AKRON (March 2, 2009)—Ever since the housing bubble burst a couple of years ago and set off a chain of events that has led to the current recession, lenders have been tightening consumer credit by cutting off credit lines or raising interest rates.
All this means that tire dealers who offer auto service may need to offer cash-strapped customers longer financing terms for big-ticket purchases, according to Bill Newton, a consultant with Coface North America Corp., a collections agency that services Tire Industry Association (TIA) members.
“The tire industry is being affected and the vehicle maintenance industry is being affected to some extent because people are putting off,” Mr. Newton told Tire Business. “They are not buying the tires every 40,000 and 50,000 miles as they would have on a routine basis before and not getting the tune-ups once every six months or every year.”
Mr. Newton founded Newton & Associates, a collections firm that he sold to Metarie, La.-based Coface in 2006 and served as CEO of the new collections company until he retired last December. He now operates Q&A Consulting L.L.C. in Metarie and primarily works with Coface, which represents about 400 tire manufacturers, distributors, retreaders and retailers.
Based on statistical data Coface has collected, Mr. Newton said trends show consumers just aren't buying much of anything in any retail segment but are trying to hold on to cash for necessities. Some consumers are waiting for tires to go bald, changing motor oil themselves or asking friends to perform routine maintenance for them at a cheaper price.
“Now I'm sure, from a vehicle maintenance standpoint, if the yellow light comes on and says they have to go do something, they are going to consider that a necessity, an emergency and go get it done,” Mr. Newton said. “But on the optional (maintenance), they're not doing it. They're putting it off until the last minute.”
This trend of procrastinating retail purchases, including in the automotive aftermarket sector, varies depending on a state's unemployment rate, Mr. Newton said. “We are of the opinion that as the state's economy goes, so does the credit and collections.”
Mr. Newton, a nearly 40-year veteran of the collections industry, said the credit situation today is very similar to the recession of the early 1970s, when mortgage rates doubled within two years and interest on bank savings accounts fell to a minimal amount.
He recommended that tire dealers offer credit lines with extended terms or at least terms that fit the state of their local economy. In some cases, that may mean developing an in-house financing program because banks and other finance companies no longer are willing to offer extended credit, except at high interest rates, he said.
“They're taking too many losses,” Mr. Newton said of credit card companies. “They're trying to stop the bloodflow.”
Dealers may want to consider packaging together tire sales with discounted or free services, such as oil changes, he said, to attract customers into their shops.
A TIA spokesman told Tire Business the trade group always is looking to sign more dealerships to its CarCareOne program, a 90-day, interest-free credit card. So far, about 547 TIA members participate in CarCareOne, and the 2008 average first-use ticket for cardholders was $800.
“I think it has several very strong selling points, especially in this economy,” the spokesman said.