Forklift dealers are divided on the best way to handle tire sales.
Even among distributors, there is not much agreement on what role a distributor should play in the forklift tire business. Some distributors are adamant that tire service and distribution is a highly profitable exercise. Others are equally convinced that dealing in tires is a waste of time and money. In a survey of MHEDA members about their involvement in tires, they had some thought-provoking comments. Below is a sampling of their thoughts.
Profitable Or Not?
Distributors were split two to one, with the majority saying they do perform tire service mainly because of the value to customers of being a one-stop service shop. One distributor, in fact, said that tires are the single highest-volume aftermarket product he sells. The high volume makes it a fairly profitable line. Margins can sometimes get squeezed on large deals, but, in general, distributors who push a large volume find it a good profit margin item to sell.
For other distributors, however, that formula has been disintegrating over the last couple of recessionary years. As end-users put less wear on their forklifts, the tires don’t wear out as fast, so the distributor can’t push enough volume to maintain profitability. In addition to the high overhead cost— the cost of a tire press, a trailer to transport it, tire inventory and the cost of an employee to operate everything can run upwards of $50,000—competition from retail stores that can sell tires below the distributor’s cost can make for a bit of a profitability headache. Even many who remain in the tire business see it as a necessary evil rather than a profitable piece of business. “We are in the tire business more because of a desire to satisfy our customer’s needs,” says one. “But it’s not the most profitable business so I can understand why a lot of distributors don’t do it.”
Those distributors who do sell aftermarket tires fight the profitability battle mentioned above. Although many distributors are locked into aftermarket deals from specific tire manufacturers through the OEM they represent, others are free to source tires from any manufacturer they choose. Who they choose depends on what the customer is looking for in their application, of course, but mostly how much they are willing to spend. One distributor commented, “Sometimes, particularly in this economy, customers are not even concerned about the tire quality, the grade or anything else. It’s just lowest price. They don’t care.” For the distributor, then, that often leads to catering to the lowest price, even if that isn’t the overall cheapest solution. Some customers can be swayed by a good salesperson who knows the product and can explain why a better tire is necessary, but seemingly more often than not, price is the deciding factor.
|“There’s not a lot of loyalty in the tire business.”|
A close second to price is availability. One distributor estimated that a third of his tire sales are the direct result of having a tire in stock immediately when the customer needs it. After all, if a tire needs replaced, no customer can afford to wait a few days to get the forklift back up and running. There’s not a lot of loyalty in the tire business, so if one distributor doesn’t have it, the customer will call somebody else who does.
All the different obstacles and inconsistencies in the tire market make it a complex business to be in. There is money in it when the circumstances are right, but it can be a hassle for distributors who already have a lot on their plate. Perhaps one distributor stated it most clearly by saying, “I’ve been there, done that. I don’t think we’ll ever go back into that segment of the business again. It’s too much of a hassle and there’s too much competition from independent tire companies.”