After watching countless news shows detailing the “Occupy Wall Street” movement sweeping the nation, if not the globe, I couldn’t help but think that some people want to protest for the sake of protesting. I read a few surveys about the general views of the protesters and came to the conclusion that even though some of them may be like me, most were not. Still, I saw some sort of just cause in what they were doing, but I couldn’t conclude what the protestors wanted the end result to be. Redistribution of wealth? Lower salaries and bonus packages for the bankers and stockbrokers? Socialism? It all sort of seemed like a football pep rally for St. John’s University. Pointless, as St. John’s has no football team (for those of you that are not sports fans.)
In one televised interview, a protest participant talked about the widening gap between the haves and the have nots. He went on to say that all of the money and power has an insulating factor, which tends to cripple big companies in times of crisis because the people making all of the decisions and most of the money haven’t a clue about the real world, the products they represent and how their policies affect their customers. Hmmm. Well, the aftermarket is going through some tough, if not flat, times, so I decided to take up some of my concerns with the CEO or CFO of any company that would listen.
Those of you who read my column regularly are probably aware of the fact that I think some of the industry executives and distribution systems that serve us have no sense of themselves, and, as a result, they penalize their retail customers with a lot of ridiculous things. Because I had just had an issue with a distribution company over getting billed a fuel surcharge on a delivery to fix their mistake, I decided to give the CEOs of a couple of the nation’s largest tire distributors a chance to explain the matter of automatic fuel surcharges, as this is commonplace for tire distributors. I placed the calls on Friday at about 11 a.m. Eventually, I got through to one’s personal secretary, and was told, “I don’t know if you know about Kentucky and horse racing, but it’s Friday and they are all at the track!” I left a few messages for those that were unavailable.
Also, I must point out that the phone number listed on one major distributor’s website was a call to nowhere. I fully expected someone named ‘Peggy’ to answer in a very thick, male Russian accent.
The mob mentality, angst-ridden mindset of the Wall Street movement suddenly made sense. I was mad that the people whom seem to make all of the decisions about how their company affects my company were seemingly unavailable, and more than anything else, it furthered my need for instant gratification. Shame on me. What follows is actually an eye-opening result of the phone interviews I had with two CEOs of major tire distribution companies. I asked both the same questions, and will follow the responses with my analysis of how their position affects anyone whom sells tires specifically, but also about the “Wall Street” disconnect that exists within the industry.
Q: Why do you charge a fuel surcharge for every delivery, and does your company have a strategy for helping the end seller of your products recoup these fees?
CEO #1 said they have been charging fuel surcharges for about the last 18 months and it is primarily designed to offset the cost of fuel to deliver the product. He reported they had a $2.1 million increase in the cost of delivery over that time, due to the increase of fuel costs. However, he did not know how much they have collected in fuel surcharges over the period, but assured me that it was not a profit center.
CEO #2 said they also have had huge increases in fuel expenditures, had no idea how much they have collected in fuel surcharges, and went on to state that everyone that delivers anything to his company hits them with a fuel surcharge of their own, including uniform service companies, water companies, trash collectors and even the people that deliver the propane for their forklifts. He went on to add that since his competition does it and gets away with it, they should be able to also. I applauded his honesty.
Neither CEO fully understood or realized the impact of a fuel surcharge for a retail outlet. I explained to both that the fuel surcharge is something we retailers cannot pass on because it is not reflected in the cost of the tire when pricing the tire from their respective distribution centers. When I further inquired about simply raising the cost of the product to reflect their cost of doing business, I was rebuffed sternly by each with the comment that if they did that, they would not be competitive. As for a strategy for their customers to recoup these fees, they collectively indicated that we should either raise the cost of our product to incorporate the fuel surcharge, charge our own fuel surcharge, hide it in other fees that we may charge (like tire disposal etc.), or to paraphrase one interviewee, “It’s a nominal fee, not a profit center and some of my customers actually expect us to charge a larger fuel surcharge.” To me this was like Warren Buffet announcing to the world that he should pay more taxes. Fuel surcharges are an absurd reality of doing business. To insinuate that multi-million dollar tire distributors do not have the comprehension to distinguish the difference in a retail product for resale vs. a service they receive (water delivery, uniform service, etc.) is equally absurd. I’m a small company in comparison, but when I sit down with a uniform company giving me a proposal, I point blank tell them that in no way am I paying them a fuel surcharge. Period. And I get it in writing. Fuel surcharges are a profit center by nature because the rationale for the charge is to offset lost profit due to increased fuel cost. I applied the same principle to some of my products. I tried to sell a $40 ball joint for $30 and a $10 environmental fee for the box it was packaged in. My customer looked at me, took the ball joint out of the box, told me to keep the box, gave me $30 and left. In retail, ridiculous charges don’t work.
PAGE 3
Q: Why does the tire industry not feel the need to publish or make available dated, timely price sheets? Do you think that this fact hurts your customers’ bottom line?
CEO #1: “Tire pricing is very volatile. The cost of raw material is rampant. Tire manufacturers change the cost of their product almost daily. We do provide online pricing, and our website does provide the ability to print out a current price sheet.”
CEO #2: “With the cost of raw material changing daily, tire prices are changing almost as fast. It would be impossible for us to provide a printed price sheet because as soon as we printed it, the price would change again. Some of our manufacturers will call and tell us that effective tomorrow at 8 a.m., their prices are going up 8 percent across the board. Most of the time we have more notice than that, but when we get the notice, we try to buy as much product as we can to stock up before the price increase.”
When I mentioned the fact that automotive companies like Federal Mogul or Standard Ignition have price increases, everyone gets a notice of the change, and everyone either gets a printed price sheet or has the ability to update their prices electronically, both agreed that it was something that they simply could not do. I also made the comment that automotive companies must purchase some of the same raw material for their product, but their prices seem to remain constant for extended periods. CEO #2 informed me that he thought the pricing issue was a result of tire manufacturers “spot building” product rather than keeping large inventories of tires available to ship. He said some manufacturers have reduced inventory levels by as much as 60-75 percent of shippable product. Because of this, the cost of making the tire is based more on current raw material value. When I explained to both that inadequate notification of price changes causes their customers to constantly invest more profit to maintain inventory levels, admittedly they saw this as a pitfall for their customer base. To paraphrase CEO #1, he said they should price check their competition regularly to see what the market will bear for particular tire sizes and brands to make sure they are competitive, regardless of our cost. It was almost like he was telling me if all of my tire prices are current and correct, by default I will be more expensive, and thus price myself out of the market. Well, the only reason for this can be that all of my competition gets the same lousy job of price updating from their distributors as well. Are the only people in the tire business making profitable margins the tire distributors and the manufacturers?
In a nutshell, tire distributors cannot provide price sheets for their product. Every time you sell a tire, you must go to their online site to price it, because if you price an in-stock item based on the purchase price you last paid, your replacement inventory will be often times much more expensive. However, if you cost-price everything, you will price yourself out of your market because everyone else is not that concerned about the cost of their product, they just want to be competitive. Did any of that make sense? Also, fuel surcharges are a simple reality; they are not a profit center. They are designed to offset lost margins due to fuel expenditure increases. It’s a nominal fee and everyone is doing it, so why shouldn’t we? Oh? When was the last time you bought a cup of coffee that had a fuel surcharge? How about your last Big Mac? How come fuel doesn’t have a fuel surcharge? All of these things should because they have the same increased cost of delivery within their distribution system, but the price increase is built into the cost of the product and passed on to the retail customer.
I am confused by my lack of understanding of these two issues. Worse than that, I am dumbfounded when trying to understand our distribution system’s disdainful explanation of why these problems exist. Either they just don’t care, are trying to get back their money spent on water-delivery fuel surcharges, are confused by price sheets, or are too dense to comprehend that it takes leadership to stand up in a board meeting and tell your stockholders that your customers are really upset about these things, make plans to correct them, and then adjourn the meeting and go to the casino or racetrack. I sure hope that none of my fuel surcharges were ever lost at the black jack table, but I bet they were.
Bank of America just had mutiny on their hands when they tried to impose an equally ridiculous charge on all of their debit cardholders. Why are you doing the same thing to us with these fuel surcharges? If there is no relief from this lunacy, I say we do something equally as fanatical. Let’s deduct an accounting fee to cover the cost of our accountant sorting out the surcharges, another deduction might be called the “Oops! Surcharge” when you ship the wrong product by mistake, followed by the “Price Match” deduction when we are not informed of a price increase and the “What my Market will Bear” deduction for overpriced tires we bought from you that my competition buys cheaper. If you can arbitrarily charge whatever you want for whatever reason you want, then we can arbitrarily deduct for failures your distribution system inflicts on us that cost us money. But I assure you, it won’t be a profit center; it’s just our new “Sur-Surcharge Strategy” to make you pay for identifiable mistakes that cost us money. These mistakes have cost us money for years and years, so we will also add a “Sur-Sur-Surcharge” for the interest on lost profit, and again, it’s not a real profit center, it is just us being competitive. Just because I’m dancing mad does not mean I’m crazy, it just means my distributors can’t — or won’t — hear the music.
After watching countless news shows detailing the “Occupy Wall Street” movement sweeping the nation, if not the globe, I couldn’t help but think that some people want to protest for the sake of protesting. I read a few surveys about the general views of the protesters and came to the conclusion that even though some of them may be like me, most were not. Still, I saw some sort of just cause in what they were doing, but I couldn’t conclude what the protestors wanted the end result to be. Redistribution of wealth? Lower salaries and bonus packages for the bankers and stockbrokers? Socialism? It all sort of seemed like a football pep rally for St. John’s University. Pointless, as St. John’s has no football team (for those of you that are not sports fans.)
In one televised interview, a protest participant talked about the widening gap between the haves and the have nots. He went on to say that all of the money and power has an insulating factor, which tends to cripple big companies in times of crisis because the people making all of the decisions and most of the money haven’t a clue about the real world, the products they represent and how their policies affect their customers. Hmmm. Well, the aftermarket is going through some tough, if not flat, times, so I decided to take up some of my concerns with the CEO or CFO of any company that would listen.
Those of you who read my column regularly are probably aware of the fact that I think some of the industry executives and distribution systems that serve us have no sense of themselves, and, as a result, they penalize their retail customers with a lot of ridiculous things. Because I had just had an issue with a distribution company over getting billed a fuel surcharge on a delivery to fix their mistake, I decided to give the CEOs of a couple of the nation’s largest tire distributors a chance to explain the matter of automatic fuel surcharges, as this is commonplace for tire distributors. I placed the calls on Friday at about 11 a.m. Eventually, I got through to one’s personal secretary, and was told, “I don’t know if you know about Kentucky and horse racing, but it’s Friday and they are all at the track!” I left a few messages for those that were unavailable.
Also, I must point out that the phone number listed on one major distributor’s website was a call to nowhere. I fully expected someone named ‘Peggy’ to answer in a very thick, male Russian accent.
The mob mentality, angst-ridden mindset of the Wall Street movement suddenly made sense. I was mad that the people whom seem to make all of the decisions about how their company affects my company were seemingly unavailable, and more than anything else, it furthered my need for instant gratification. Shame on me. What follows is actually an eye-opening result of the phone interviews I had with two CEOs of major tire distribution companies. I asked both the same questions, and will follow the responses with my analysis of how their position affects anyone whom sells tires specifically, but also about the “Wall Street” disconnect that exists within the industry.
Q: Why do you charge a fuel surcharge for every delivery, and does your company have a strategy for helping the end seller of your products recoup these fees?
CEO #1 said they have been charging fuel surcharges for about the last 18 months and it is primarily designed to offset the cost of fuel to deliver the product. He reported they had a $2.1 million increase in the cost of delivery over that time, due to the increase of fuel costs. However, he did not know how much they have collected in fuel surcharges over the period, but assured me that it was not a profit center.
CEO #2 said they also have had huge increases in fuel expenditures, had no idea how much they have collected in fuel surcharges, and went on to state that everyone that delivers anything to his company hits them with a fuel surcharge of their own, including uniform service companies, water companies, trash collectors and even the people that deliver the propane for their forklifts. He went on to add that since his competition does it and gets away with it, they should be able to also. I applauded his honesty.
Neither CEO fully understood or realized the impact of a fuel surcharge for a retail outlet. I explained to both that the fuel surcharge is something we retailers cannot pass on because it is not reflected in the cost of the tire when pricing the tire from their respective distribution centers. When I further inquired about simply raising the cost of the product to reflect their cost of doing business, I was rebuffed sternly by each with the comment that if they did that, they would not be competitive. As for a strategy for their customers to recoup these fees, they collectively indicated that we should either raise the cost of our product to incorporate the fuel surcharge, charge our own fuel surcharge, hide it in other fees that we may charge (like tire disposal etc.), or to paraphrase one interviewee, “It’s a nominal fee, not a profit center and some of my customers actually expect us to charge a larger fuel surcharge.” To me this was like Warren Buffet announcing to the world that he should pay more taxes. Fuel surcharges are an absurd reality of doing business. To insinuate that multi-million dollar tire distributors do not have the comprehension to distinguish the difference in a retail product for resale vs. a service they receive (water delivery, uniform service, etc.) is equally absurd. I’m a small company in comparison, but when I sit down with a uniform company giving me a proposal, I point blank tell them that in no way am I paying them a fuel surcharge. Period. And I get it in writing. Fuel surcharges are a profit center by nature because the rationale for the charge is to offset lost profit due to increased fuel cost. I applied the same principle to some of my products. I tried to sell a $40 ball joint for $30 and a $10 environmental fee for the box it was packaged in. My customer looked at me, took the ball joint out of the box, told me to keep the box, gave me $30 and left. In retail, ridiculous charges don’t work.
PAGE 3
Q: Why does the tire industry not feel the need to publish or make available dated, timely price sheets? Do you think that this fact hurts your customers’ bottom line?
CEO #1: “Tire pricing is very volatile. The cost of raw material is rampant. Tire manufacturers change the cost of their product almost daily. We do provide online pricing, and our website does provide the ability to print out a current price sheet.”
CEO #2: “With the cost of raw material changing daily, tire prices are changing almost as fast. It would be impossible for us to provide a printed price sheet because as soon as we printed it, the price would change again. Some of our manufacturers will call and tell us that effective tomorrow at 8 a.m., their prices are going up 8 percent across the board. Most of the time we have more notice than that, but when we get the notice, we try to buy as much product as we can to stock up before the price increase.”
When I mentioned the fact that automotive companies like Federal Mogul or Standard Ignition have price increases, everyone gets a notice of the change, and everyone either gets a printed price sheet or has the ability to update their prices electronically, both agreed that it was something that they simply could not do. I also made the comment that automotive companies must purchase some of the same raw material for their product, but their prices seem to remain constant for extended periods. CEO #2 informed me that he thought the pricing issue was a result of tire manufacturers “spot building” product rather than keeping large inventories of tires available to ship. He said some manufacturers have reduced inventory levels by as much as 60-75 percent of shippable product. Because of this, the cost of making the tire is based more on current raw material value. When I explained to both that inadequate notification of price changes causes their customers to constantly invest more profit to maintain inventory levels, admittedly they saw this as a pitfall for their customer base. To paraphrase CEO #1, he said they should price check their competition regularly to see what the market will bear for particular tire sizes and brands to make sure they are competitive, regardless of our cost. It was almost like he was telling me if all of my tire prices are current and correct, by default I will be more expensive, and thus price myself out of the market. Well, the only reason for this can be that all of my competition gets the same lousy job of price updating from their distributors as well. Are the only people in the tire business making profitable margins the tire distributors and the manufacturers?
In a nutshell, tire distributors cannot provide price sheets for their product. Every time you sell a tire, you must go to their online site to price it, because if you price an in-stock item based on the purchase price you last paid, your replacement inventory will be often times much more expensive. However, if you cost-price everything, you will price yourself out of your market because everyone else is not that concerned about the cost of their product, they just want to be competitive. Did any of that make sense? Also, fuel surcharges are a simple reality; they are not a profit center. They are designed to offset lost margins due to fuel expenditure increases. It’s a nominal fee and everyone is doing it, so why shouldn’t we? Oh? When was the last time you bought a cup of coffee that had a fuel surcharge? How about your last Big Mac? How come fuel doesn’t have a fuel surcharge? All of these things should because they have the same increased cost of delivery within their distribution system, but the price increase is built into the cost of the product and passed on to the retail customer.
I am confused by my lack of understanding of these two issues. Worse than that, I am dumbfounded when trying to understand our distribution system’s disdainful explanation of why these problems exist. Either they just don’t care, are trying to get back their money spent on water-delivery fuel surcharges, are confused by price sheets, or are too dense to comprehend that it takes leadership to stand up in a board meeting and tell your stockholders that your customers are really upset about these things, make plans to correct them, and then adjourn the meeting and go to the casino or racetrack. I sure hope that none of my fuel surcharges were ever lost at the black jack table, but I bet they were.
Bank of America just had mutiny on their hands when they tried to impose an equally ridiculous charge on all of their debit cardholders. Why are you doing the same thing to us with these fuel surcharges? If there is no relief from this lunacy, I say we do something equally as fanatical. Let’s deduct an accounting fee to cover the cost of our accountant sorting out the surcharges, another deduction might be called the “Oops! Surcharge” when you ship the wrong product by mistake, followed by the “Price Match” deduction when we are not informed of a price increase and the “What my Market will Bear” deduction for overpriced tires we bought from you that my competition buys cheaper. If you can arbitrarily charge whatever you want for whatever reason you want, then we can arbitrarily deduct for failures your distribution system inflicts on us that cost us money. But I assure you, it won’t be a profit center; it’s just our new “Sur-Surcharge Strategy” to make you pay for identifiable mistakes that cost us money. These mistakes have cost us money for years and years, so we will also add a “Sur-Sur-Surcharge” for the interest on lost profit, and again, it’s not a real profit center, it is just us being competitive. Just because I’m dancing mad does not mean I’m crazy, it just means my distributors can’t — or won’t — hear the music.
