Cash Flow is king. Even in an era where there are many fires to put out.
We are entering a very unique time in the tire and automotive service industry. For this column, and to paint a clear picture, I must be brief and vivid. Let’s break down the current and upcoming landscape.
First to impact us is the consolidation and the distribution level and major chains. At its heart, consolidation is about improving gross profits — for both tire makers and distributors. Many other things occur like efficiencies and faster processes (eventually or hopefully), but the driver to consolidate is improved gross profits.
What this means for independent tire dealers is a squeeze on tire and parts margin, since both areas are experiencing consolidation. For dealers, margins must be protected now, and raised to acceptable levels. Dealers operating at parts and tire margins of between five and 10 points below where they should be will experience a cash crunch so severe they will find it hard to make their next purchases.
Second to hit dealers, is the industry has massive turnover on the intro level, and not enough skilled employees to meet demand. This, by natural market forces, will create a wage war. Technician pay is about to go up considerably because shops will need to capture the talent that is available to the local economy. It’s just a fact that nearly every 12- to 19-year-old for the last decade has been told that college is their only choice, which means not enough people were entering the trades. A wage war on top of consolidation puts further strain on cash.