Ed's Tire Factory pay scheme brings dividends
MEDFORD, Ore.—How do you beat an 800-pound gorilla at his own game?
Ed Miller would probably answer that you try to provide as close to as many bananas as your biggest competitor does. Translation: Ed's Tire Factory Inc. knows the moves of ever-present Les Schwab Tire Centers Inc.—what the Northwest's largest tire store chain pays, what its employees and ex-employees are saying about it. Then he offers as comparable a package as he can afford.
Granted, Mr. Miller is owner and president of a sole tire store. But he's got some built-in muscle via membership in the Northwest Tire Factory marketing group of 240 independently owned tire stores. It's an entity that he said is “real diversified,” with members going their own ways when it comes to things like wage and benefit packages. There is no party line to toe.
Though Tire Factory began as a buying group, it has transitioned into a marketing entity, and that, Mr. Miller said, “has met with some resistance. Some older dealers will say, ‘We've done it like this for 20 years.'”
But, he added, “we're making some great progress and I think we're headed in the right direction.”
Ed's Tire Factory has been in business since 1966, and from his more than 40-year industry observational vantage point, Mr. Miller has been able to fine-tune how he pays employees. “Over the years, it was a raise ‘just because you were here.' Then you gave a raise ‘because you do a good job, or a better job.'
“That also breeds unrest as well. We try to get our employees up to livable wages plus end-of-year profit sharing. It doesn't have to be the same percentage to every person, but you reward the people who produce the most.”
After years of tinkering with what works best, the dealership has stuck with a profit-sharing plan that varies from individual to individual.
“You set aside x-amount of dollars when you're doing your taxes the year before,” Mr. Miller explained. “Whatever your profit is, sometimes we give half of it away, sometimes a third. You have to determine by the April 15 tax deadline because it affects your taxable income.
“Then you must determine, as far as the distribution of it, who gets what.”
For 69-year-old Mr. Miller—who still works full time and is “lovin' it”—the success of the program hinges on the performance and production of the individual and “how good a job they do,” rather than time spent on it. “Some people progress faster than others. Therefore, they shouldn't be raised on an equal basis but rather on how they produce, how effective they are with customers and all that.”
The company has not had to cut back on wages or benefits in the past year, despite a flagging economy. Normally, Ed's Tire will let attrition take its natural toll on the work force. But for the first time in 43 years, Mr. Miller had to lay off two persons in January because the economy “was looking pretty ugly for a while.” He has since brought one worker back, initially for a couple of days a week, then full time.
Business for the dealership has been flat for the year, yet profitable—“my cash flow for the year is better than in 2008,” he said, “and we just had our best April ever and best July ever in our history. It has fluctuated up and down.”
The outlet has no store manager, per se, drifting to a four-person management team “that has worked best for me—and it's only taken 30 years in the making to develop,” he mused. Instead, the shop's overseen by a sales manager; office manager; shop manager who does all the hiring; and a front-end brake manager. Mr. Miller acts as general manager.
In speaking with Tire Business about what each employee makes, Mr. Miller decided to keep the numbers unpublished since each manager signs a confidentiality agreement not to disclose his or her salary. Nonetheless, he said he is paid approximately $80,000 in wages from the tire store but has other income including rentals. He owns the four-acre property the dealership is on and leases part of the site to a restaurant and a used car lot as well as two acres behind his store that are developed for small business.
Profit sharing is disbursed at year-end in conjunction with Christmas bonuses. Employees “know it's coming but don't know how much,” he said. “We use profit sharing as an equalizer.” The company offers no 401(k) plan.
Although the dealership has “always made money,” that has varied. In its lowest ebb, one year the store made only $28,000—“I gave $20,000 back to the employees,” Mr. Miller recalled. “You put it back into the business one way or another. I like to try to get employees where they're at a livable salary.”
That means those who get raises “are the guys on the bottom end. They start at only $10 an hour but who can work for that? We work them up to $12 in a short time, then up to $13 to $15 an hour.”
The 15-bay outlet employs 17—down from a high of 24, as Mr. Miller admitted, “We're becoming more efficient.” It has annual sales of $2.7 million.
“We pay 100 percent of the health insurance for all employees, so we've had to become more efficient,” he said. Workers pay all of the cost for family members' health insurance and the company pays the premium for life insurance. It also operates a self-insured dental program for employees and family members. “We set it up, so we can regulate it and pay as big a benefit as we want,” he said.
Mr. Miller noted the importance of “reminding your employees periodically about the cost of benefits to the company.” Otherwise, “it becomes an entitlement or they take it for granted.”
Keeping employees motivated has always been a challenge, he said. “You try to keep pride in their workmanship. One thing we're really strict on and a little anal about is the shop and how clean it is and how good it looks and how comfortable it is for customers.”
Some new types of dealership store designs are what he called “cold and clinical-looking.” On the other hand, Ed's Tire has warm-colored burgundy carpet on the walls as a backdrop for the wheels hanging on them, oak trim, paintings and a few tire posters in matching oak frames. Its restrooms feature granite counters—“We get tons of compliments about the bathrooms,” he said.
In addition to a large showroom and waiting room—with a window through which customers can watch their cars being worked on—the store also has a kids room stocked with toys. Parents can sit apart from their children, “get some relief” but still watch them through a Plexiglas window.
Besides tires, the outlet does brakes, shocks, alignments, fluid flushes and, in a separate building, exhaust work, though Mr. Miller acknowledged that is a dwindling part of the business, due in part to the superior longevity of original equipment exhaust systems.
While considered a retail dealership, Ed's Tire services what Mr. Miller calls “white van” fleets—small fleet accounts that include taxi companies and buses. When not busy, the muffler installation building can be used for motor home maintenance and some occasional commercial tire work as well.
Mr. Miller said an employee's longevity with the company factors a little into his or her pay package, “but it's not everything…. I see it in some places where they have a guy who's been there a long time but he's gotten a whole lot less effective.
“They never let him go. He's a cranky old fart and he's bad for customers—he drives them off. He's inefficient but he gets a lot of money because he's been there forever.
“You know, that's not right. Yes, there's something to be said for loyalty, but is that loyal or isn't it when you're hanging on to that job…but you're driving my customers away? How loyal is that?”
Because Ed's Tire carries accounts for companies with 30-passenger buses, all its employees must undergo state DOT-mandated drug tests—Mr. Miller himself was tested twice in two months—at a cost of $60 for each test. That requirement can, however, create problems. He has seen a number of talented technicians, for example, move from California into his area seeking work. Some have brought drug problems with them. Getting hired is a high hurdle most have a problem getting over.
“If you're really interested in getting off drugs, if (an employee shows) any interest at all, we'll pay for rehab,” he said. But the concern is that a drug-addicted employee can expose the company to huge liability issues.
Mr. Miller takes pride in offering a decent wage and benefits package, and like the return of snowflakes and studded tires to the Northwest, he said he regularly gets “a big onslaught of Les Schwab employees looking for work every winter when things slow down before and after Christmas.”
A company-owned chain like Schwab “looks at things differently than an independent,” he noted, so if he were to hire an ex-Schwab employee, for instance, “they have to have a certain number of things trained out of them” in order to function well in an independent environment. He has hired some in the past, but many haven't worked out as well as expected, and most return to Schwab when the weather breaks.
“We try to keep pretty close to what Schwab pays. That's what we base our pay on,” he said. “I learn things from (Schwab) employees who come here and others who've worked there. We keep up with Schwab, which pays fairly well.”
He observed that “we pay higher than two competitors on either side of me.” And competition is plenty in Medford: a Sears Auto Center, two Wal-Mart Stores Inc. outlets, one Costco Wholesale Corp. store and three Les Schwab outlets, plus “about three good independents.”
For Mr. Miller, who began his career in 1958 working in an OK Tire recap shop in Twin Falls, Idaho, the business continues to change and evolve. He said he's “very optimistic” about the Northwest Tire Factory group, which celebrated its 20th anniversary a few years ago and is holding an open house Aug. 27-29 at a new 100,000-sq.-ft. warehouse in Salt Lake City. He's been on the group's board since its inception. It “has been going good and has a lot of good talent,” he said.
Meanwhile, Mr. Miller still clocks in at his dealership every day and still sells at least three days a week, especially to a lot of his longtime customers. It keeps him on top of trends and, he acknowledged, “it's important to me to continue to be one-on-one with my customers.”
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