Private Equity Is Coming For Your Local Tire Shop

Regardless of whether your car runs on gasoline, diesel, batteries, or even hydrogen, it’s probably going to need tires at some point. After all, they’re the only four things meant to touch the ground, providing the grip to keep you on the road. However, before you pop down to that local tire shop, just know that it might not be around in the same form forever. Like with many things in automotive, private equity is coming for local tire shops, and what comes next might get weird.

Tire shops are one of the hottest businesses for private equity to break into right now. In July, Percheron Capital-owned Big Brand Tire & Service Co. reached an agreement to acquire Belle Tire Distributors, a century-old chain of tire shops across the Midwest. Once this acquisition closes, Big Brand will own an additional 185 storefronts. On a similar note, Sun Auto Tire And Service, majority-owned by Leonard Green & Partners, has acquired enough small chains and independent tire shops to now boast more than 600 storefronts. As Automotive News put it, “It seems every week one of the handful of large private-equity-backed dealerships is buying an independent tire shop or a regional chain.” and there’s good reason for that.

Even in a recession, tires sell. More buyers might switch from something like a General to something like a Goodride, but in a labor-heavy industry, margin on physical products is almost tangential to margin on service. Tire shops also don’t require nearly as much equipment as full-service repair shops, they offer fast customer turnaround, and they’re relatively futureproof. Sure, new machines may eventually be needed to mount tires to some of the ridiculously large wheels certain modern SUVs roll on, but that’s a lot cheaper than upskilling technicians with EV training. What’s more, the tire business is extremely fragmented, featuring a heavy mix of independent owners, some of whom are looking for an exit. If the owner’s kids don’t want to take up the family business and none of their technicians are looking to make the investment to take over, they have a reason to want to sell to someone.

So what does that mean for drivers? Sometimes it’s just easier to buy tires at a shop, sometimes you need an emergency replacement tire, and even if you generally buy tires online and have them delivered, you probably don’t have mounting and balancing equipment in your home garage. Well, this rush of acquisitions comes with a whole load of potential pros and cons. Let’s start with possible upsides.

Lots of independent tire shops only have agreements with a small handful of distributors, effectively middlemen for tire companies. It’s often not cost-effective to carry huge inventory, so many sets end up being ordered in. Many smaller independent service centers that do tires in addition to other mechanical work may only have a supply agreement with one tire distributor, and as a result, pricing and availability aren’t particularly competitive. Think margin as little as 10 percent on a quote that may be more expensive than if a customer were to simply order from a big chain. Conglomeration can help here due to scale.

If a small shop sells 20 sets of tires a week, it’s often not big enough to warrant the expense of warehousing or the logistics of direct accounts with tire companies. However, if said shop suddenly joins another 20 shops each averaging 20 sets of tires a week, that’s 400 sets of tires per week across the group. That’s much better buying power, and it can translate into having the resources to make direct deals with tire companies, have a truck running tires around the region, and getting both better margins and better pricing for customers. At the same time, buying tires from a large group opens up opportunities for greater independent road hazard warranty support, better booking and scheduling tools, and cheaper storage options for seasonal tires, and other convenience perks for customers.

On the flipside, the whole model for private equity is to juice short-term profits or, if that fails, strip companies of their assets and parcel them out. Efficiencies might mean cutting staffing, or raising prices, or changing the selection of tires on offer. Speaking of selection, conglomeration makes it harder for consumers to accurately cross-shop because the name on the sign might not accurately reflect the corporate management. Two seemingly different tire shops might be owned by the same investors, have the same suppliers, the same sort of pricing, and similar overall standards.

Let’s look at quick-lube places as an example. Nowadays, there are only really a few major chains of fast-service oil change places. You have Jiffy Lube, Valvoline, and Take 5 all, with huge slices of the industry’s pie. Local options are comparatively few and far between, and the exact same thing is happening in the tire industry. Just look at Mavis Tires’ acquisitions of Pep Boys and Midas. The number of chain names in the telephone book remains the same, but that’s what private equity firms pay for. Meanwhile, the amount of actual consumer choice has dwindled.

Another big issue, albeit less to do with drivers and more to do with people looking to make a living in the trade, is the concept of pulling the ladder up. Historically, independent tire shops have been run by someone local in the community. You might’ve gone to school with them or met them while pursuing a shared hobby, and selling tires is a way to keep the lights on, pay the mortgage, and keep a little something for retirement. Someone with tire know-how, decent business sense, and good enough credit could get a bank loan and start a tire shop, and so long as they stayed in the black and took care of customers, it was a way for people like you and me to make a living. That’s getting harder to do in the face of rising commercial rents, and it gets even harder when you compare marketing budgets of a private-equity-owned chain versus an independent operator.

So, if you like to actually shop local or are thinking about opening up a tire shop, what’s the actual path forward? In some cases, it’s going mobile. Storefronts typically need to be in convenient locations, branded, permitted for automotive, and staffed both front-counter and back-end, no matter how busy or quiet things are. On the other hand, a commercial storage unit typically doesn’t require leasehold improvements, and it’s often cheaper to put a tire machine and a balancer in a van and have a tire technician show up at a customer’s home or office. It’s a more cost-effective way of getting into the industry, and it comes with a level of convenience the big brick-and-mortar chains can’t match.

I switched over to a local mobile tire shop years ago, and I don’t think I’ll ever go back. Cost is very competitive when viewed against the brick-and-mortar chains, service is excellent, and the guys there really know their tires. More than that, they’re good dudes making an honest living, and it’s nice to support a company that takes care of its people. Even though private equity acquisitions of tire shops are on the rise, it’s probably not worth panicking yet. Independent shops that are truly independently owned will still be around for a while yet, and that now includes an increasing number of mobile tire fitters. However, if you want to shop local, it’s worth doing a little research to find out if that seemingly independent tire shop is truly independent.

Top graphic image: Deposit Photos