If 2002 was a mixed bag for many tire dealers, 2003 is expected to be more of the same-for better or for worse.
Some dealers who reported slow sales in 2002 are expecting that trend to continue because of the still-lagging economy and fierce competition. Even dealerships that weren't hit hard by the recession face some non-sales uncertainty-namely rising insurance costs. Still other complications, such as complying with the federal TREAD Act, are expected to impact businesses in the new year.
``I sure hope 2003 is a brighter day,'' said Larry Speck, manager of Covington Pike Tire & Auto Service in Memphis, Tenn. He said his walk-in traffic has dwindled in the past year as nearby car dealerships added tire sales and more services in their bays. That competition, plus that from dozens of nearby tire dealerships, has cut into his business about 25-30 percent, Mr. Speck said.
Less than a mile down the road from Covington Pike in Memphis, Glen Whiteman, owner of Multi-Tune & Tire, said business has not been good since Sept. 11, 2001.
``You'll get four good days out of the week and one bad day,'' he told Tire Business.
The one bright spot for the Memphis dealers, Mr. Whiteman said, is that the sour economy is encouraging more people to maintain their used cars instead of buying new, and the red-hot sport-utility vehicles of the late 1990s are finally coming of tire-replacement age.
Still, uncertainty about consumer confidence-and thereby their willingness to buy large items before they're absolutely necessary-plagues many dealers.
``(Sales are) still consistently low with me,'' Mr. Speck said.
But in the competitive San Fernando Valley in California, Flip's Tire Center in Van Nuys scored a 10-percent increase in sales in 2002, manager Bill Brixon said. He's expecting another 30-percent improvement in 2003 even though hundreds of tire dealerships serve the some 1.6 million people in the valley.
Mr. Brixon said the three-outlet dealership is pulling ahead because recession-wary customers are heading to established dealerships where they're hoping to get the most value for their money.
``The reputation has paid off over several years, and people are starting to come in for the service,'' he said, adding the dealership has not slashed its prices.
Ross Kogel, executive vice president of the Tire Industry Association (TIA), said service may be the answer for dealers plagued by competition. ``Frankly, the margins are much better in service than they are in a price war,'' he said.
Still, price continues to be an important factor, especially in the continuing recession. Dick Erickson, president of Sun Tire Service Inc. in Jacksonville, Fla., said consumers are price sensitive, especially for passenger tires.
``They're watching that closely,'' he said.
Even with competition from larger chains, Sun Tire is posting single-digit gains and planning to open its 10th outlet in the coming months.
``I feel good about the way things are going,'' Mr. Erickson said. ``I wish they were better, but we've got no reason to complain at this point.''
Other dealers also reported minor impact from the recession thanks to loyal customers, and they hope their fortunes continue.
``My business didn't reflect the economy,'' said Scott Kintop, owner of 12-year-old North Ridge Tire & Brake Inc. in Madison, Ohio.
The outlet, which sells primarily Bridgestone, Firestone and Dayton brands, just finished the final touches on an expansion that doubled its size to 16 bays.
The consumer confidence that's worrying the Memphis dealers doesn't scare Mr. Kintop.
``They're willing to put a little more money in their used cars,'' he said.
Bob's Tire Service in Owosso, Mich., also is expecting a strong 2003.
``It's already started,'' said manager Ed Custer. ``Business is booming.''
Even if the two-outlet dealership's loyal customers are buoying up its sales, Bob's Tire isn't immune to rising insurance costs. Mr. Custer estimated his increase in insurance premiums this year will be about 40 percent.
``Unfortunately, the only way to combat it is to knock the benefits down,'' he said, adding he explained to his 12 technicians that their health insurance would be scaled back instead of cut completely.
TIA is developing programs for independent dealers to review their insurance policies through third parties to garner the most savings, Mr. Kogel said.
``I think insurance is going to be one of the big aspects,'' he said of the new year.
Overall, the economy itself is expected to continue limping along in 2003, predicted George Dagnino, chairman of Akron-based Peter Dag Strategic Money Management and former chief economist for Goodyear.
``It's going to be sluggish,'' he said.
Companies still are slow to invest in their businesses again as lenders slowly scale down their interest rates to be in line with the Fed's rates, he said.
``This is not going to happen anytime soon,'' Mr. Dagnino said. ``This is a process of adjustment. It takes a lot of time.''
He expects that adjustment to take the better part of 2003 to iron out. It will be further complicated by weak home and auto sales-usually the sectors that start renewing growth-because of the influence of low mortgage rates and the promotional 0 percent rates set by auto makers that had already sapped demand. The low mortgage rates aren't having as large an impact because many homeowners already have refinanced, according to Mr. Dagnino.
If the market continues on the path he expects, Mr. Dagnino said tire sales also will be weak. He said he predicts the Gross Domestic Product to grow a slim 2 percent from fourth quarter 2002 to the same period in 2003, compared with a desirable 3 percent.
But beyond the fluctuating market, some tire industry professionals are wondering what may happen as some federal TREAD Act rules start coming into force. A major rule coming into effect is new minimum safety standards for passenger tires. Redesigning some tires could cost manufacturers as much as $1.4 billion, according to TIA.
``The dealer may very well end up in the middle, absorbing some of those costs,'' Mr. Kogel said.
Bob Purcell, president and CEO of Potosi, Mo.-based Purcell Tire & Rubber Co., said his business is steady-even good enough to negotiate possible acquisitions-but the potential fallout from the TREAD Act remains the biggest uncertainty.
``I just don't know what that's going to bring,'' he said.
Founded in 1935, the commercial dealership is one of the nation's largest medium truck, light truck and OTR tire retreaders with estimated 2002 sales of $166 million. Sixty-five percent of the firm's sales come from its commercial/retreading operations.
Some retreaders fear a part of the TREAD Act that would test commercial retreads against their new-tire counterparts.
But whatever may come in 2003's economy, Mr. Dagnino said it's been brewing for about a decade.
``We had an orgy in the late '90s, and it's time to recover,'' he said. ``It's taking a long time, but I wouldn't be surprised if it would take even longer than the next 12 months.''