Are you losing money on tyres?

Tyres could hold potential for additonal margin in your automotive business:

Back in January, I suggested that it is time to build a strategic model of what the next 10 years are going to look like from an Aftersales business point of view due to the impact of the EV penetration. Undoubtedly there is a structural decline, but reading some of the 2022 financial results, several groups have recorded 30%+ growth, so there is plenty of immediate opportunities to capitalise on.

Today, I’d like to talk about tyres. Only 9%* of UK private drivers are using franchised dealers for replacement tyres, a third of them are going to independents with the remainder going to service chains & tyre specialists. On the fleet side, 20%* of fleet drivers are using franchised dealers. That leaves 80-90% of the market as an opportunity for franchised dealers for tyres. All too often, we see tyres & brakes as the top 2 segments in the deferred or declined VHC analysis. If we are to thrive in the aftersales market in the future, tyres are where we need to put our stake in the ground.

All the market research points to price as being the biggest factor in determining where drivers get their tyres. To compete on price, there are 2 options:

• Buy on better terms via internally generated volume, buying association deals, or OEM initiatives.
• Introduce a budget range for the more price conscious consumers.

However, price is not the only factor, you will need to consider:

• Availability; having the right tyre options in stock or available within 4 hours. Can your tyre wholesaler support you in the right way?
• Up to date equipment to handle different size tyre replacements.
• Training; are technicians & service advisors learning best practice in terms of skill sets?
• Follow through on deferred VHC via service advisor/call centre/automated communications.
• Are mobile service/tyre fitting vans an option for you?

More strategic options too are worth considering:

• Acquiring local tyre companies, this secures good business whilst offering service upsells.
• Service plans that include tyres.

Finally, as a retailer, it’s important to know your customers, we see some groups making 12% margin on tyres whereas several others can make 22% consistently. Its not a one size fits all business, so put some thought into how you can segment your pricing to get more margin.

Tracking changes, what’s working & what’s not working will be a key ingredient to your success, there will be mistakes, but correcting them will add to your future knowledge. Best wishes with all your tyre endeavours over next 12 months, these learnings and successes will be vital to continue having a great Aftersales business for many years to come.

*For source & more context, please refer to a great ICDP Executive Briefing 04 here.

John Hogan is the CEO and Chief Data Scientist at Real World Analytics (RWA). RWA helps dealer groups become more efficient with actionable drillable dashboards and reports Visit realworldanalytics.com/automotive/our-solutions for all our solutions, or check out our customer stories. If you want to find out how we can help you drive your dealer business forward, contact us here or email auto@realworldanalytics.com

This article was previously published in Auto Retail Bulletin.