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Prospecting for black gold


There is a long tradition of franchised dealership avoiding selling tyres. And it's time to break with it, says Keith Moody.


Franchised car dealers are missing a multi-million pound servicing opportunity by ignoring the need to fit tyres. That's according to data from the Tyre Industry Council, which suggests 20 per cent of all vehicles up to three years old need tyre work.

And with the average fleet transaction costing £120 for 1.7 tyres, dealers are missing a £360m servicing opportunity across the UK's 3m-vehicle company car parc.

But it's not just fleet business that dealers are missing out on. Michelin says that, on average, every car that goes through the garages needs at least one new tyre. And according to analyst Datamonitor, the value of the UK tyre replacement market increased from £684m in 1995 to £711m in 1999 while replacement volumes have risen from 23.9m to 24.4m over the same period.

Tyres are the automotive equivalent of shoes: they transmit all the engine's power and torque to the road. The problem is that most drivers don't know when they need to replace tyres. So it's up to you to tell them.

If dealers maximise the opportunity presented by tyre sales they will be able to make the most out of their existing client base as well as attracting a range of new customers. Research shows that 10 per cent of cars that come in to the garage for servicing need work on brakes while three per cent of cars need suspension work. Incremental business like this is crucial to boosting the businesses bottom line.

Quick and inexpensive

Setting up a tyre operation can be quick and relatively inexpensive. Fitting bays take around 11 sq m of space and equipment costs between £3000 and £5000. Usually, the kit can be bought off-the-shelf, and delivered and installed within a week.

Typically, small dealers should be looking to stock about 50 tyres while larger sites should consider stocking about 150 tyres. Stocking policy is a simple one: the emphasis should be on holding ample stock of the most popular types.

But one of the key reasons why franchise retailers should be persuaded to look at establishing a tyre enterprise is that it gives customers a reason not to go to a fast-fit centre. After all, who wants their car to spend a day in a garage only to be told they need to take it down the road for a new set of tyres?

There is a major hurdle preventing dealers from developing a tyre business – and it is one of the most intractable: mindset. There is no 'tradition' of dealerships actually selling tyres, one of the consequences of the heady days of the1970s and 1980s when cars were less reliable and service intervals shorter. That meant garages were able to focus their attention on the then more profitable core business of under-the-bonnet repairs and servicing.

As retailers took their eye off the ball, fast-fit centres like Kwik-Fit got a toe in the door and began building up a reputation for supplying affordable tyres.

Massive impact

The European Commission's changes to block exemption will have a massive impact on the UK aftermarket, opening up opportunities across a variety of technical areas. However, according to Datamonitor, pure fast-fit operations are unlikely to benefit much.

“In order to take advantage of the changes, the fast-fit sector would need to heavily

diversify and move to become authorised repairers. This would require significant investment and a move away from their current business model,” the analyst says.

Nonetheless, they are at a funds advantage compared with the franchised dealers. They do not have to support a showroom and are usually situated in lower cost locations. As a result fast-fit chains will be looking to expand their networks, either setting up new sites or acquiring existing outlets.

Dealers can grab their own advantage with a vehicle manufacturer-backed fast-fit-scheme. Vauxhall Masterfit, for example, enables dealers to source tyres from a set price menu negotiated by the carmaker direct with tyre manufacturers and wholesalers. The result is highly competitive pricing – margins of up to 30 per cent are possible.

Additional benefits

Price aside, another major advantage in joining a backed scheme is that dealers in it benefit from manufacturer-generated national advertising and marketing support.

Of course, operating under the umbrella of a carmaker doesn't suit every business, and many dealers – principally those with a large throughput of vehicles and high turnover of replacement tyres – choose to opt out in favour of establishing their own tyre operations. By negotiating their own bulk discounts with wholesalers, retailers of this scale are generally able to improve aftersales profitability while maintaining full control.

However, success often depends on the effectiveness of local advertising campaigns and on local reputations.

Advertising will always play a key part in the tyre source war. A recent car manufacturer study asked a group of drivers where they thought they could buy the cheapest set of tyres for a BMW 5-series model.

The overwhelming majority reckoned Kwik-Fit. The correct answer was the local BMW franchise dealer.

The lesson for the consumer is the same as for the retailer: shop around. For example, one of the most popular sizes of tyre is the 195/65/V15, OE-fit on Vauxhall's Vectra and Omega and the previous generation Ford Mondeo. Industry sources say that manufacturers' programmes quoted prices of about £40. But investigations revealed that dealers could save up to £12 on the tyre by shopping around at wholesalers.

Investing in training to help staff improve their product knowledge will be a key part of boosting profits from tyres. David Goodyear, managing director of AA Tyre Fit, says: “Better product knowledge and sales skills will allow staff to sell customers better products.”

For example, staff will be able to sell drivers a branded tyre rather than a budget one. While the percentage profit may be less, the benefit gained in cash terms will be higher because the product is more expensive.

Charge for extras

Goodyear also urges dealers to charge for a range of extras to help boost their operational efficiency – such as charging for a new valve, wheel rebalancing and casing disposal fees of 70p per tyre.

In practice, many retailers will feel this is easier said than done because there is always another business down the road that is willing to undercut and undermine these important extra charges.

There is also money to be saved by using mobile tyre fitting services offered by the likes of ATS Euromaster, AA Tyre Fit and Kwik Fit.

These provide rapid response mobile units that visit dealerships to meet their tyre needs, and their existence means dealers don't have to carry a large tyre stock and can concentrate their financial and staff resources on other areas of the business.

These services are also valuable to the dealership bottom-line because they deliver up to 10 per cent of the transaction price directly to the business – and for doing very little.

Before Ford sold Kwik-Fit the carmaker actively encouraged its Volvo and Jaguar dealers to make full use this service for their tyre needs. Historically, five main factors have kept franchise dealers out of the tyre market:

  • The need for nationwide pricing

  • The inability to provide central billing

  • Patchy availability of approved brands

  • Lack of proper management reporting

  • Poor driver acceptance.

These are all problems that can be easily overcome by combining a range of solutions. Retailers must open their eyes to the profit opportunity that tyres present.

There is also the added value of providing your customer with a service: adopting a one visit/one bill philosophy is crucial.

Changes to block exemption will undoubtedly open up many opportunities for dealers. But to take full advantage of any of them – and that includes opening up a new income stream from the tyre replacement trade – the most important step must be to build fully-costed business plans with strong financial support and commitment.

5 WAYS TO SUCCEED

  • Opting in – make the most of manufacturer-backed fast-fit services

  • Wholesalers – arrange bulk discounts for tyre supplies with major wholesalers

  • Advertising – invest in getting your message across and highlight competitive prices and the tyre range

  • Shop around – the supplier you traditionally deal with might not always have the best prices on everything

  • Use mobile fitting services – firms like Kwik-Fit and ATS Euromaster will provide rapid response tyre fitting services which mean dealers don't have to invest heavily but can take a cut of the cash

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