A LOOK AT YOUR PRODUCT
Tires are divided into several categories and subcategories by industry custom. For the most part the vocabulary of the business is well established and standardized.
The broadest classifications are tubeless and tube tires. All manufacturers produce a tubeless tire as their basic product. These days tubes are put into tires only in specialty situations heavy equipment some specialty sports cars and some off-road vehicles. Dealers often keep a few tubes around the store but they’re rarely used.
Tires are also classified as radials or bias ply. Imagine two hoops of strong woven fibers placed seven inches apart. These comprise the beads or inside circumference of a tire. When a new tire is mounted the beads of the old tire are detached from and the beads of the new tire then attached to the wheel rim. Usually the under plies of any tire are constructed of woven polyester fibers.
When a radial ply tire is created these woven fibers go directly from sidewall to sidewall or bead to bead never overlapping diagonally. In bias-ply tire construction these same under ply webs are put on a diagonal or bias each new ply crisscrossing the previous one from bead to bead. Radial plies which do not crisscross give the smooth ride whereas the bias ply creates a degree of overlapping friction. Generally a bias-ply tire is constructed with four layers of ply underneath the tread face. A radial tire will have two polyester sub-cords or layers plus two steel belts around the tire underneath the tread face. There are some fiberglass radials on the market but they aren’t as popular as the steel-belted variety.
Bias-ply tires are intended for ordinary highway use. There are some bias-ply snow tires though most operators don’t consider them true snow tires. Similarly most operators told Entrepreneur that there are no true all-season bias-ply tires. The true snow tire is usually a radial. Highway radials are referred to as highway rib radials. There are several different versions of all-season radial tires the names varying with the manufacturer.
You can tell tire types apart by their tread design though each manufacturer has its own theory of what works best for a radial or bias-ply tire tread. What follows are fairly general specs. A highway rib radial has a straightforward design with lines and grooves running all the way around the tire. All-season tires have treads that appear to be broken into segments shaped like an S T or V with small sips or slits on the side that add traction for wet surfaces.
Tires come in a fairly wide variety of sizes. Most tire stores focus on passenger tires though some also sell and mount tires on four-wheel-drive vehicles RVs and large pickup trucks. Passenger tires range from 12 to 15 inches in diameter. In the RV and pickup market the range tends to be from 14 to 16.5 inches. RVs require specialty sizes in many cases. Some need oversized or tube tires. Additionally they have certain lift and suspension specs that may have to be met. Fortunately such tires can usually be special-ordered for the customer a day or so in advance of mounting. There are other categories of specialty tires as well such as wheelbarrow or boat- trailer tires. You will find that the demand for such tires is seasonal particularly before major outdoor-recreation holidays.
Tires are sized according to a system generally accepted by all manufacturers. A series of letters and numbers is embossed on the sidewall of the tire. Almost all start off with “P indicating passenger tire. This is followed by three digits e.g. “155 indicating the width in millimeters from side wall to side wall. This is followed by a slash then the aspect ratio showing the relation of the sidewall to the tread width e.g. “80.” An “R” indicates that the tire is radial and this is followed by a number indicating the measurement in inches e.g. “13 of the center wholes diameter from bead to bead. The entire code would look like this: P155/80R13. The formula is fairly standard and most automobile manufacturers give a recommended standard and optional tire size.
The radial is currently the tire of choice in most urban market areas. In poorer socioeconomic regions where people may be running older Fords or Chevys or where cost is the biggest factor in replacement tire purchases bias-ply tires are in demand. Most tire dealers agree that while it’s initially less expensive to buy bias ply rather than radials it’s more expensive in the long run. The reason is that the cost plus mileage driven will mount up mainly because bias-ply tires aren’t as durable as radials.
Your tire inventory will vary principally with your area’s climate and socioeconomic makeup. You obviously wouldn’t stock as many snow tires in Texas as in say North Dakota. Inventory will also vary with the type of vehicles in your area which is related to local economic conditions. Determine the most likely sizes and types of tires you carry by working with your wholesale distributor.
WHAT TO SELL RETREADS
Your chief source of inventory will be tire distributors. Most distributors carry noncompetitive lines of tires. That is if a supplier carries Goodyear he probably will not carry directly competitive lines such as Firestone or Michelin. There are no rules however so check out any variations in your area.
Goodyear Firestone BF Goodrich General Uniroyal and Michelin are considered the “big guns” of the industry. Smaller companies include Bridgestone Cooper, Kelly Springfield and Sumitomo. Some retailers and distributors prefer one over another. And some brands have sub-brands that target a more specialized niche, such as Ironman tires. Our best advice regarding the stocking of tire inventory is to talk with various tire suppliers in your area and cut the best deal(s) you can. What follows are commonsense basics about inventory acquisition and is for illustration purposes only, no product endorsement or condemnation is intended and none should be inferred.
There is nothing in law preventing you from carrying any particular brand of tire. If you want to sell Good years you can buy them. However unless you’re con
This is one solution to pricing your ancillary services. When a customer sees this he knows what to expect in advance for most ordinary work.
That you tire life side red a Goodyear dealer the financial terms you’re given won’t be as favorable in a competitive market area. You can readily understand that Goodyear would not wish to undercut its franchisee in an area by granting identical purchase terms to an independent dealer. Accordingly you would be paying say 15 percent more for Goodyear tires at wholesale than the authorized dealer. It’s the same story with Firestones Uniroyal’s and most other brands.
If you’re a small operator who wants to deal in major brands the way to get bottom-line prices is to have a franchised dealership which in some cases requires higher front end expenses. Considering that margins on tires can be fairly thin this can mean a cash-flow problem at the outset. The upside of course is name recognition with an established franchisor.
If starting as an independent, what can you do? You can start by merchandising with so-called “generics” or independent brands. Here you can sell a quality tire at a better margin because you won’t be competing with single-brand dealers. If there are several dealers nearby selling major-brand tires but there are no single-brand dealers it makes sense to offer lesser-known brands for the reasons cited. Selling generics you can position yourself in your community as the tire store with the best deals and service. This way your deals with the distributors (hence with customers) can be competitive even though you’re not trying to compete with Goodyear.
You will also find that you’re getting constant deals from tire manufacturers. A supplier may say “If you buy a load of tires we’ll give you X and if you buy X we’ll give you Y.” This kind of “horse- trading” is always going on in the tire business and is the sort of thing that allows you to compete on a volume basis if not brand-name recognition. If you’re alert to these opportunities and have good cash flow you’ll be able to take advantage of deals like this advertise them effectively and increase customer traffic.
How Much to Buy
In the past independent tire dealers could stock one set of each kind of tire that was popular in a given market area. If two VWs happened to show up on the same day the dealer could ask one to come back the following day. But this is changing rapidly. Because of the increasing tendency of consumers to shop for service as well as price tire dealers are finding that they really need “one to show and one to go.” A customer who can’t get what he wants no wise not likely to wait around for the dealer to get the needed tire size. There’s another tire store down the block or there’s always Sears. Time pressures are on the customers and competitive pressures are on the dealer.
If a number of customers requiring the same tire size come in simultaneously you might persuade a customer to leave his car a half day or full day. Meanwhile in an area with a lot of tire jobbers on the road with deliveries made in a matter of hours you could obtain the needed tires and have all jobs completed.
Perhaps now you can see the wisdom of combining a showroom and warehouse in one well-policed area. The customer may wind up buying your showroom which is fine with you because you want to deal on volume. You’d just as soon have high-volume deliveries from your supplier on a regular basis anyway.
While the amount you spend on opening inventory is going to vary somewhat depending on what you negotiate with the wholesaler we can provide general guidelines as to stocking a strong varied tire inventory. Again we recommend working with tire suppliers in determining what will best suit your needs. The money saved by moving into an existing facility can now be put into inventory and marketing where it will do the most good.
If you plan to offer chiefly major brands you’ll need to spend from $10 000 to $12 000 on opening tire inventory. If selling lesser known brands plan on a minimum of $8 000 to $10 000. These are ballpark figures only. Assuming your cost per tire averages $30 to $40 $8 000 will buy you roughly 200 to 265 tires, $10 000 will buy about 250 to 330 and you’ll be buying roughly 300 to 400 if spending $12 000.
If you’ve done the type of market survey recommended in Market Location you’ll know whether to buy more heavily on imported cars or four-wheel-drives. Suppose you’re in a fairly affluent area, you may have say 10 or 12 basic sizes. You might buy 50 all-season tires 50 rib radials and a limited number of bias-ply tires if in a climate with a moderate amount of severe winter weather. Generally speaking your percentage of bias-ply inventory will increase as the average customer’s income in your service area decreases. Suppose you’re in an area where there are many trucks vans and four-wheelers. You may want to have more retreads than might be found elsewhere (retread sales on snow tires and larger-sized tires outrun new-tire sales in most areas).
RETREADS
As mentioned in Market Location some 44.5 million retreaded tires were sold in 1987. Of those 16.5 million were passenger-car tires accounting for more than one in three replacement retreads. Retreads are a $1.89 billion industry according to the Automotive Information Council.
A retread costs from 30 to 50 percent less than a new passenger tire. Truck retread savings are greater with a new $100 radial perhaps selling for $70 as a retread. A new $44 bias-ply tire could sell for as much as $22 as a retread.
Very few tire dealers sell retreads exclusively. More typically a dealer will have a retread department and the majority of retreads sold will be snow or truck tires. The reason is twofold: cost of rubber stock continues to increase and the manpower required to manufacture retreads keeps the cost of regular passenger tire retreads very close to new generics. Thus there is often not enough of a margin on 12- or 13-inch standard retread passenger tires to justify carrying them rather than new generics. There is however a substantial cost difference between a new and retread truck or snow tire, the larger tire the better the chance of having a cost-effective retread.
As with new tires work with your supplier to determine the types and quantity of retread lines to carry, it’s hard to generalize as to what percentage of inventory should be retreads because much depends on the economic and geographical makeup of your market. If you’re going to sell a large number of snow or off-road tires this percentage could easily range above 20 percent.
Other Inventory
Wheel weights and valve stems were discussed in Equipment. These are easily obtained from your tire supplier and their volume will vary directly with the number of tires you sell and mount. The average tire will take two ounces worth of weight or 8 ounces per car. Usually every replacement tire is accompanied by a replacement valve stem.
In cold-weather areas you will want to have a good supply of tire chains. Obtain these from area tire suppliers as well as from the sources listed with this report. Some tire shops sell wheels off the shelf but in a limited area this may be impossible. Most dealers believe that it makes more sense to order wheels on an as- needed basis from wheel warehouses. Maybe they’ll give you a good buy on 12- or 15-inch display wheels which you could display on your floor as an adjunct to your catalog. This is especially important if a customer wants custom wheels. As that is neither an impulse nor emergency purchase the customer should be willing to wait a day or so to take delivery.
ANCILLAR Y-SER VICES INVENTORY
Bearing in mind that a customer may buy tires only every two years or so you’ll want to see him between tire sales. A good way of achieving this is to offer the products and services described here which account for a minimum of 25 percent of any shop’s gross revenue. This is expected to rise to as much as 35 or 40 percent by 1990. As long as you have the proper equipment and properly trained people to do the work you can offer auto services (and thus require the equipment and inventory) that are performed around the wheel: brakes shocks alignment wheel replacement.
Frequently tires and batteries are sold in the same location. If you sell batteries you should also have battery chargers and testers as part and parcel of your equipment. These you can obtain from automotive supply houses though some tire distributors may carry them as well. Though your battery inventory will vary depending to an extent on location (check with the Independent Battery Manufacturers Association listed in the Start-Up section for specific inventory needs) consider going with the following sizes and quantities at start-up. Numbers represented with asterisks indicate quantities for rural areas (again not the best locations).
Group 24s (4) 24Fs (2) 74s (4) 72s (2) 71s (2) 22Fs (2) Group4s (4 8*) 8Ds (1 2*) 30H (1) 53 (1) 42s (2) 19L (1) 26 (1) Uls (1 2*) 27s (2) 27Fs (2) 3EE (1) 4Ds (1 2*) Group Is (1 3*) Group 2s (1 3*) plus three to four motorcycle batteries.
Parts inventory for tune-ups include spark plugs condensers rotors caps and filters. Since your service prices include parts free you’ll want to keep well-stocked for the cars that regularly come into the shop.
Some tune-up specialists go so far as to call a parts delivery service to send out for a part not usually carried in stock. But in some cases the costs would not be worth it. For example a $35 air filter for a Mercedes gets cleaned it’s not replaced.
The quantities of each part for various makes models and years will vary from city to city. For example there are many more foreign cars in Southern California than in any other part of the country. Chevrolets are more popular in some cities than Fords and vice versa. No manufacturer or distributor could give us a formula that works. As a consequence you’ll have to experiment or have the distributor suggest the quantities you’ll need.
A regular spark plug costs about 70 cents and a resistor type is about 80 cents. Buying them from a jobber would cost respectively about 89 cents and $1.05.
Unless you can prove that you will be a high-volume user the manufacturers won’t award a distributorship to you. As a starter if you order at least $1 000 worth of auto parts such as points filters rotors etc. the manufacturer may be convinced to sell to you direct if you show that you will continue to order that volume. However, even if you do convince the manufacturers expect a couple of months to establish this connection.
For oil changes your inventory will consist of oils lubricants oil filters air filters as well as gaskets grease fittings and transmission and brake fluids.
The two weights of oil you stock in large quantities will depend on local weather conditions. If in the Northeast 10w-40 and 10w-30 respectively will be
the most used (the low allowing for freezing mid-winter temperatures the 30w and 40w for summer), in Las Vegas 20w-50 will be the most common choice (20w winter 50w summer). In other words the colder the normal mid-winter climate the lower the first weighed rating, the warmer the normal mid-summer climate the higher the second weighed rating. For mild climates year-round 30w and 40w are most commonly used.
When purchasing oil buy in amounts of at least 150 gallons. The following wholesale prices per gallon generally apply nationwide as this is written assuming purchases of 150 gallons per order: 10w-30 $3.23, 10w-40 $3.28, Z-7 $2.93 with an estimated average of $4 for all others. Your average per-gallon price for oil will thus be about $3.31.
Oil filters typically wholesale for around $1.90 each with air filters running about $2.20. Transmission fluid typically runs about $3.45 per gallon brake fluid about $3.10.
Muffler inventory depending on projected volume can range from 75 to 150 standard mufflers four to 10 bundles of glass-pack mufflers 16 to 24 turbo mufflers (8-12 2-in. 8-12 2 1/4 in.), hardware consisting of muffler clamps (two boxes of 100 in each of the following diameters1 1/2-in. 1 3/4-in. 2-in. 2 1/4- in. and 2 1/2-in.), two gasket boards, hangars, and nuts bolts manifold exhausts and miscellaneous hand tools. In addition you’ll need 10-foot tubing in the following diameters and quantities1 1/2-in. (30-40), 1 3/4-in. (30-40), 2 (100-150), 2 1/4-in. (40-80), 2 1/2 (30-40). You’ll also need about 25 to 50 chrome tips for the end of the tailpipe, these are not in demand nearly as much as 10 or more years ago.
Standard mufflers wholesale for between $9 and $18 apiece so shop around when buying. According to sources we contacted you’re wasting your money if paying much more than $10 for standard mufflers. Mufflers on high-end cars such as Cadillac’s can range to $25 wholesale. A standardized muffler of equivalent quality can cost as little as $8 or $9. Better-quality mufflers will range from $10 to $25. If you can make an agreement to buy in large quantities from a small muffler manufacturer direct you can cut that cost by a couple of dollars.
Brake inventory$2 500-$5 000 will consist of brake shoes and pads and hydraulic parts. Your shock inventory $4 000-$8 000 will consist of Macpherson struts gas shocks air shocks load leveler shocks and standard shock absorbers.
OFFICESUPPLIES
Local stationers and office-supplies stores will have most or all of your miscellaneous operations materials. A few hundred dollars should buy you all the letterhead and blank stationery envelopes business cards recordkeeping equipment (files ledgers index cards etc.) sales slips invoices bags boxes labels tagging guns and other paraphernalia you need. (Sales receipts can be specially printed but in the beginning keep costs down by buying standard inexpensive two-copy receipt books.) Although some stationers and office-supplies stores handle printing you may have to go to a print shop to have your business materials imprinted with your company’s critical data.
Ask for referrals from other businesspeople or let the Yellow Pages guide you to local shops. Check under the categories of “Paper Products Wholesale “Office Supplies and “Stationers Retail.” You may also find a separate listing for “Pricing (or Marking) Devices” for labeling equipment. Get several estimates before you place your orders and always insist on getting the quality you’ve asked for (or that’s been promised). Your business materials are a reflection of your company’s image and should be the highest possible quality.
There are several business-forms- and-office-supplies mail-order houses in the country. One we know of that seems to have an extensive offering (they bill themselves as “The Nation s Leading Supplier of Business Forms for Small Business”) is New England Business Service Inc. 500 Main St. Groton MA01471. Orders & Information: (800) 225-6380. They have a few regional offices.
INVENTORY SELECTIONS
Some tire retailers buy for their stores the same way their customers buy for them-selves on impulse. This is not necessarily a bad practice just as long as your tastes coincide with a sound knowledge of your patrons’ preferences and local market needs. In general a wide price range of goods will attract a diversified clientele.
Experienced retailers recommend that a new store owner begin slowly with a small inventory then concentrate on the proven sales winners. Probably the best way to learn what these are is to spend some time behind the cash register bagging your customers’ purchases.
After about a year of this (off and on of course) you should have tested a variety of merchandise and have a good notion of what sells best who buys what monthly sales volumes and annual inventory turnover (explained later.) This information will help you determine the exact quantity of each type of merchandise to carry so that your store is well-stocked without tying up too much cash.
Normally a retailer maintains a large stock of standard items if quantity discounts are available from suppliers or long delivery times necessitate keeping a large supply on hand. Otherwise a standing order might be placed for a certain item with staggered deliveries specified.