GREENVILLE, N.C.—It didn't take long for tire dealers across the U.S. to react to the news that Michelin North America Inc. is planning to dive into direct-to-consumer online sales with its BFGoodrich brand—and for many that reaction was one of concern.
“My initial thought was this isn't going to be good for me,” said Blake Breeden, owner of Boulevard Tire & Service in Kansas City, Kan.
Mr. Breeden, whose dealership is a member of Mich-elin subsidiary Tire Center L.L.C.'s T3 dealer program, said he feels like the change puts him in competition against his supplier, something Michelin denies is the intent.
“We are not launching this program to compete with dealers,” a Michelin spokesperson told Tire Business. “Because Michelin doesn't own any of our own retail stores, this program is successful when we partner with our retailers. To this end, we have no intention of causing disruption in the market.”
Mr. Breeden isn't convinced that can be avoided.
“(Michelin) can obviously sell it cheaper than you can, so I had more questions than anything else,” Mr. Breeden said. “What kind of pricing are they going to be offering online? Because if they're going to offer a price cheaper than I can buy them for I've got a real problem.”
Michelin has yet to disclose pricing for BFGoodrich tires it will sell via its bfgood-rich-tires.com website—a program scheduled to launch in Septembe in the greater Charlotte, N.C., area—but did say it will offer a consistent, national price for all of its products sold online.
Mr. Breeden cited several other areas of concern regarding the program, notably wondering how much he'll receive from installations, how dealers will be paid and whether or not such installations will count toward his tire purchase requirements.
“As a T3 dealer I have purchase requirements in terms of volume to get the benefits of the program,” he said, adding that his other questions weren't answered, nor could his local representative offer any answers.
“All they could say was, 'Well, the first market's going to be out in Charlotte in, like, November, and then we can all learn it from there,' which sounded really stupid, but at least it was an honest answer,” he said.
According to Michelin's spokesperson, the tire maker is in the process of signing up service partners in the Charlotte area, with communication efforts regarding program details being focused directly on its dealer network. Those who are interested should direct questions to their Michelin account manager, he added.
Following the announcement of its plans for online tire sales, Michelin COO Scott Clark addressed some key concerns of dealers in a letter sent to industry trade media.
“Today's consumers clearly expect to shop and purchase when, where and how they choose,” he said. “This means they also expect seamless online access to research key product information, to learn the total price and to execute the transaction, if they choose, with installation at one of our service partners.”
Regarding the issue of pay, Mr. Clark said in his letter that labor rates on tire installations will vary based on the complexity of the installation, with larger, heavier tires earning a higher labor rate than tires for passenger cars.
He noted the firm doesn't plan to publish labor rates for “competitive reasons,” but installers will have full access to the rates—including installation, tire disposal, TPMS, environmental fees and taxes—in their agreements.
Mr. Clark also addressed the timing of pay. Using the BFGoodrich website, when a service partner validates that an installation is completed the first paper check will be “mailed promptly” with an estimated arrival of about a week, he said. After receiving the first payment, dealers will have the option to enroll in direct deposits.
“So it's the same as cash, which is a much better option than a credit for most small businesses,” Mr. Clark said.
However, Barry Steinberg, president of Watertown, Mass.-based Direct Tire & Auto Service, called the move a “cash flow killer” for dealers, providing this hypothetical scenario:
“What they want to do is they want to pay me, say, $80 or $90—it doesn't really matter—to do the service on tires we didn't sell, and then they're going to give us this commission for doing it,” Mr. Steinberg said. “Let's say it's $100. Let's say it's an $800 set of tires—hypothetical numbers, so do the math.
“I buy that tire from Michelin for $125 normally,” he continued. “Let's say I sell it for $175, so the set of tires costs me $500 to buy and I'm making $200 profit plus various mount and balance (fees). Let's say the sale turns out to be $850 with sales tax, recycling and balancing, and maybe I sold them a warranty or whatever—now I would have that $850 to put in my bank, pay my guys, pay my bills, pay Uncle Sam and maybe pay for some advertising.”
An installer fee like what Michelin is proposing can still generate a decent profit, Mr. Steinberg said, but it doesn't leave a business owner much money on hand.
When Direct Tire sells a set of tires, “I've got that $850 in cash flow to work my business with, to run my business,” he said. “What they're giving me is a lousy $100. What's that gonna do for me?... Regardless of how much they pay me, they've taken $850 in one simple transaction out of my cash flow, and they're gonna multiply that by thousands of guys.”
Alpio Barbara, owner of Redwood General Tire Pros in Redwood City, Calif., said he wasn't surprised by Michelin's online sales plans and isn't enthusiastic about it, but is not overly concerned about its impact on the industry, either.
“If you're a good dealer, people are going to come buy from you or they're going to get it mounted (by you),” he said. “I'm not going to fight city hall. (Michelin's) going to do it, and I'm going to get the mounting and the balancing and hopefully an alignment out of it.
“Do I like it? No—it's another competitor out there for me,” he continued. “But I'm not gonna win the battle. It's just like when they started selling to the car dealers. Yeah, you might go there once, but you're not gonna get the service you'd get from an independent tire dealer.... It's just the way it is, the way of the future.”
Michelin also announced it plans to eventually sell Michelin-brand tires online as well.
Mr. Steinberg said ultimately he believes Michelin's decision was generated by concerns over market share, but he doesn't believe the company can boost sales this way in a market that's not seeing major growth.
“If Michelin thinks they're going to send more tires into the Boston market doing this than with the format they have now—and shutting ATD (American Tire Distributors) out of this whole thing, their biggest customer in the world—these guys are out of their minds,” he said.
“...We sell a lot of Michelins because we're in the Boston market and there's a lot of higher-end cars, but if you walk in the door and you want a set of four tires, it is very unlikely we're going to sell you a set of Michelins. There are too many other options that are as good at less money with probably better warranties. It's better for the consumers and better for us.”
Mr. Barbara added that many manufacturers today build very good tires and that his Michelin sales have declined over the last 18 months.
“It's not just the Big 3 anymore,” he said. “I sell a lot of tires—probably 6,000-7,000 a month I think, maybe more—and I don't put the same tire on all the cars....”
He speculated national pricing on Michelin tires could actually backfire for the firm, prompting more dealers to “sell off of Michelins” rather than selling them. “When a guy says, 'Well, I can get these on the Internet for so much,' we might try to find you something lower priced.”