Tire and service is more of a “process” business than a “retail” business. The only similarity is that both employ storefronts.
Editor’s note: The following is an edited excerpt by Michael McGregor from his new book, Buy, Build, Fix, Sell: Mergers & Acquisitions For Tire & Service Dealers. McGregor is managing director at FOCUS Investment Banking and has written extensively on the tire industry.
It was the strangest exit interview in my life. I was leaving a large tire and service chain for a start-up so the CEO knew he couldn’t talk me out of leaving. Out of nowhere, he asked if I thought a CEO like him who had run a large chain of tire and service shops could succeed in a “regular retail” business. I answered yes because the tire and service business is way harder to make a buck at than a regular retail business.
Thirty days later that CEO resigned and took a marginally profitable chain of roofing supply stores doing $1 billion in annual sales and built it into a $10 billion profitable powerhouse. I seriously doubt my input had anything to do with his leaving. But I was right in predicting his success.
Is the reverse true? Can a retail executive succeed at tire and service operations? I think the jury is out on that one. Off the top of my head, I can’t think of a single example. Look at what happened to Sears Auto and Wards. They had a policy of rotating executives through hard lines, apparel, tools, and automotive which, if you’re looking for someone to run the whole company, I guess makes sense.
But they’d often rotate in an executive with no tire and service experience and keep them in charge of automotive for a while. Some of them helped drive those businesses right into the ground. Where are Sears Auto and Wards now? In the dust bin of history, that’s where.
Tire and service is more of a “process” business than a “retail” business. The only similarity is that both employ storefronts. The successful CEO I mention above essentially ran a chain of 1,500 job shops. Every store every day had to react to thirty or so completely different customer situations.
They did so following this same 10-step customer service delivery process:
1. Customer gets checked in by sales staff for the service they came in for.
2. An inspection is sold or courtesy check is presented by sales staff and approved by the customer.
3. Customer’s contact information and whereabouts for the next several hours is ascertained by sales staff.
4. The car is pulled into the first available service bay by a technician.
5. The car is inspected by a tech in the first 25% of the window of time they have the car.
6. The inspection is priced out by sales staff or service manager.
7. Customer is contacted and work is approved or not.
8. Approved work is communicated to the techs and the parts/tires sourced by the sales staff or service manager.
9. The car is serviced by the techs and test driven by the end of the day.
10. The customer is cashed out, work is reviewed, and customer is thanked by the sales staff.
How well they do all of that determines the revenue and profitability of that store. I’m not sure that a regular retail executive has the same appreciation for the people and process in a tire and service facility as one with experience in the business. See, without people who can work that process well, you’re nothing.
Compared to retail executives, financial executives are great in this business for being able to squeeze out a profit, but maybe not so great at growing same store sales. I’ve seen better results when they leave store operations to experienced operators who can grow sales. Experienced operators know that you can’t grow sales without the people. Take a look at any tire and service operator’s highest revenue store and you’ll see that they have the best people and way more people employed than a smaller revenue store.
Getting to that high revenue point took a step-by-step approach of making sure the in-store process was right, then making sure the right mix of salespeople and technicians were there, then investing to increase the staff level to get capacity and then maybe increasing the car count through targeted advertising to keep those new people busy. It involves spending on people in advance of revenue and then spending to get more car count. Financial executives hate that spending part. They’re better off not being involved in it. But once the revenue grows, they sure know how squeeze out more profit.
There are nuances to the tire and service business that take years to learn and appreciate. That successful CEO above taught me that if you want to know what’s really wrong with a store, talk to the technicians first. He taught me to always shake every technician’s hand regardless of how oily and dirty. He taught me to study the process in the store to turn it into a smooth money-making machine. And, he taught me that to get things running smoothly you had to be in the stores all the time.