Thu Nov 21, 2019 3:13 AM

Rain, aging vehicles boost Mountain View sales

Jun 27, 2019 8:55 AM

 
Mountain View Tire & Service in Menifee, Calif., which opened in January.

RANCHO CUCAMONGA, Calif. — While California residents endured a deluge of rain at the start of the year, Mountain View Tire & Service Inc. enjoyed a deluge of tire sales.

The very rainy winter season produced "a really good first three months of the year, specifically January and February were phenomenal," Mountain View Vice President Chris Mitsos said.

"What happens in Southern California, as people's tires get balder and balder, they don't know it because their grip is fine (on dry pavement). In fact their grip's getting better as you're going down the road as the tire flattens out and doesn't have any tread left on it.
 
This article appears in the June 24 print edition of Tire Business.
 
"But as soon as there's moisture on the ground, it becomes a big, big issue. So that's why we get such a rush of people when we get a lot of rain here," he said.
 
Sales slowed down a bit in the spring, and Mr. Mitsos said the dealership's sales for the first five months are about even with the same period last year.
 
He said he couldn't predict how the rest of the year will fair, noting that California has its own micro-economy.
"It doesn't matter what's going on in the rest of the country. We kind of march to the beat of a different drummer here," he said. Rising gas prices impacted business in the spring as consumers cut back on miles driven. In June, consumers increased their spending as gas prices decreased, he said.

"We noticed a distinct difference in our dollar-per-invoice today than where we were at even last June and the previous couple of months. For us, consumer spending is up," Mr. Mitsos said.

"We saw a direct impact as gas got up to and over $4 and as much as $5 a gallon in Los Angeles. We really saw the impact in our business, specifically in April and beginning of May."

Mountain View Tire, which operates 30 retail stores throughout Southern California with plans to open one more in September, believes its size helps it be less susceptible to market conditions. "So I don't see big problems for the second half," Mr. Mitsos said.

Another trend Mr. Mitsos has noticed in his company's market is that some consumers are willing to spend more money to fix up older vehicles instead of buying a new vehicle.

"It's a better option because: A, they already own their car; B, their registration fee is very low because of the age of the car; and C, their insurance rates are very low because of the age of the car. So when they put a pencil to it and they see what it's going to cost over the next couple of years to buy a new car versus keep an old one and put just under $8,000 into it, it makes sense to them and so they do it," he said.

 

"More and more we're seeing $3,000, $4,000 and $5,000 invoices for people that have a car that's 15 years old, and they've been deferring maintenance and they don't want to buy a new car and they just say, 'Fix everything.'

"... It can add up pretty quickly when you're basically changing all the major components. So that's one of the trends that we see. And as far as how are we reacting to it, we say, 'Yeah, we'll do it. We want to be your car guy. We're going to take care of it.' "

Automotive service has become a larger share of Mountain View's business, accounting for about 70 percent of sales versus 30 for tires. Five years ago the ratio was 65:35, Mr. Mitsos said.

"Tires have become a commoditized product, and we refuse to participate in the race to the bottom," he said about the transition to automotive service.

"If someone doesn't want to pay our price for a tire, we're fine with letting them walk. You can go next door and buy it for less. We're not going to sell tires for 5 and 10 percent above cost. And more and more tire dealers are doing that. We're not going to participate in that, and as a result we take ourselves out of the game a little bit. But we're OK with it . ...

"For every dollar that goes out of our building, we have to have a certain return back on that dollar in order for our company to stay viable, healthy and to keep growing. It makes no sense to us to lower the return that we're getting on the money that we're laying out. We just won't do it. That's how businesses get into trouble. And we won't do it. And because we won't do it, it's impacted us over the last five to seven years.

 

"So we said, 'Fine. We'll just become an auto repair company. If we happen to sell tires, we sell tires.'

"We're still going to sell 115,00 to 120,000 tires this year as a company. At one time it was 150,000 tires we used to sell. So we're fine selling less tires because the repair revenue has occupied the void that is left very nicely and at a much higher gross profit percentage, by the way," Mr. Mitsos said.

"I think a third of our customers want the best brand possible. I think another third of our customers want the best brand for the value, and I think a third of our customers just want the cheapest thing we can put on their car," Mr. Mitsos said, "It's been like that for years and I don't see that changing anytime soon.

"I've got to tell you, a lot of the Tier 2 and Tier 3 brands now, they're very, very good, and the quality of the tires is outstanding. It's not something where a customer has to put on a Goodyear, a Michelin, a Pirelli or Continental or a Bridgestone. You don't have to put those on your car anymore to get really good performance and really good value on your tires."

He said the amount of Tier 1 tires sold at Mountain View has slipped slowly over the last five years. Goodyear and Kelly tires represent about 38 to 39 percent of everything the dealership sells, he said, down from 50 percent not that long ago.

"So it's gone down a little bit. We don't sell as many Michelins as we used to, that's for sure," he said, but as a Cooper direct dealer, Mountain View sells "a ton" of Cooper tires.

 

"The two other brands that really stepped up on our product screen over the last couple years have been Hankook and Pirelli. I think both of those companies are doing a really good job in their products," he said. The dealership's Tier 3 brands are Cooper Tire & Rubber Co.'s Starfire brand and the Westlake brand, distributed by Tireco Inc.

Mr. Mitsos noted that the dealership has been selling a higher percentage of CUV and light truck tires compared with three years ago. Ultra-high-performance tires also are very popular in Southern California.

However, he expressed his surprise in the decrease in popularity of size 225/60R16 tires (the seventh most popular size in the U.S., based on U.S. Tire Manufacturers Association estimates, accounting for about 1.8 percent of replacement tire market sales).

When looking at stock level adjustments for the stores, he said he was shocked at how many stores he had to take away one of the options for a 225/60R16.

"We used to have three or four options in that size, good/better/best/premium. Now I'm keeping basically one option in the store because, it's just here in southern California, it's just not a popular size. It fits an older American sedan. … We just don't have many older American sedans in California."

There also doesn't seem to be much enthusiasm for online tire sales, so Mountain View Tire has refrained from getting involved in the technology. Its website offers online appointments, a tire selector and requests for estimates.

 

"I just don't know if it's worth the initial investment and the ongoing investment to capture the money online when they're going to come into the store anyway and buy (tires). Because now you introduce a new accounting function that has to be done to track the money. It's not a big hot button for us at this point," he said.

"We are still true-blue, bleed brick-and-mortar. That's just who we are. … I've never gotten feedback from any of my stores nor have I directly from a customer via Yelp or via direct email or online comments.

"We've never ever once been asked, 'Hey, how come we don't sell tires online? A lot of people are asking me about that.' That's never, ever happened. So no one's really talking about it. So until people start questioning, 'Hey, are we going to do this?' I personally don't see the big need."

Mountain View does provide tire installation for Goodyear's online customers, accounting for about 200 transactions per year, and for TireBuyer.com less frequently, about 50 to 75 tires a year, he said.

Tech shortage

Mr. Mitsos said the industrywide technician shortage impacts his business as well, although his odds are better with the large California population.

"Finding a technician is one thing, finding a qualified technician is quite another," he said.

 

"Here's the solution — you're going to have to pay technicians so much money that it's going to become one of those industries where people start getting attracted to it again."

He said he believes Mountain View offers competitive pay, compensating its techs with an hourly wage plus a percentage of the mechanical service production for the week.

"Until technicians are making $80,000, $90,000, $100,000, $110,000 a year, that's an average technician, you're going to continue to have a shortage. And that's just how economics work. When there is a shortage of a skilled position, the pay has to go up, which in turn attracts more people into the industry.

"And until they're paying a mechanic on par with what an IT guy can make or a welder or skilled electrician or a skilled plumber, until that happens we're going to continue to have a shortage. And once the pay gets high enough, then there will be plenty of candidates and we'll be an industry that young people flock to again.

"But we're still a ways away from that. So 20 years from now, somebody might have to pay $200 for an oil change because that's just the cost to pay a technician to change your oil. I think that's where the industry is headed at some point, but we'll see. That's just my opinion."

'We noticed a distinct difference in our dollar- per-invoice today than where we were at even last June and the previous couple of months. For us, consumer spending is up.'

 

Chris Mitsos, Mountain View vice president