McCarthy Tire Service Co. Inc. has entered the off-the-road (OTR) tire retreading market by acquiring its longtime OTR tire retread supplier, Walters Tire Service Inc. of Somerset, Pa.
The deal, which closed last September, ``made sense'' as McCarthy Tire already accounted for 40 percent of Walters Tire's retread business, according to President John McCarthy Jr. The Wilkes-Barre-based dealership had not retreaded OTR tires prior to this buyout even though it sells new OTR tires.
Walters Tire operated an OTR retread plant and a commercial tire service center from the same 45,000-sq.-ft. location in Somerset. Jim Walters, 59, formerly president of Walters Tire, now manages the plant for McCarthy Tire, and he said he intends to stay on with McCarthy Tire for the next five years.
``McCarthy was a natural choice to do this deal,'' Mr. Walters said. ``They're family owned like we were, and it seemed the best option for me and my employees. McCarthy helped us grow a lot through the years.''
Mr. Walters' father, B.F. ``Bud'' Walters, founded Walters Tire in 1941. Mr. Walters told Tire Business that in addition to his long-standing business relationship with McCarthy Tire, he decided to sell his company because he was nearing retirement age and had no successor.
Walters Tire posted $5.5 million in sales in 2006, and Mr. Walters projected that 2007 sales held steady at that level.
The Somerset location now is known as McCarthy OTR Retreading Inc. Since the deal closed, McCarthy OTR has added a new kettle and enveloper to support the recent addition of Bandag Continuum precure OTR treads, Mr. Walters said.
McCarthy Tire gained customers in the construction, mining, waste hauling and quarrying industries through the buyout, he said. Three service trucks operate out of Somerset that focus only on OTR tire service calls. McCarthy OTR has the capacity to handle repairs on tires up to 57 inches in rim diameter, Mr. Walters said.
In the past month, Mr. McCarthy said the dealership has added about $500,000 worth of equipment to the Somerset plant with the intention of augmenting capacity. The facility in 2007 produced about 42 units per day.
``We've exceeded our projections every month so far,'' Mr. McCarthy said of the new retread business. ``It's been a great move for us.''
In addition to the Walters acquisition, the dealership opened two commercial stores last year-a 20,000-sq.-ft. facility in Pittsburgh and an 8,000-sq.-ft. store in Duncansville, Pa., each an hour's drive from Somerset, Mr. McCarthy said.
OTR retreading this year has continued to be strong despite a slowdown in the construction market, he said.
``I think in some instances, when the economy gets worse, people are not buying as many new tires,'' Mr. McCarthy said. ``They're trying to retread everything they can.''
Despite the flow of low-priced Chinese OTR imports into the U.S. market, Mr. McCarthy said he is not buying OTR tires from China.
``We sell Bridgestone/Firestone and Titan. Those are all very retreadable casings,'' he said. ``I think one of the reasons why the Chinese product took off is because there was such a shortage that it filled the void when you couldn't get other product.''
He added that major OTR brands are becoming more available to the market, and if OTR tire customers are running sound tire programs, then they will stick with major brands that can be retreaded ``because in the end, their cost per hour will be the cheapest if they are able to retread.''
OTR tire sales remain steady, but Mr. McCarthy said he expects sales to slow down soon because supply is improving and ``people aren't stockpiling like they were in the past.''
The overall economy concerns Mr. McCarthy, who noted that his company's expenses are rising, and ``we really need to keep a close eye on expenses and we need to work smart.''
Besides OTR retreading, Mr. McCarthy said the dealership's medium truck tire retreading business rose 5 percent during the first quarter over the same period in 2007. The firm has four Bandag retread plants that produced 875 medium truck tire and 132 light truck tire units per day in 2007.
McCarthy Tire has 10 commercial outlets, 18 commercial/retail outlets and two retail-only stores in Pennsylvania, Maryland, Virginia, New Jersey and New York. The company posted sales of $160 million in 2007.
Tire Business Special Projects reporter Bruce Davis contributed to this report.