With tire market soft, dealers go for gap left by service stations
Those television ads are for real. Potholes and road hazards have not been able to stop the new breed of tire. Tough radials are going farther -- and tire sales are hurting as a result. Fewer flats, lighter cars, and more mileage per tire have meant a drop in the demand for replacement tires. Demand for tires has deflated in the past few years, from about 160 million radials, bias-ply, and all-weather tires in 1978 to about 138 million last year. Imports, too, have rolled into the market, cutting domestic manufacturers' sales.
Yet, Kevin Kormandy -- who is in charge of new franchise operations for the largest tire chain in the country, the 246-outlet Denver-based Big O Tires -- sees a bright revolution in the making.
His company, which has grown dramatically in recent years, typifies a large-scale shift in auto service: Drivers may not be able to find a full-service gas station to repair their cars, and the auto dealer is often too far away. So they're turning to a local tire dealer.
Since the 1973 oil embargo and aftershocks, thousands of service stations disappeared, while thousands of others became modified snack-and-shop stores. There used to be some 220,000 full-service gas stations doing light auto repairs. Today there are only an estimated 69,000 to 115,000 such stations, according to Tire Review, an industry trade publication.
But tire retailers have found opportunity in the full-service station shortage, and most are now pitching auto repair services to help profit margins and beat the competition.
``We're aiming for convenience and to make our outlets a total one-stop shop for automotive work,'' Mr. Kormandy says. ``Consumers don't want to go here for brake work, there for front end alignment, and somewhere else for tires.''
But competition in tires is still so intense that jokes just aren't appreciated. Nevertheless, an occasional play on words lightens the load. ``We had to look for another way for our dealers to maintain profits in light of the flat tire market,'' Kormandy says.
His goal is to double the size of the Big O chain by 1991 and make sure at least 30 percent of the business is in auto services like doing tuneups and replacing struts, shock absorbers, bearings, and tie-rod ends -- even mufflers.
Other analysts and those in the tire business agree with Kormandy's assessment, saying there has been a strong shift by tire dealers to offer an ever wider variety of auto service as a hedge against tire sales that are expected to stay roughly the same for the next three to five years.
And tires, while essential to drawing customers (they still come primarily for tires), are the low-margin end of these dealers' business. So tire dealers are boosting advertising, certifying mechanics, and gaining management skills needed to conduct higher-margin auto services.
``The name of the game now is service,'' says Joseph DePaolis, president of a 22-store chain in upstate New York called Johnny Antonelli Tire Company. ``An independent must diversify into mechanical repairs. They can't pay their bills on the profits from selling tires.''
The numbers show the change. In 1981, tire dealers sold roughly $2 billion worth of auto services, about 7 percent of the total market, Tire Review says. In 1985, auto services accounted for $4 billion, or 10 percent, of a $40 billion service market.
``It used to be you'd replace tires every 20,000 miles and see a tire dealer once every 18 months or so,'' says Tom Cooney, executive editor of Tire Review. ``But cars are smaller and lighter. Radials are getting better mileage. You might not see a dealer for 2 years.'' Mr. Cooney says auto service used to be an average of 30 to 35 percent of a tire dealer's business in 1981, while today it is approaching 50 percent.
And an entirely different group of people can be found coming into tire stores. Tire dealers are appealing to people interested in ``improved handling, not raw power,'' Cooney says. The way cars are ``fancied up'' today has less to do with modifying engines (since the new engines don't lend themselves to that) and more to do with adding custom parts, such as aluminum wheels, gas shock absorbers, and anti-sway bars.
``Auto service has become a permanent part of our business. It's not a flash in the pan,'' says Anthony Hylton, a spokesman for the National Tire Dealers and Retreaders Association.
Mr. Hylton cites ways consumers have benefited:
More tire dealers doing auto repair work means there are more auto repair facilities in close proximity.
Tire dealers are training mechanics more rigorously and having them certified, thus ensuring a higher standard for auto repair than previously.
Better advertising provides clearer choices for auto repair. Several analysts agree with Hylton.
``People that compete in this market have had to improve the quality of service in order to make a profit,'' says Edward Kaufman, an industry analyst and consultant. ``We're moving into an era where you're going to see more chain operations. They have an advantage over the individual store.''
Those in the business say that while they intend to survive, it's definitely not a good time to be just entering the tire business.
``It's a very, very mature industry,'' says Mr. DePaolis. ``The productive capacity outstrips the demand, and markets are very narrow. Some dealers are making the shift [to auto service]. Some are not -- and their days are numbered.''