AKRON (March 13, 2006) — Tire dealers serious about making money know that sometimes selling tires just isn't enough.
For those who are tired of thin margins on tires and price competition from mass merchandisers, selling warranties on products and services can be a nice boost to the bottom line each month.
“There's money to be made in road hazard warranties offered through the dealer,” said Mike Cox, president and CEO of Juno Beach, Fla.-based Independent Tire Dealers Group (ITDG). “It does certainly impact their bottom lines as far as gross profit.”
“I think the warranty in some cases helps level the playing field with bigger competition and with other people in the marketplace,” said Dave Crawford, director of marketing for American Car Care Centers Inc. (ACCC).
Mr. Crawford, whose marketing group offers dealers warranty programs on tires and auto service, said small independent dealers who participate in a nationwide warranty definitely can compete against national chains for customers. For example, he said that if a customer comes into a tire dealership for a brake job and that dealer's price quote is higher than another shop, the tire dealer can explain that among the reasons for the higher price is a nationwide warranty on the parts.
ACCC offers the Freedom Plan, a tire warranty program that essentially is a complete tire protection package, according to Mr. Crawford, comprising free replacement for 12 months or 12,000 miles, free roadside assistance, treadwear and road hazard protection, free tire rotations and flat repair.
Potential sales for tire road hazard warranties can be quite lucrative for dealers depending on where they operate, Mr. Crawford said. He cited a common example ACCC gives its dealers on the Freedom Plan: If a dealer sold an average of 250 tires a month and sold road hazard warranties on half of those tires at $7.50 each, that would amount to roughly $11,250 in additional profit for the year.
“Now that's for a small dealer who only sells half the customers who come into the store,” he explained. “You do your math,…put your own numbers in. How many tires are you selling? What percentage do you think you can get times what dollar amount?”
Mr. Crawford noted that the $7.50 price for a warranty seems to be a basic price level that many dealers he knows charge.
ACCC also guarantees auto service work for up to six months or 6,000 miles nationwide and offers extended warranties on brakes, shocks and struts. But auto service warranties are already part of ACCC dealers' package deal for joining the group and not an add-on sale, he said.
Although parts and labor warranties can't be resold by dealers because of insurance regulations in many states, dealers still can take advantage of using those warranties to stand behind their work, said Michael Jones, chairman, CEO and president of Golden, Colo.-based Sonsio Inc., a national automotive aftermarket warranty service provider.
“It's a great leverage tool for that dealer when they're actually delivering the vehicle to reinforce you made the right decision,” Mr. Jones said. “You came here and fixed your car and if you happen to have a problem, here's what you're going to do.”
Like ACCC, Sonsio has a national network of dealers who sell road hazard warranties, including Gemini, Firestone Complete Auto Care and independent tire retailers, he said. The company also offers warranties on other aftermarket parts through NAPA dealers, and Mr. Jones said Sonsio's total aftermarket network exceeds 25,000 repair facilities.
“What dealers will do is buy from us road hazard stickers that they affix to the invoice, and they buy those from us at a wholesale rate and mark it up,” Mr. Jones said. “A rule of thumb that seems to be in the industry is that you sell it for 10 percent of the tire price.”
Mr. Jones estimated that dealers can make $5 to $8 of additional profit per tire, but that doesn't include profits from repeat customers or customers referred to them by Sonsio. “There's a number of ways to make the program pay because you've got the customer back in there to make sure their car's in good operating condition,” he said.
In January Sonsio debuted a program where its dealers offer customers a 90-day roadside assistance program for free as a thank-you for their business and an invitation for them to come back for service work, Mr. Jones said.
Sonsio charges no initiation fees for dealers who join the road hazard program, but they do pay a monthly fee to belong to the repair parts and labor network, he said. Dealers receive training and marketing help from Sonsio as well.
Both Messrs. Jones and Crawford agreed that selling warranties is only as hard as a dealer or salesperson makes it.
“Those who sell it on 80-90 percent of their volume, they have a very specific process where they include it in their quote to the consumer,” Mr. Jones explained. “The people who struggle most with it are those who use it as an, 'Oh, by the way, we have this road hazard program that will protect you.'”
Mr. Crawford said that if dealers believe they're giving customers value with warranties, then they should assume the sale.
“If I sell you a set of tires, and I come in and say the tire package will be $400 for these four tires mounted, balanced, valve stems, the whole nine yards, and you say, 'Ok, go,' then I come back afterwards and say I've got this cool warranty. Your mind's already made up because it's $400. That's locked in the mind.”
Training employees to sell warranties also doesn't have to be complicated, Mr. Crawford noted. As with anything else, dealers need to train their salespeople on the features and benefits of the warranty and encourage them to go for the sale. Mr. Crawford suggested having employees role-play selling warranties to customers. Spiffs also tend to be effective training tools.
“Spiffs always work,” he said. “You can train all you want but if you train somebody and then hang a dollar bill out in front of them, they say, 'Ooh that looks pretty cool.' And they're going for it.”
One tire dealer who doesn't depend on national warranty programs but offers his own road hazard protection is Richard Howard, owner of Fremont, Calif.-based Bruce's Tire Inc. Mr. Howard operates a five-store chain in northern California and generally sells a road hazard warranty at 10 percent of the tire's price.
He admitted he's at a bit of a disadvantage because he's not part of a national warranty network, but he has reimbursed customers who got flats outside of his service area. As president of ITDG, he also has referred some customers to the nearest ITDG dealers for service.
Bruce's Tire has offered road hazard warranties for the past 15 years and guarantees the tires up to the same mileage as manufacturers' tread wear warranties, Mr. Howard said.
“You can have some very expensive tires that are affected by road hazard and some that might not be as profitable, but we haven't had a month where it wasn't very profitable,” Mr. Howard said. He added that his bottom line is boosted annually by half a percentage point thanks to warranty sales.