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June 29, 2020 08:00 AM

Mid-Year Report: Ag market helps Zurcher survive spring disruption

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    Zurcher Tire Inc. photo

    Monroe, Ind.-based Zurcher Tire operates 10 distribution centers serving Indiana, Illinois, Iowa, Kentucky, Michigan, Missouri, Ohio, Tennessee and Wisconsin.

    MONROE, Ind. — The agriculture market helped wholesaler Zurcher Tire Inc. weather the storm of the stay-at-home orders in March-May, according to Carson Cornelius, Zurcher's chief development officer.

    Monroe-based Zurcher Tire operates 10 distribution centers serving Indiana, Illinois, Iowa, Kentucky, Michigan, Missouri, Ohio, Tennessee and Wisconsin.

    Q How would you describe business thus far in 2020?

    A 2020 was off to a strong start, even for January and February being lean months in our area as it's before planting really begins, we were well ahead of 2019. Momentum continued in the first part of March, but by the middle of the month, when news started breaking about the spread of the coronavirus, a lot of consumer tire business evaporated.

    Agricultural tires, which account for over a third of our sales, helped carry us through March and April. May has been a pleasant surprise as consumer tires picked back up, but we are off the pace we wanted to be on in 2020.

    Q How has Zurcher Tire been impacted by the pandemic?

    A We are fortunate. Our team has been healthy. Most of our communities have not been overburdened. We have been more so impacted by consumer sentiment and rapidly changing legislation. The rules by which we are playing seem to be changing daily in March and April. Our focus is on continuing to keep our team healthy and trying to offer our customers the same high level of service they expect from us.

    Zurcher Tire Inc. photo

    Carson Cornelius

    Q What type of practices has your company implemented in light of COVID-19? Do you expect to continue these for the duration of the year?

    A We've asked the team members to work from home that can work from home. Some of that will continue. We're providing masks and hand sanitizer for our delivery, office and warehouse employees. We've changed how will-call business is conducted at our locations.

    We've stepped up our cleaning regimens to CDC guidance. Most of these practices will continue as long as they are recommended. Some will become permanent.

    Q Have you cut back on the number of daily deliveries to your customers? By how much?

    A We have not for the most part. One location of ours in a highly populated city did alter its delivery schedule, but otherwise we have mostly kept the same service schedule. We did not over commit ourselves before this, and that made it easier for us to maintain a consistent presence.

    Q Do you expect to return to your pre-pandemic delivery schedule?

    A Yes. The question we have for the urban distribution center is when do we go back to what we were doing before. We don't have that answer yet.

    Q Do you expect any tire supply difficulties in the second half of the year?

    A It's tough to say. On one hand, we're seeing some issues now with tires coming on a similar frequency as before, but that seems to be more logistics related than capacity or inventory.

    Some of the slowdown in production in Asia might influence this. OE greatly impacts the replacement market. So any drop in OE demand creates surplus inventories and that might offset any shortages later this year. It will depend on new vehicle sales, most likely.

    Q The USW has petitioned for antidumping and countervailing duties on passenger and light truck tires made in South Korea, Taiwan, Thailand and Vietnam. What is Zurcher Tire's reaction to that?

    A Production in America is important, but I don't think imports from these countries rising is related to anything other than a shift in production from China. These aren't units that were in America in 2018, and now they are in those countries instead of China.

    The tariffs pushed these units into those countries, and there is nothing to support that these countries are subsidizing production of tires the way China was. I understand protecting manufacturing in America, but tariffs are never the answer. Smoot-Hawley (Tariff Act) taught us this lesson in 1930. Tariffs only hurt the American people.

    Q How might additional duties impact the industry?

    A They will cause price increases through each channel of the industry. They might shift more production to other countries not listed in the petition. Short term, we might see some brands in America pick up, but long term the producers will try to find ways to lower their input costs. That means not producing in the most expensive countries.

    Q What kind of trends are you seeing in the wholesale business for the rest of the year? How is Zurcher Tire reacting to them?

    A Technology continues to be an important piece of the wholesale industry. We are working on some exciting ways to make it easier to do business with Zurcher Tire. We're increasing levels of automation in our computer systems and trying to remain a resource for our dealer base.

    Q What tire sectors look to be strong? What sectors are struggling?

    A Consumer continues to be lower than we expected. Commercial tires and construction are fine now. We'll be closely monitoring commercial and construction tires in the second half. That will give us a barometer for 2021.

    Agriculture is essential. America must eat. So we look for ag tires to be consistently in demand. We might just continue to see farmers look at alternative brands for value options.

    Q What are some of the challenges for the wholesale market going forward?

    A With all the different sizes, I worry about having the physical plant and capacity to be able to efficiently meet the market needs. We find creative ways to use the space we have and look for opportunities to increase our space in certain markets.

    It's been a mature industry for a while, but it seems that it will continue to be increasingly more capital intensive to remain viable. It's not as much a challenge for us, but it's something that is continually in our minds as we put together our strategies for expansions in new markets and saturation of our existing markets.

    Q What are some of the pleasant surprises you are seeing in the industry?

    A We continue to have great relationships with our vendors. This is a family business, and even though technology changes, people retire and brands are acquired, we are blessed to still be able to have so many partner vendors with which we can partner for mutual success. We've got a lot of friends in the industry and we're happy we've been able to maintain these relationships through paradigm shifts over the last decade.

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