun on proposed new tire standards for truck tires as well, but Mr. Dattilo said its too early to speculate on what those changes might entail.
Another costly provision of the TREAD Act will require manufacturers to mold Department of Transportation (DOT) identification numbers on both sides of the tire-and in much larger lettering, he pointed out.
The expense to manufacturers of carrying this out is estimated at $224.1 million annually in addition to a $113.5 million one-time cost and possibly an additional $84 million if manufacturers are forced to re-order the tire identification numbers. Such costs are going to have to be accounted for in tire manufacturers' future tire pricing, he noted.
``The manufacturers will bear the brunt of these mandates, but the effect will impact your business,'' he told dealers. ``In plain English, tires will cost more.''
Meanwhile, the early warning system mandated by the TREAD Act as a means of detecting product defects before they develop into larger problems will require manufacturers to submit ``an unbelievable amount'' of data to NHTSA, including increased information on tire failures-especially separations, he said.
``...Some manufacturers, like Cooper, have very consumer-friendly rules in assessing tire failures,'' he told his dealer audience. ``If a good customer has a `marginal' (tread) separation, meaning it could be a road hazard or spot wear situation, it is very common for our dealers to adjust the tire as if it were truly a manufacturing defect.''
However, with the government's early-warning system in place, tire makers may be forced to apply very strict guidelines on tire adjustments, he said. ``We may not be able to be the good guys any longer if we face the risk of having our adjustments misinterpreted by NHTSA and the plaintiffs' bar.''
Another proposed rule that could affect dealers directly calls for manufacturers to submit a plan to prevent the resale of recalled tires, limiting landfill disposal of recalled tires and reporting exceptions to the plan.
Dealers, he said, would be required to disable recalled tires the same day they dismount them or face a possible civil fine of $5,000 per violation. ``We take issue with this,'' the Cooper executive said, because not every recalled tire is a defective tire. ``At Cooper, we require that all recalled tires be returned so we can sort out the good ones from the bad ones.''
Disposal of recalled tires will be regulated and monitored, Mr. Dattilo said. Dealers must comply with local scrap tire regulations and the government will watch what they do with such tires, making sure so-called ``beneficial use'' outlets are given sufficient consideration. ``Big Brother will be more a part of your business than ever before,'' he told dealers.
Mr. Dattilo said dealers can help restore consumer confidence by providing customers with a tire registration form at the point of sale. He said Cooper estimates that only about 4 percent of its tires sold at retail are registered. ``If I were in your shoes, as a tire dealer, I would think about tire registration as my personal push for tire safety for my customers,'' he said. ``It's quick, easy, and might score points with your customers by (indicating) your concern for their safety.''
A subject Mr. Dattilo said he is particularly passionate about is the need for judicial reform, claiming that ``the plaintiffs' lawyers have targeted'' all tire manufacturers. ``It's unbelievable how bold the trial lawyers are becoming in their zest to win big payoffs in tire cases. They will say and do almost anything.''
As an example, he said, one of the more zealous trial lawyers recently said in a nationally televised program that underinflation does not cause a tire to separate if the tire is made properly. ``I would guess every dealer in this room can dispute his misguided assumption-and those who truly know about tire science and engineering understand why he is very wrong,'' Mr. Dattilo said. ``But unfortunately, the media seems to love his notorious, unsubstantiated attacks on our industry and they continue to print or broadcast whatever this lawyer says.''
The playing field is not level and tire manufacturers are not the only targets, he said. Dealers and distributors also are frequent targets as well.
One reason tires have become a target of plaintiffs' attorneys, he said, is because tire makers have visible assets in the U.S. where they are easy to sue. But ``what happens when the manufacturer does not have easy assets to attack?'' he asked. ``...My guess is that tire dealers will become a primary target-especially with the larger dealers now accumulating assets that become very attractive to these sharks.''
Between 1988 and 1998, he said, class-action lawsuits in the U.S. increased by 1,000 percent. Mr. Dattilo said it is estimated that at least $165 billion is spent annually-or 2 percent of the nation's gross domestic product-on damages, legal fees and other related court costs.
``That's a staggering amount,'' Mr. Dattilo said. Companies producing faulty products or providing unsafe services should be held responsible, he said. ``But what's happening is that our court system is being clogged by highly questionable litigation.''
He urged dealers to tell Congress where they stand on this matter. ``Let our government know you want American business to be treated fairly in the litigation arena,'' he urged dealers.
Mr. Dattilo noted that in times of turbulence, business leaders must manage in ways to withstand sudden blows while also being able to avail themselves of sudden, unexpected opportunities. He offered the following advice to dealers:
* Do things differently. ``Don't just keep doing what you have always been doing. Every product, service, process and activity needs to be put on trial. Step back and take an objective view as to whether you should or should not keep doing it.''
* Build on your strengths. ``Figure out what talents your team has and build from those strengths. Don't have your best people doing what they are not good at doing.''
* Prioritize. ``Based on the results you want and the strengths of your team, do everything well. Work on just a few major areas at a time.''
* Make effective decisions. ``Get opinions that matter, debate the issues, understand that there is rarely an absolute right or wrong, act quickly and don't overanalyze.''
``Finally,'' Mr. Dattilo told dealers, ``remember that you and your people are not being paid to do the things you like. We are paid for results-getting the right things done.''