Price, profit and problems. (tire dealers say tight competition reduces their profit margins)(Industry Outlook)

Price, profit and problems

Tire dealers report tight competition is squeezing their performance market profit margins

As the performance tire market continues to grow, dealers are becoming more and more concerned about pricing. Increasing competition has reduced profit margins, and some people say the thrill of the performance market has come and gone. Also, the complexity of the market has dealers wrestling with inventory challenges and consumer tire education as tire manufacturers continue to keep pace with the demands of newer car models.

It's not news that price is tied to the forces of supply and demand. As more auto manufacturers produce cars with anti-lock braking systems (ABS) and sophisticated suspensions, they are requiring and putting high performance H-, V-and Z-rated tires on their models. Add to that the usual demand from auto enthusiasts for aftermarket high performance tires, and you have a product that you can sell for a good profit.

Remember when the "muscle cars" of the late '60s and early '70s were the performance market? How about the performance famine when the 1973 gas crunch hit?

The next wave -- today's more sophisticated performance market -- has been a blessing for dealers who were prepared for it. This market has been great the past few years, and so have the profits.

But profits in this once-exclusive market are not what they used to be -- so they say. Some dealers point the finger at the natural progression of the market.

"Years ago it was steel-belted radials," says Paulette Lewis, executive vice president of Paul Lewis Tire Center in Jacksonville, FL. "Now it's performance tires. The high performance tire is following the trend of any new product. Look at the computer market, for example. At first, the cost to purchase a computer was high; now prices are the lowest that they have ever been. It is because of the competition. The same is true for performance tires. Many dealers are very aggressive in marketing high performance tires, and they were aggressive in the beginning because they saw where the market was going. Before it was only the auto enthusiast who bought performance tires, now it's your wife."

In addition, manufacturers seem to be holding the line on price. All the dealers …