American Tire Distributors (ATD) Inc. could become the primary tire supplier this year for about 3,700 General Motors (GM) Corp. dealership stores across the country-and the Charlotte-based wholesaler is in talks with other car makers for similar pacts.
The deal comes at a time when GM is looking to increase its replacement tire sales, which in turn could be a boon for the tire distributor, an ATD spokesman said. Yet it also enters turbulent waters with independent tire dealers concerned about increased competition from car dealers with the same supplier.
``Where do you find a tire dealer where there's not a GM dealer or a Chevy dealer close by?'' asked ATD customer John McCarthy, president of McCarthy Tire & Automotive Centers in Wilkes-Barre, Pa. ``Maybe (ATD will) sell them a lot of tires, but I would imagine that they would lose some of their other business because of it.''
ATD announced the supply arrangement in its recent 10-K filing with the Securities and Exchange Commission. In the same report, ATD also said its net income surged 56.3-percent last year to $25 million on the benefits of improved product mix, purchasing efficiencies and 15-percent higher sales. Net sales for the year hit $1.28 billion. ATD also disclosed in the report that it has closed 10 of the 11 Target Tire warehouses it acquired last year.
The ATD spokesman said GM approached ATD last year, looking for a supply agreement. The companies had a test run in Atlanta in late 2004, and the car maker decided to roll out the program nationally in 2005. The deal includes access to all tire brands carried by ATD, including Goodyear, Michelin, Bridgestone, Firestone, Dunlop, Pirelli, Continental, General, BFGoodrich, Kumho, Uniroyal and others.
ATD supplies about 35,000 customers-11,000 of which are independent tire dealers-from 71 distribution centers in 38 states. Independent dealers represented 75 percent of ATD's business last year.
The spokesman said ATD is in talks with other car makers for similar arrangements, but nothing is finalized. ATD has been involved with Ford Motor Co.'s ``Around the Wheel'' program, for instance, but the GM pact is the first where ATD is the primary supplier.
``We're very cognizant that our independent tire dealer is an important-and will always be an extremely important-customer for us,'' the spokesman told Tire Business. ``But we've got a General Motors that says, `We want to do business with you, and if you say no, we're going to go to another distributor.' Then in this case we said, `Yes.'''
Under the agreement, ATD will be the ``go-to'' distributor for GM dealerships. If ATD is not in a GM dealer's region or doesn't have a specific tire, then the car dealer will go to a secondary supplier. The ATD deal does not replace GM's ``On A Roll'' program where auto dealers purchase tires on national accounts through local tire dealers, but the ATD spokesman said the decision of whether to stay on that program or switch to ATD's is up to the car dealer and GM, which has about 7,000 dealer locations in the U.S. ``GM is the one pushing to try to roll as much through ATD as possible,'' the spokesman added.
GM officials could not be reached at presstime.
ATD did not quantify what revenue it expects the deal to generate.
Clay Griffin, owner of two-outlet Griffin Tire & Auto in Charlotte, said he has bought tires through ATD and its predecessors since the early 1970s. Though he isn't happy about the deal with GM, he said it isn't enough to break his ties with a company that he said has always treated him well.
``It hurts us,'' he said. ``It hurts our business.... But again I understand, I know General Motors; they're going to find somebody to supply them tires, and ATD did.''
But Mr. McCarthy isn't as forgiving of either party. He said he stopped buying Ford vehicles for his company when the car maker started Around the Wheel, and he's ready to do the same for GM. He said he'll hold ATD to the same standard.
``If I find out that they're supplying tires and it becomes an issue, then I'll stop buying tires from them,'' he told Tire Business.
Mike Edwards, owner of Edwards Tire Sales Inc. in Woodstock, Ga., near Atlanta, sees the move as just another in an industry where exclusivity and loyalty have been falling out of favor for awhile.
``I do have a problem with it, but it doesn't really matter whether I do or not,'' he said. ``I mean, they're going to sell to who they want to just like everybody else does.''
Car dealers can be a tempting market, said Mike Patrick, owner of wholesaler Tri-State Tire Inc. in Doraville, Ga., which competes with ATD in the Atlanta market. Though car dealers will get tires from someone eventually, he said he supplies only a couple local dealerships that are not near his tire dealer customers.
``They are direct competitors to people who have kept us in business,'' Mr. Patrick said of the car dealerships.
But the ATD spokesman pointed out that as a distributor it's nearly impossible to guarantee that none of its customers-even among just independent tire dealers-competes with any other customer. ``That's the free market, that's competition,'' he said.
Still, he emphasized that ATD's intention is not to take away any business from tire dealers but instead to tap a growing market that would have grown regardless of ATD's decision.
``We don't have our salespeople out there knocking on GM dealerships' doors, saying you should buy from us,'' he said.
``We certainly don't want our dealers to perceive-because it's not true-that we're out there trying to solicit car dealership business away from them. That's not the case. This is a decision by General Motors of how they wanted to approach this business.''
He said that GM is looking to boost its tire sales in an increasingly competitive new car market where 0-percent rebates and deep discounts have eaten away at profits. ``So they see service overall, including I think tire replacement, as a potential avenue for some growth,'' the ATD spokesman said.
If that push is successful, ATD could have a good chunk of business on its hands.
``At this point in time, all signals are (GM is) going to make this a large initiative for themselves and really try to develop their business in terms of replacement tires,'' the spokesman said. ``And if that's the case and they grow this segment of their business, then it's a significant business opportunity for us.''
In a separate bid to increase business, ATD also has been working to expand its reach in Texas, New Mexico and Oklahoma since its acquisition last July of Big State Tire Supply in Lubbock, Texas. The spokesman said Big State's nine warehouses, ranging in size from 15,000 to 35,000 square feet, didn't have enough capacity. ATD plans to relocate or expand all of those facilities in the coming months.
So far, ATD expanded the Dallas and McAllen, Texas, centers to 135,000 and 53,000 square feet, respectively. The Oklahoma City center was relocated to a 94,000-sq.-ft. facility earlier this month, and the 24,000-sq.-ft. center in Albuquerque, N.M., is slated to move in April to a 64,000-sq.-ft. facility.
``It will really allow us to significantly expand the product offering to those dealers,'' the spokesman said.
On the eastern side of the U.S., ATD chose to consolidate 10 of Target Tire's 11 warehouses into existing ATD facilities that had excess capacity. The remaining warehouse is on the south side of Atlanta. ATD has a facility on the north end, but traffic congestion made deliveries to the other half of the metro area difficult. The spokesman said ATD retained most of Target Tire's employees.