The Business of tyres

The study of business is a combination of studies in the field of accounting, marketing, economics, human resource management and etc.- basically, a field of study which aims to equip someone with the capability to be in business, or manage a business. What then, are some of these relevant “business” related matters, a young executive joining the industry, or a senior executive from another industry should be aware of?

I always claim that the tyre business is probably akin to many other businesses except that the product is tyre. Wee Kok Wah of Stamford Tyres Singapore used to say he is attached to the tyre business because he has tyre dust in his blood. His rational for saying that is probably the fact that, at an average of five percent net returns on investment (optimistically), it is not a sexy industry. Compare it to the Microsoft and Google of this world; it may not even make any business sense to be in the tyre business.

Financial aspect
In recent years, I have met and gotten to know many senior executives with finance background running tyre companies- Lawrence Seawell, President and CEO of Hercules Tire in US, being one. The experience he since had managing Hercules Tires would make the tyre business an acceptable business. But I am sure there were many others, particularly from other industries, who fell off their chairs looking at the financial figures of a tyre company. That is when unusual decisions are made to make the figures better.

How could an industry, which demands so much in capital investment, particularly in stock and logistics, make so little profit? The case is amplified for manufacturing of tyres, which calls for investment anywhere between USD 15 million to USD 100 million for a new plant- depending on the product category to be manufactured. This would bring us to lesson one of knowing the tyre business- managing expectations of a tyre company.

A look at how most of the listed manufacturers and distributors have performed in 2007, practically makes it a fact that net earnings hover in the 5% region (optimistically). I would say there are exceptions, but these exceptions probably operate the tyre business slightly differently. A friend I got to know recently, Michael Welch of Blackcircles.com, an internet based retailer in the UK registers net margin in excess of 10%.

Human resource management
Often enough, I hear and have personally encountered issues with hiring and retaining young executives in the tyre industry. The fact is that it is not attractive to be seen in the tyre industry- being associated with the dark and greasy garages. Of course, over the years, this association has gotten better, but I remember how as a fresh graduate, armed with a reasonable degree, I had my ego beaten to pulp by the retailers I was trying to sell tyres to. Through the years, I understood that tyre is a product in a business, like computer hardware is a product, like mobile phone is a product. It is the intricate knowledge of the skills involved in managing the tyre business which differentiates a good from the average manager or proprietor. How I wished this fact could have been pointed out to me from day one.

Terry Smith, owner of Exclusive Tyre based out of Queensland Australia, would be the epitome of a great proprietor cum manager. A true lover of the Australian outback- he changed my perception of a 4x4 tyre. The knowledge he has, and the simplicity that he is able to convey in selling 4x4 tyres, makes him stand out from others. An educational road trip we made together to Fraser Islands on 4x4 vehicles left me with an impression of someone who loves a product he is selling and marketing. How I wish I was around more people like him.

The point is this, the tyre industry is not for everyone, and there is no point hiding this fact. Appreciate the veterans in this business; the wealth of knowledge accumulated in them will assist in riding the tough times. Appreciate the ones who love to be in, and shorten the agony for those who would rather be out. And when he is in, and has the potential, educate him, and expose him.

Marketing of tyres
I know this segment will generate the wrath from marketers of the world, particularly the experienced marketers who join the tyre industry aiming to be unique. I am the last to claim a wealth of knowledge in marketing. I simply hope to reflect the mindset of a typical motorist.

Tyres unfortunately have its importance placed rather low in priority in the minds of many motorists (enthusiasts excluded). How can we blame them when a tyre change typically happens once every one to three years? It is expected to perform the simple task of containing air pressure, and carrying the weight of the vehicle and its content- goods or passengers. This brings me to the first point, the reason why marketing should first and foremost be to educate the tyre sales channels- the traders, distributors, and retailers. It is only when these channels are well educated, that the consumers, when they do need to be educated, can be. Marketing in this instance is therefore no magic- training and educational literature, point of sales material, product literature, etc.

I would say some of the relevant media and events for motorists include automotive magazines and publications, automotive events and shows, and car showrooms. In recent years, the internet is becoming a critical channel for communicating to the consumers. The importance of the internet channel definitely deserves an independent research. But beyond the show cars, pretty models, and fireworks, what is important would still be educational literature, point of sales material, product literature, and etc.

I would say motorsports peaks as the pinnacle of tyre marketing. It enhances development, and pushes the limits of tyres. It serves as an excuse to further splurge on more show cars, more pretty models and more fireworks. Given that there are still marketing money left at the end of these, keep them flowing back to the sales channels.

Marketing unfortunately is marginalized in my context, but my only intention is only to highlight the importance of getting down to the basics- build the channels of tyre sales, invest in relevant advertising media and literature to educate the public, and hopefully have some cash left for extravagance- motorsports. It sounds simple enough, but often, I see marketers creating news through the strangest ideas. This is not to say that imaging and positioning a product or brand, and all the textbook principles of marketing is not important.

This is article 4 by Ler Hwee Tiong, Managing Director at Tyrepac Pte Ltd in his 7 part-series on Selling and marketing tyres- How difficult can that be?