Automotive Repair News Today

Braxton Critcher [00:00:05]:
Thanks so much for downloading and listening to this episode of Automotive Repair News today. I'm Braxton Critcher. Today we're going to talk about map. Might be familiar with all that's happening with Michelin and minimum advertised price for big box stores and what might be happening to independent repair shops and tire stores nationwide for this minimum advertised price and Michelin. So I have invited Mark ponds from Chapel Hill Tire and Randy O'Connor, just a industry professional, long time in the industry. So, guys, thanks for being here.

Mark Pons [00:00:48]:
Thanks for having us.

Randy O'Connor [00:00:49]:
Glad to be here, Braxton.

Braxton Critcher [00:00:50]:
So set that up a little bit for me, Mark, of what's going on in the industry. Why is this happening? And set the stage for what all this means for repair shops and tire shops.

Mark Pons [00:01:04]:
Yeah. So a month or two ago, I looked on the Slack channel that our company has, and one of our service advisors posted that he had lost like three sets of tires in the last two weeks to, to customers who were choosing Costco over us, because Costco had been running a promo that was free install on tires and they wanted to know had anybody else looked at it. And another advisor spoke who's also near, at a different location, also near a Costco said, yeah, he's been running into it for a while. And so I began to investigate, and it appears that last summer, in August, Costco ran what was supposed to be maybe an August promotion of free install on tires was a promotion that never ended. And it was working so well that they just kept it going. And so it began to raise some concerns with me, not only for me, but with an independent, other independents out there that how does this running this free install program, how does that, does that conflict with the minimum advertised price programs that these manufacturers make us all abide by? And so I sent some emails to my Michelin reps, who I'm a Michelin dealer, only to hear back from their kind of legal teams that this in no way did this violate their map program. And it raised some concerns to me that this is circumventing this practice free install is circumventing the map policy, and that obviously these big box stores have the scale and power to do this, but, you know, and they are the largest customer to say, a tire manufacturer like Michelin. However, Michelin was allowing this to happen at the expense of their largest channel, which is all of us independence.

Mark Pons [00:03:32]:
And just started to feel to me that this was almost sort of anti competitive, antitrust behavior by these larger big box stores.

Braxton Critcher [00:03:45]:
So it's been happening for nearly a year. At this point.

Mark Pons [00:03:48]:
Yeah, we're coming here. Yeah, exactly.

Braxton Critcher [00:03:52]:
And why, why do you Think MiChELIN, you knoW, is, is running this kind of promotion?

Mark Pons [00:04:00]:
Well, I know Why. I know why costco is running this promotion. I know why the big box is run this promotion because it's a way for them to beat the market on the, on the pricing of the tires, to get the customer in there. And that, you know, that it really benefits them to have a customer sitting there waiting, you know, 2 hours to get a set of tires installed because the customer is going to rack up, you know, $501,000 worth of other purchases, of higher margin purchases while they're in there. But, you know, the smaller independents, you know, we just, we don't have that kind of scale. We don't have those types of other offerings. But meanwhile, you know, we are investing heavily to provide a great customer professional experience on the installation of tires by having road force balancing. All my stores have Hunter road force balancers, hunter Tire machines, we've got hunter alignment systems that the big boxes choose not to even offer that part of the customer tire purchasing experience.

Mark Pons [00:05:13]:
And so to me, it's, by allowing this to happen, it's devaluing the tire buying experience that we're offering our customers. But hey, I guess it's selling a lot of tires for them, too.

Braxton Critcher [00:05:29]:
What are your thoughts on this, Randy?

Randy O'Connor [00:05:31]:
Yeah, I think that Mark brings up a really good topic when it comes to professionalizing the industry. And there's a lot more, and most consumers don't generally recognize. I think, and I could be wrong, but I think a lot of consumers don't necessarily recognize all of the training and investment that a professional installation for tires really involves. You know, just putting on a set of tires doesn't mean that you're actually going to be able to get the performance and the mileage out of them if your car isn't set up right. And if you're pushing folks all towards, towards one customer set of customers by way of clubs, by way of allowing them and pushing them to devalue the, the experience and the installation process of the training and everything else that goes into, you know, what we have to do in order to be able to do that. Ultimately, for the consumer, you're ending up with a lesser service. Right. You're ending up in a situation where they could be installing brand new tires on a vehicle that may or may not be safe.

Randy O'Connor [00:06:37]:
Who knows, right? Are the big box stores, are the Sam's club the clubs of the world? Are they shaking down the front end to make sure that it's actually safe and intact? No, probably not. Because they don't offer those services, they're not going to be able to replace your inner or outer tie rods, and they're not going to be able to do the alignment. So from a manufacturer perspective, I would think that they would want the most professional person to install tires. Customer perspective. But it doesn't appear to be that way. By way of undercutting the independent who, if all they're able to take away from the promotions and everything that they offer out there to stay within map, and they do a $100 $120 instant rebate on a set of BFGs or a set of Michelins, is that the independent that has made those investments in a $70,000 alignment rack, a $20,000 road force balancer? They're spending $15,000 a year on training their team, sending them out to get TIA certified, to get ASE certified and all of those things. It's cost prohibitive for us to devalue the installation process and the professionalism that comes with all of those big price tags that true professional independents like Mark and Chapel Hill tire offer to every customer on a daily basis. And so to me, it's actually kind of deflating the customer experience to where they're going to develop this expectation that they should be able to pay for nothing but the tires.

Randy O'Connor [00:08:10]:
And all of a sudden, the installation really isn't very valuable. And that's simply not true.

Mark Pons [00:08:16]:
And so, Braxton, this makes me concerned about kind of what happened with the damage that Autozone and advance did to the market when it came to diagnosing check engine lights. When they started offering check engine light code pools for free, it totally devalued what the market thought about the equipment, the years of training, the ASE's that a certified technician put into being able to properly diagnose their vehicle, right, by saying, oh, I can just go to advance. This place is trying to charge me $100. What a bunch of scammers. They're ripping me off. I can go to advanced or autozone and get it, you know, get told what my car needs for free. I feel like the same thing is going to happen, is like, can you believe this place is trying to charge me, you know, 25, $30 to balance a tire when I can go to Costco and have it done for free? What a bunch of scammers. So by condoning this, I feel that this practice, I feel like the tire manufacturers are devaluing the work and the investment, the training put in by their largest channel at the expense or to favor their largest customer.

Braxton Critcher [00:09:40]:
We're mentioning Michelin a lot. Are other tire manufacturers involved in this or right now? Have you just noticed it's only Michelin?

Randy O'Connor [00:09:50]:
It's now across multiple manufacturers. You know, where, where their programs come in. So it depends on the club. Right? So you talk about Costco. They're limited in the manufacturer products that they offer to their consumers. If you compare that more over to Sam's club, they have a much more diverse portfolio of manufacturers that they, that they offer. So it may or may not be relegated in, in one way or the other. But Michelin pops off the page, because when, when I think of a no compromise product, and generally speaking, when customers think of a no compromise product, they professionally design product that millions and millions of dollars of R and D go into.

Randy O'Connor [00:10:35]:
That's Michelin that pops off the page. And so to me, Michelin being the leader in research and development in providing a good product, I would think they would want to put wind behind the sail of the person that's doing the most professional installation. That's why that seems to pop off the page to me. Mark, I don't know about you, but. So it's not just relegated. It seems like now this is caught on so much that they said, okay, we started with this certain group of manufacturers. Now we see how impactful it can be and how many shopping carts at $500 a shopping cart we can fill up while we're doing free installation. Let's do it on Sumitomo.

Randy O'Connor [00:11:13]:
Let's do it on Pirelli. Let's do it on, you know what? Let's do it on a bunch of different manufacturers. Right? So it's becoming, as time goes on, it's becoming more and more and more of a challenge because it's not simply relegated to one manufacturer.

Braxton Critcher [00:11:33]:
I forget who it was. But one of you, before we started recording here, mentioned something about inside a contract, how things were worded. May have been you, Randy, back in 2018. Describe that again and what's changed.

Randy O'Connor [00:11:46]:
Yeah, so you know the map language, everybody that's, that's on a program with a manufacturer must sign and abide by the language that's in that map policy. And if you go back and you look at 2018, for instance, and you look at Michelin's map policy, they specifically, they specifically exclude offers exactly of this type. The language I don't have verbatim in front of me, but it was something like it is excluded to be able to offer $10 off per tire for using a preferred installer. If you look at what's on the website of the clubs now, it actually says you have to get them installed at that club and that they will give you free installation on that particular brand or a series of brands if you get them installed by a preferred installer, being the club only. So that language now if you look at map now is, you know, when Mark and the other folks are pushing back over to these manufacturers and saying, hey, you know, isn't, isn't this a little anti competitive? Doesn't this kind of, doesn't this kind of skirt the entire premise and purpose of what map is to level the playing field for everybody that's involved in, in the commodity tires is you see that, that language has gone away. That language is no longer a part of this contract. And so, you know, I don't want to, I don't want to guess at intent, but if it smells like and walks like, I think it might be right.

Braxton Critcher [00:13:20]:
Yeah. Yeah. You know, this is like we talked about roughly a year into some of this stuff happening. Long term, though, what do you guys expect to, how will this affect the industry? How will this affect consumers? How will it affect tire manufacturers long term?

Mark Pons [00:13:40]:
You know, so a few years ago, we looked around and we asked ourselves, do we really, you know, the tire business is a very competitive business. And we asked ourselves, do we want to be in, you know, the tire business? The answer was yes, we really like the tire business. And, ok, if we're going to do this, then we got to be competitive with these guys. We got to be competitive with the Costco's, the discounts, the big boxes that have better buying power than we do. And so, you know what? We're going to lower our prices to try to be in line with them. Still abide by map, but we're even going to implement a price beat guarantee that we're going to be as competitive as anybody. If the customer comes with us with a price, we're going to match it or beat it. That comes with the sacrifice of some profit margin.

Mark Pons [00:14:35]:
But now it's like, okay, they've taken the game even really lower, I guess I wouldn't say higher. They've taken the game lower by taking out the install on it. And then we've got to ask ourselves the same question. Do we want our price? Our price to beat guarantee was on the price of the tire. That's what it was based around. But now we are having to say, okay, to keep that customer, retain that customer. Great. We'll have to wipe out the install, too.

Mark Pons [00:15:08]:
And so you can only do that for so long. Everybody knows that wages are up over the last few years. Now you're, now you're making it so that I can't charge for the labor of these group of people in my company whose wages have been climbing over time. Now I have to give their labor away. I can't even try to increase prices to offset it. So it's a spiraling path to zero, I think, for the independents.

Braxton Critcher [00:15:40]:
You mentioned that you had noticed this a few weeks ago and have done some research. Have you been in contact with Michelin or other tire manufacturers about why?

Mark Pons [00:15:52]:
I think we've all, I have reached out to the manufacturers and we've all gotten the same response back from them. Even some members of my 20 group reached out. We got verbatim the same response back that this, you know, is not a violation of their policy, period. Sort of. Sorry, that's it. And not, we're going to work on it. Not to me, I guess. Again, it's insensitive to the respect of their largest channel.

Mark Pons [00:16:26]:
And again, the investments we make into equipment, into training, everything we do to try to give that customer a great experience with that product, it's insensitive to it. And a lack of appreciation is how I feel about it.

Braxton Critcher [00:16:43]:
Does legal action ever, you know, come into play? You think.

Mark Pons [00:16:50]:
I don't know enough? I did ask, it's funny, I asked Michelin to check on, does this, is this anti competitive, is this antitrust in any way? And they were going to have their legal team check on it. This is over a month now, and no one's ever gotten back to me.

Braxton Critcher [00:17:06]:
Wow.

Randy O'Connor [00:17:07]:
I think it goes more to the consumer, though, right? It goes more to the consumer and consumer protection, long term, you know, profitability for corporations, as we all can read and hear in the news, is doing just fine. Right. And while it may seem to the consumer in the short term, that 8100, $120 off a set of tires is pretty good. And it seems like it's something that is good for the consumer. That's a short term view. Right. And especially if you're, if you're precluding them from having a professional experience, those long term costs are being hidden in something that is just what is free for now is going to cost you long term in the future. And so for consumers who, you know, really appreciate and like the people like Mark Ponds and Chapel Hill Tire and the others that are out there, that becomes a really hard decision for them.

Randy O'Connor [00:18:05]:
$100 or $120 is a fair amount of money. And so getting them and pushing them by way of an emotional purchase for a short term view of 100 or $120 off long term is not going to be good for consumers. It's not good for, I think, manufacturers down the road, they may have to warranty more tires because they're selling more of them through the clubs than through a professional service that shakes down the car, that finds the issues, that actually aligns the vehicle and gives those tires a chance to be able to make it the warranty period. Long term, the consumers in the end, end up paying for it one way or the other. It's just clouded in a free offer right out of the gate to be able to push people towards one set of customers rather than leveling the playing field for customers across all channels and all customers.

Braxton Critcher [00:18:55]:
Obviously, things like this, video and other podcasts and things like that will help get some of that awareness out there. But what else, what else do you think is going to have to happen for consumers to understand that fact?

Randy O'Connor [00:19:10]:
Well, so, I mean, education is really hard. We operate in an extremely fragmented industry, and when you've got the power, the powers that be, condoning, possibly even supporting a program of this type, we're actually taking an earth mover to a movement of professionalizing the industry and completely digging out our foundation of providing consumers that truly professional, well done, certified experience. You know, it just seems like a really messy place to be pushing people down a road where, you know, we need to talk about it more, we need to get it out there more. We want to continue supporting Michelin, of course, and all the rest. And this is nothing personal. You know, this is just a situation where it's for consumers and for the long term investment of an independent, feel good, buy local, keep your money within your community the best you can. That perspective is something that we take very seriously. We make sure that with everything that we're doing and what we're doing, we reinvest back in our communities as an independent a heck of a lot more than big box and private equity and all the rest of them do.

Randy O'Connor [00:20:35]:
And that's important not only just from the cost of installation for the tires, but that goes back to supporting community colleges and education programs, that goes back to supporting high schools and students and getting people involved in the trades and all of those things that, that independents do in a really large way. But it's really hard to do because we don't have the bandwidth and we don't have the voice that a manufacturer or a national club actually has. Does that make sense?

Braxton Critcher [00:21:03]:
Absolutely. By the way, if you're watching this video and have thoughts, questions, concerns, comments, please let us know in the comments on this video. This is a very important thing happening in the industry, but not just in the industry as we've talked about. This is touching anyone who has a car. And so let us know what your thoughts are in the comments. What else should we add here, Mark and Randy, about, about what's going on.

Mark Pons [00:21:33]:
You know, again, I'm just wondering about the scale of what this is happening at. If I'm facing this at just with my stores in my little area of the country, what's happening across the whole country that independents are losing. And again, I think it's short term thinking on the tire manufacturer's part. Great. I hope that somebody's getting a bonus because he's hitting their quota of somebody buying a lot of tires from them. But what is the long term damage that they're doing to the industry? What is the long term damage they're doing to, again, their largest channel? What's that short term thinking doing to the impact of their largest channel across the country when they're already facing so many obstacles? We're facing just increased wages, inflation hitting us on all sides, just like it's hitting the consumer. It would be nice to have the big guys supporting the smaller guys, the independence, for all the reasons that Randy said, you know, if you go look on any, I guess, peewee baseball field you're going to see on the back of the jerseys, you know, the sponsors are the local tire dealers, right? It's the local tire and auto repair places that are sponsoring the soccer teams, the baseball teams, the, you know, boy scout troops raising money. You know, we're the ones who, we are pivotal, I think, in the communities in which we serve.

Mark Pons [00:23:08]:
We're the ones where everybody's getting fractured. Everybody's going in two different directions. It's small business in these communities, the ones that pull people together and unite people and would love to have a little support.

Randy O'Connor [00:23:23]:
Braxton, to Mark's point, I mentioned fragmentation earlier and it kind of comes across as being with a negative connotation. It comes across as being negative. But fragmentation isn't necessarily always negative. Look around us everywhere you go and look at the vertical integration that's happening in multiple different service industries. And it's service industries for a reason. We might be a commodity based when we're talking about tires, but we're also a very service based industry. And if you talk about vertical integration, you're seeing it at vet clinics, you're seeing it at car washes, you're seeing all these places that are getting bought up, and they're consolidating everything into a given set of folks that are providing a given service that are Amazon proof. Right? And so as it turns out, this inherently has to become anti competitive because now, if you have vertical integration across different markets, your consumers have less choice.

Randy O'Connor [00:24:23]:
And your consumers need that choice and they need that voice in order to continue to be able to thrive and survive in their communities with the support of folks like Chapel Hill Tire and the others that are involved in the independent aftermarket. So that that fragmentation actually still supports the consumer in a very positive, very meaningful way.

Braxton Critcher [00:24:45]:
Well, good stuff, guys. Thanks.

Mark Pons [00:24:48]:
Thank you, Braxton.

Randy O'Connor [00:24:49]:
Yeah, thanks for having us, Braxton.

Braxton Critcher [00:24:51]:
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