Off-the-road tire dealers may soon have to justify their profit margins to construction, mining and quarry companies that already have followed the costs of the tires from raw materials to the showroom floor, an OTR executive said.
Manny Cicero, president of Bridgestone/Firestone Off Road Tire Co., said several leading end users of OTR tires in recent years have taken the next step in the old practice of looking for the best price for tires. The larger national and international companies have asked tire manufacturers to open their books for a cost analysis from buying raw materials to distributing to dealers-including the dealers' margins-to make sure all of the manufacturers' costs are as low as possible, he said.
``(It's) the kinds of things that have been sacrosanct throughout the years.''
Mr. Cicero, a keynote speaker at the Tire Industry Association's Off-the-Road Tire Conference, Feb. 20-22 in Phoenix, said he plans to comment on the trend in his speech to OTR dealers.
The trend can be seen as a double-edged sword, he said. On one hand, the high-level committees and consultants arranged by, for example, a large mining company can find ways for manufacturers to streamline their businesses. But on the other hand, Mr. Cicero said it breaks the traditional secrecy of a tire maker's books.
``That is the fear,'' he said. ``How much do you open your books to a customer? How much do you want them to see?''
Jack Fenner, director of dealer sales, Commercial Group, for Continental Tire North America Inc., said the Charlotte, N.C.-based company's customers have not yet required the tire maker's cost numbers. Still, he said the tire maker anecdotally describes rising costs such as pension, health care and insurance costs.
``We do share those things to try to get more money out of our product,'' he said, adding the customers usually respond favorably since they face many of the same cost increases.
Still, Mr. Cicero said it's a continuing trend that most tire manufacturers will continue to face. As the leading mining, quarry and construction companies begin the practice, the second tier is likely to follow to be price-competitive, he said. Price consciousness has always been a concern for the companies because their product is a commodity with rigid market prices.
``If you have no control over the selling price, your operations have to be efficient,'' Mr. Cicero said.
In the end, he said the trend-which he called a ``tidal wave''-inevitably will reach most OTR dealers.
``How you respond to the tidal wave and the trend is important,'' he said of dealers.
OTR dealers should be ready to justify their profit margins because, Mr. Cicero said, the best customers are looking for value for their money, not just a low price.
Terry Sparks, owner of Sparks Commercial Tire Inc. in Findlay, Ohio, told Tire Business he started ``candid'' discussions with his customers about his costs once the OTR industry's profits began to dry up.
``The market has become so competitive that it's gotten to (where) there's no profit anymore,'' he said.
Mr. Sparks said his customers responded well-some even absorbing price increases-when he made his case for the value of his company's service. The dealership, which sells Goodyear, Continental and General OTR tires, also provides other services, such as a percent-worn figure for a customer's fleet or listing costs-per-hour.
``We don't just sell tires, we try to sell a tire program to customers,'' he said.
The added scrutiny also helped his business.
``It opened our eyes to where our costs were,'' Mr. Sparks said.
Tire makers typically sign agreements with the mining companies that can last two to five years, with an average of three. That way, Mr. Cicero said, the manufacturer has an incentive to stay competitive to renew the contract, but the tire maker also has a guaranteed customer for those years.
``(When suppliers) form a relationship with a customer, then it's almost impossible to break,'' he said.
The same stability could come for dealers who prove they're the best value to their customers, he said.
``If you do it and you do it right, it's almost impossible for your competition to come in there,'' he said.