Industry Description
The tire dealers industry retails tires and tire tubes for automobiles like passenger cars, sport utility vehicles and commercial trucks (NAICS 441300). This industry includes maintenance services and excludes mail order and online tire sellers.
The following are some basic characteristics of the tire dealers industry:
- Tire dealers industry has a combined revenue of $35.2 billion, which declined an average of 2.1% per year in 2017-2022
- There are approximately 24,000 businesses as of 2022
- The tire dealers industry employs approximately 565,000 people
Industry Trends
The tire dealers industry is highly fragmented with low levels of market share concentration, with the top four industry operators comprising approximately 36.5% of the revenue in 2021. Small players are independently operated and owned in one or more states, while the biggest players have multiple locations across the US. According to Modern Tire Dealer, 54.0% of total industry revenue comes from tire sales and 46.0% comes from automotive services and sales of automotive parts. Some key external forces influencing this industry are (i) diversity of driving habits, (ii) adoption of new tire technologies, (iii) commodity pricing, and (iv) shift towards e-commerce. Each of these is described in further detail below.
The diversification of consumer driving habits has impacted the industry. The rise of electric cars and the demand for specialized tires require tire dealers to adapt. Tire dealers stand to benefit in the long run due to the rise in demand for tires of environmentally friendly cars. The increased popularity of heavier and larger vehicles like pickup trucks and SUVs requires large tires to handle their weight. Tire dealers should look to expand their tire size range to include wider sizes. The rise of autonomous driving requires tire dealers to integrate tires designed for autonomous driving.
Commodity pricing of raw materials such as oil has a significant impact on the tire industry. Tire prices have risen approximately 5 percent, and in some cases 10 percent or more, in 2021 with raw material costs being one of the main causes. High oil prices increase the cost of synthetic rubber production which leads to higher tire prices. The result is the demand for tires decreases impacting profitability and overall revenue. Tire dealerships must closely monitor commodity prices to adjust pricing and their inventory strategies for better competition and profit margins.
Green tire technology marks the latest advancement in tire technology. Green tire technology, a relatively new invention to the industry, grows the industry by putting focus on advancing tires to be sustainable, eco-friendly, and user-friendly. Green tire technology creates new tires like smart tires, run-flat tires, self-inflating tires, and low rolling resistance tires. The invention is expected to grow the industry to over 2.7 billion tires by 2026 compared with 2.0 billion in 2020.
A shift towards e-commerce in this industry has become increasingly popular driven by increased convenience and cost savings. The rising demand for online shopping has increased the number of online retailers and tire dealerships. E-commerce gained popularity during the COVID-19 pandemic as it made it easier for consumers to order from the comfort of their homes, coupled with the ability to compare products and prices. The expansion to an online presence creates unlimited opportunity for tire dealers to expand their sales avenue. Mobile commerce development allows consumers to browse on the go and smartphones enable easier browsing on websites and online stores to purchase tire products. Tire dealers need to adapt their business model and expand their online presence to remain afloat within this industry.
The tire dealers industry in the US has been heavily impacted by external factors like the diversity of driving habits, new tire technologies, and a shift towards e-commerce. Advancements in the industry lead to more consumer accessibility regardless of their driving habits. Tire dealers should adapt to increase the production of technologically advanced tires to meet industry demands. The impacts of COVID-19 disrupted the supply chain in the industry enhancing consumer shift to e-commerce. Industry players adapting to these factors meet an increase in demand and see an increase in revenue.
Key Performance Metrics
In evaluating tire dealers, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:
- Net operating profit
- Sales volumes
- Average sell-out price
- Effective labor rate
- Average repair order
- Customer satisfaction and retention
Industry Organizations & Publications
The following organizations publish useful information:
- Tire Industry Association
- U.S. Tire Manufacturers Association
- U.S. Department of Commerce
- Tire Business
Guideline Information: Private Purchase Transactions
Most tire dealers are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held tire dealers is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of tire dealers:
- Revenue multiple between 0.17 and 0.68 times
- Gross profit multiples between 0.30 and 1.64 times
- EBITDA multiples between 2.4 and 7.2 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most tire dealers are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The four largest publicly traded US tire dealers, ranked by market capitalization are:
- LKQ Corporation (LKQ) – $15.3 billion market capitalization
- The Goodyear Tire & Rubber Company (GT) – $3.2 billion market capitalization
- Monro, Inc. (MNRO) – $1.6 billion market capitalization
- PARTS iD, Inc. (ID) – $14.2 million market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 14.1 times to 35.3 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Tire dealers are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.