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Published on March 14, 2005

Mail Call, March 14

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Opinion

Right on, ‘Chubby'

Chubby Frederick is "right on" in his letter to the editor published in the Feb. 14 issue of Tire Business.

He knows the tire and auto service business well. We have attended several of Chubby's workshops and found them to be very helpful to us in improving our business.

However, Chubby is way too polite in his assessment of the problems and challenges facing the independent tire dealer. We recently had a regular customer (the kind of desired customer Chubby describes as a "client") purchase a set of Michelin tires from a local Wal-Mart Stores Inc. location. The customer showed us the invoice and what he had paid for the set of four tires. That amount actually was less at retail than what we would have been able to purchase the tires for from our distributor at wholesale—and we are a member of Michelin North America Inc.'s Alliance dealer program!

Incidentally, the same wholesale tire distributor that services our dealership also supplies the local Wal-Mart and all of the other independent tire dealers and "discount" tire retailers in the area.

I do not disapprove of Wal-Mart as a company or their concept of being a low-price retailer; and I believe that Wal-Mart has generally been good for consumers as well as for the U.S. economy. As a businessman I also understand competition, economies of scale and the purchasing power of large-volume purchasing.

Unfortunately, however, because tires have become strictly a "price-shopped" commodity item, it has become impossible for an independent or small-chain-tire dealer to make a reasonable profit selling tires. If we cannot make a profit, we have to sell something else or go out of business.

Today's tire is of better quality, more reliable and arguably a greater value for the consumer than ever before. Yet the pricing and distribution strategies of the major companies that manufacture tires have devalued them and made tires strictly a commodity in the marketplace. It may only be a matter of time before all tires are manufactured off shore and sold only by Wal-Mart and other "big box" discount stores.

The tire makers need to find a way to make it more profitable for the independent tire retailer to sell tires and, frankly, to remain in the tire business. All tire manufacturers rely, to varying degrees, upon independent tire retailers to move the product to the consumer.

Tire companies like Michelin have much to lose. Without independent dealers to serve as a distribution channel, the "big box" retail chains will determine retail prices for tires; and if they set retail prices they also will dictate wholesale prices.

Channel management—for the marketing and distribution of a product—is a challenge in many industries. Without dealer loyalty there is no brand loyalty; without brand loyalty there is no customer loyalty; and without customer loyalty, purchases are based solely upon price and availability.

In the case of tires, it will become: "If it is black and round, it will do."

Except for Dell Inc., U.S. personal computer manufacturers—such as IBM, Hewlett-Packard Development Co. L.P. and its Compaq and DEC business units, etc.—never solved the channel management challenge. The U.S. tire industry is headed down the same path the PC industry has taken. The outcome is all too predictable.

Jeff Mobley

Owner

Carolina Tire & Service

Garner, N.C.

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