AKRON—The U.S. retail tire market is still struggling to grow in light of the down economy, but with stabilizing raw materials costs and the end of tariffs on Chinese-made tires, many dealers are anticipating a mild improvement in overall business for the coming year.
“I think we're going to see some increases,” said Chris Wyborny, vice president of Hemet, Calif.-based Ramona Tire Inc. “I feel like the economy is getting marginally better. I think that we will see some growth.”
Rick Benton II, vice president of sales and marketing for Whiteville, N.C.-based Black's Tire Service Inc., said he thinks, overall, business will stay the same for a while. However, even though the economy is weak, he pointed out that people still need to drive and will continue to need tires and services—but maybe not as much as before.
Dominic Umek, general manager for Cleveland-based Conrad's Tire Express & Total Car Care, said the dealership was “cautiously optimistic” and he does “expect it to get a little stronger in 2013 vs. 2012.”
As a result of the tariff being lifted, some dealers said they anticipate a resurgence in private brands in 2013.
“I think particularly the independents, we're all looking for a product line that is not so beat up in the market that we can be competitive with,” Mr. Wyborny said.
Retailers aren't the only ones predicting the market will make some gains.
Andy Chalofsky, co-owner of Chalfont, Pa.-based wholesale tire distributor Network Tire Inc., said he believes there is a lot of pent-up demand in the market and expects replacement tire sales—and more importantly margins—to improve in 2013. The end of the tariff on Chinese-made tires will only help, he added.
“After the tariff came off, prices came down not only in the import segment but in the domestic segment,” he told Tire Business. “We saw Goodyear and Cooper and some of those guys giving discounts on stuff. I think our pricing is down. I think the manufacturers are doing more rebates, more advertising, more promotions than they've ever done, and I just really feel that a lot of people got through the last couple years as minimally as possible.”
Mr. Chalofsky noted that while major manufacturers haven't necessarily decreased prices, they have been offering more deals.
“They'll put out eight sizes that used to be $80 and now it's $70 if you buy a truck load, but it's still a lot more competitive.”
As for Network Tire, Mr. Chalofsky said the company likely will increase its purchases of private brand import tires in 2013, as he believes dealers will be able to make higher profit margins on these tires this year.
“It'll subtract a little bit (from the major brands), but at the same time if we make a higher percentage on the import tires I'm OK with that,” he said. “If you're selling an $80 tire and making 20 percent, and now you're selling a $50 tire making 20 percent, you're actually making less dollars. But if now you have a $50 tire and you're making 25 percent or 30 percent, all of a sudden it's not a bad deal, and that's essentially what we're doing.”
Jerry Wright, president of Quapaw, Okla.-based Burggraf Tire Corp., said he anticipates sales will stay fairly flat for the year ahead, but he agreed that margins will improve. Why? “They have to.”
“The tariff just played havoc with everything, and the tire manufacturers increased prices with raw material costs and passed that onto people like us,” he said. “We were not able to pass along all that increase to our associate dealers. Prices have started coming down. Of course the manufacturers have held onto a lot of that margin, and I know people like us have been out there screaming that we need some relief.”
Mr. Wright said he has seen a few price reductions from tire makers so far, but “as a buyer on the wholesale side, we try to wait it out until we think it's the bottom of those price declines before we commit to a lot of inventory.”
Mr. Wright noted that in some respects the Chinese tire market is probably better off as a result of the tariffs.
“I think the one thing the tariff probably did is it weeded out the Chinese manufacturers that weren't very good,” he said. “It wasn't an anticipated outcome, but I think it's going to end up making the Chinese manufacturers stronger because the only ones that are left are good ones.
“...We just don't want to see people extending their time in driving tires that become unsafe. We like American products obviously as an American company, but if they have to buy a Chinese product and that's the only thing they can afford, we'd rather they drive on that than be driving down the road on cords, risking their lives.”
Some dealerships said they expect to see some growth resulting from expansion projects.
And many are still making significant capital improvements, including updating current locations and purchasing more, even in the downward economy.
“It's the people that are willing to invest in themselves in the hard times that are going to reap the benefits in the good times,” Mr. Chalofsky said.
He noted that Network Tire, which already added a satellite distribution center in Allentown, Pa., in 2011, is negotiating a deal to add its third warehouse this year. The new facility will be located in Redding, Pa.
In addition, Mr. Chalofsky said his SimpleTire.com online retail tire business has continued to grow at a rapid pace. In 2013, the company will begin airing TV commercials and will launch a billboard campaign.
Mr. Umek said Conrad's did a variety of things to improve its locations and the company plans on continue updating throughout 2013.
“I think like most organizations, there's always a list longer that you'd like to do than there is money available to do,” Mr. Umek added.
John Miller, director of retail for Monroe, Ind.-based Best-One Tire & Service, said Best-One has made a number of acquisitions last year across the board, including: Illiana's Best-One in Paris, Ill. and Best-One's Action Tire in Wyoming, Mich., in the retail sector; and Best-One Fleet of West Michigan, Wayland, Mich., and Best-One Fleet of West Michigan in Holland, Mich., in the commercial sector.
“We plan on adding new wholesale, commercial, and retail locations in 2013,” he said, but he could not share specifics.
Mick Pickens, president of St. Cloud, Minn.-based Royal Tire Inc., said the company is planning for growth of 8-10 percent in 2013, most of which will be through acquisitions and entry into new markets. He said he does not believe the industry will be up this year.
Mr. Pickens said 2012 was Royal Tire's largest capital spending year in the history of the company and the capital budget for the 2013 is “somewhat greater than our capital spend was in 2012.”
Other businesses also spent capital funds for improving equipment in shops for 2012.
“We did upgrade all our alignment equipment in all of our stores last year,” Mr. Wyborny said. “We put the Hunter HawkEye Elite Pros in all of our locations, which has been great.”
Mr. Wyborny added that Ramona Tire will be adding three locations in California in 2013: San Clemente, in about a month, Belmont, in about six months, and in Rancho Cucamonga toward year-end.
Not all industry segments are performing on equal footing in the current economic climate.
Dealers saw mixed results in the wheel business for 2012, as some said sales were fair and others said sales in that segment nearly disappeared altogether.
“The wheel business, when the recession hit, really just fell off the face of the Earth,” Mr. Wyborny said. “And for us, it hasn't come back at all. People are fixing their cars and buying their tires, but the discretionary spending on them is pretty much non-existent still.”
Paul Couture, president of Mesa, Ariz.-based Advanced Auto Service & Tire Centers, said that the company's wheels revenue is also insignificant, but that its maintenance sales are improving.
Other companies said their wheel business has been decent throughout the past year, along with their used tire business—that is, when they can find quality tires to sell.
“Wheel business is fair,” Mr. Benton said. “Used tire business is good but just hard to find good used tires.... Tire prices are really important now to consumers.”
Some dealerships are looking toward the retreading segment to grow since the supply for used tires is lacking.
“Wheels and used tires did well in 2012 but supply on the used side limited the amount of growth we had,” Mr. Pickens said. “We expect the same in 2013. Retreading was very strong for us again in 2012 and we expect another record year for retreading in 2013.”
The winter tire business is another segment that has been meager in many areas of the U.S. For dealers affected by lackluster sales last winter, a surplus inventory was left with hopes this winter would balance out sales.
“We're still believing we'll move a quantity of those tires.... We've seen years where the real heavy winter weather didn't come in until January, and in those years, when that's happened, whatever snow tire business and other tire business we didn't get in the fourth quarter ended up showing up in the first quarter,” Mr. Umek said.
Mr. Pickens noted his dealership had significant winter tire inventory left over from last year.
“We have had good snowfall in Minnesota in December of 2012 and have moved most of that inventory,” he said. “Customers are starting to recognize the benefits of snow tires.”
But that isn't the case everywhere.
Mr. Chalofsky said while he believes last year's mild winter and equally mild conditions over the last few months have contributed to a decline in winter tire sales in his area, consumers in Network Tire's area of coverage are simply less and less inclined to invest in them.
“If you have a really nice vehicle or even if you have a decent vehicle, snow tires can easily be $600 or $700 for a set,” he said. “Most people, if they're going to be inconvenienced, will just take the day off or work from home. Every year we sell less and less snows.”
“...The only thing that I think is going to change it is government regulation, like in Canada where they're required to put winters on,” he continued. “Then you would have an abundance of winter tires sold. If I was Bridgestone, screw marketing, just go and lobby right to the government. That's your best bet.”
With the economy still not fully recovered, businesses are hesitant to hire in any significant amount, but most are still open to hiring qualified employees.
“We're staffed at our desired levels right now for the volume that we are doing. But I think like any other auto repair and tire service, we are always hiring competency,” Mr. Umek said. “We'll find room for impact players on our team at any time, but we are fully staffed at this point.”
Mr. Couture said Advanced Auto is hiring, but in very small numbers.
Businesses that are expanding and/or acquiring are looking to hire to be able to staff new locations.
“We are hiring...more for our expansion than for our existing workforce capacity,” Mr. Wyborny said.
“We are currently hiring for a number of new positions and we anticipate more hiring going forward,” Mr. Pickens said. “Our strategic plan calls for hiring at all levels from entry level to middle management.”
The ever-changing topic of healthcare costs is also on the minds of dealership executives as they wait to see how they will be affected as the 2012 Affordable Healthcare Act is rolled out over the next few years.
“We continue to evaluate our healthcare plan just like everybody else that's operating out there,” Mr. Umek said. “Our challenge is that we need for all the regulations to be written.... They are not completed yet.
“We're taking a very cautious approach to a healthcare coverage in general and just trying to wait for the dust to settle.... It's still quite cloudy where all the regulations are going to end up and the net impact to us.”
Mr. Wyborny shared a similar sentiment, saying Ramona Tire is in a “wait-and-see mode” as it anticipates how any changes will affect the company.
Mr. Miller said that Best-One Tire is self-insured and has been making many changes over the past five years.
“We have managed to keep increases down to about 4 percent per year,” he added.
Many dealerships have seen healthcare costs increase and are working to figure out the best solution.
“We are in the process of analyzing this,” Mr. Pickens said. “What we see doesn't look good for the employees or the company. We will do our best to minimize the impact to our employees.”
Mr. Benton said he is worried about healthcare costs because employees just can't afford any increases and that “it is very tough for a company to absorb these cost(s). We just can't.”
Mr. Couture agreed that Advanced Auto's healthcare costs are rising, but the company is staying with its current coverage.