What’s the story on the tariff?

We sat down with COO, Jeff Hood and VP of Sales Jeff Short to talk about the all the buzz swirling around the tariff to see if we could shed some light on things.

What is the tariff? What are the specifics?

Let’s start by trying to clarify the root of this whole thing. The United Steel Workers say, and the U.S. Commerce Department has ruled, that the Chinese government illegally subsidizes Chinese tire factories, which is against the world trade rules. This puts other countries and their factories at a competitive disadvantage. The tariff isn’t about propping up the American tire manufacturers. They didn’t ask for this. We all know US manufacturers have basically given up on making low-end tires here. And the ones that they import from China will get tariffed just like everyone else.

The tariff is coming in two stages. The first is a counter veiling duty, which was already put in place in December. It averaged around 12% except for one plant that got slammed with an 80 % penalty. The second part is the anti-dumping duty, which was just announced. This phase assigned duties of a further 20% to 36%(approximately) for some well-known factories and a whopping 88% for hundreds more Chinese factories.

Who is concerned about the tariff and why?

Basically everybody is concerned about it, because almost everybody sells Chinese tires in widely varying quantities. It’s estimated that the current American tire supply includes somewhere between 20-40% of these Chinese tires. As for what the concern is, I think most are simply concerned that they are going to lose their options for cheap tires. If they lose their option for cheap tires, they have to find a replacement, or they fear they will have to charge more to the consumer and think that will hurt their business.

For those that are concerned, do you have any advice regarding their concerns?

First, I would encourage people not to panic. The sky is not falling. This has happened before and it will affect some things, but in the long run things will settle down and the tire industry will move on just fine. The biggest thing for people to realize is that this tariff is a completely level playing field and is going to affect everybody the same way. So, while there will be adjustments, everyone will be making similar adjustments.

Can you explain a little further about why it’s going to be what you called “an equal playing field” and why that should ease some of the concern?

Think of it this way: It’s like a grocery. All grocery stores have name brand items and off-brand or generic brands. So you can walk into the store and buy Oreos for maybe $4 or you can buy the off-brand cookies for $2.75. Everybody knows the Oreos taste better, but a lot of people are willing to pay the lower price for a chocolatey cookie, even if it’s not as good. Well, imagine if all grocery stores in America found out they would no longer offer generic brands. The cheaper option was going to be removed. That’s kind of like what is happening with the tariff. The cheaper option is going to go away, across the board. Nobody is going to have a secret stash of the cheap stuff. So everybody will have to pursue other options.

So, then let’s talk about those other options. What do you think people will do to compensate for the loss of the cheaper tires?

What do I think people will do…..or what would be the best thing for them to do?

Let’s start with what you think people will do…..

Ok, I think people in the immediate moment will scramble to search out all the remaining cheap tires from China that suppliers have until they run out. Once that option is gone, then people are going to search for other cheap options from offshore countries other than China—-so the search will move to find the “best” cheap option from Malaysia or Vietnam or wherever.

Ok, then, judging from your clarifying question you don’t think what people will do is the best option, so do you have some advice for them as to a better option?

I do, but it opens up a bigger topic for the industry.

Get us started and let’s see where it goes….

Ok, I think there is a big opportunity here. There is an opportunity to sell people better tires. But as I say that, I really am aware of a couple things – 1) I’m aware that this is a topic that people don’t necessarily agree on—a lot of guys will hear me say that and think it’s easy for me to say. 2) I’m aware that me saying that sounds self serving, given who K&W is and what we do.

Well, those qualifications noted, do you really believe there is an opportunity to sell better tires? Do you believe that opportunity is more for you as a WD or do you actually think it’s an opportunity for the independent tire dealers?

No, I really believe it’s an opportunity for the independent tire guy–our customers or potential customers. But here’s the thing. It means that we have to get over a hurdle—a big one for the industry. The guys selling the tires will have to realize that when the consumer comes into to buy tires and says, “I need cheap tires” or “Give me the cheapest thing you got.” … he doesn’t actually mean that.

Well, that sounds like you’ve got some explaining to do……

Well, I’ll put it to you this way: If the old adage is “the customer is always right,” then my qualifier would be that he doesn’t always know what he wants. We talk to our customers all the time who tell us that people come in and say the same thing, but if the guy behind the counter takes a moment to explain the purchase they are about to make and the options, they very rarely actually want the cheapest thing you’ve got. But that’s where the genuine selling of your product comes in—and I don’t mean that in some kind of underhand way. I mean that there are huge advantages and huge reasons to spend a little bit more on better tires and they are good options out there, but it’s not the easiest path. It takes some preparation and some work. But in the end not only will it be better for your bottom dollar, your customers will be more satisfied. Everybody that we know who does it well, or reasonably well, tells us that their customers end up happier.

This sounds like a bigger topic, maybe we can do a follow up and come back to this at a little more length. For now, to wrap this up, what would tell you customers or potential customers about how you at K&W can help them through the murky waters of the tariff?

Well, first, for our existing customers….we’ve been talking to many. Many have called or emailed to ask about these things…..our first message to them is “we have your back.” What I mean is that our entire business is built on the success of independent tire dealers….the guys that are most worried about the tariff. So not only do we want them to succeed we do a lot of things to help our customers overcome these types of challenges….. I was reading an article on TireBusiness.com where the president of Monro Muffler said this “If additional tariffs are implemented, we believe that our comps get better, our earnings get better and smaller tire dealers would find themselves under additional pressure, which would create more opportunities for us to make accretive acquisitions.” I guess if that’s how he sees it…..but we see it as the exact opposite. Monro says, “If there are tariffs, great, we’ll just snatch up all the little guys” …. We don’t want to snatch up the little guys; we want to help the little guys take advantage of an opportunity to improve their business in the midst of this challenge.

We have ways to do that. We have people and resources at the disposal of our customers. At the end of the day, it’s going to be in the hands of the tire dealers to call us, but we’ll take time to work with them and help them through it. We are doing it now and will continue to do it. More than a couple times, people are surprised at what options they have through K&W. Give us a chance to help you out. Jeff (referring to Short, VP of Sales) will take any call to help you.

Thanks, guys….we appreciate your thoughts and candor. Hopefully, your customers and other in the industry will find this helpful.

To our Readers: Please give us feedback. Leave any comments you’d like or any questions you have. We are going to continue this discussion with a few follow up posts over the next month or so and we’d love to include your questions.