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James Lackey

12/08/2005
A story on flat tires and loyalty, from Mr Lack

A sheet metal screw in a 9 month old tire left me with a flat at the park last night. I always have a small hydraulic, (mini floor jack), and a 4 way in my vehicle, ever since I was 15. Last night mine were both laying in the garage floor at home. I was parked in dirt. I had a scissor jack, a spare located under the full size van held up by a cable. Friends yelled "who has a can of fix a flat".

I said "naa I need to patch the tire, no plugs or fix a flat. Ill leave the van here and come first thing in the a.m. with a jack." I'll take the tire to the shop and have it patched correctly. A new friend chimed in. "You got a spare? I said yea but .... He chimed in, "oh dude I got a wrecker, look right there we can jack it up from your trailer hitch, just pull forward." I exclaimed "YES". He had a 4-way lug wrench and we had her changed in 5 minutes.

This a.m. I was off to tire kingdom, (chain store), to have the tire patched and the wheel rebalanced. The wife said, no no we bought those at Costco and they do that for free. If you purchase the tires there they give you free flat repair and balance. She said sorry.......

Five years ago I had 5 cars. My old 1967 Corvette is still in hoc with my dad. He refused to let me sell it when I moved from the bucket shops to learn how to trade properly. I liquidated all my toys. He said. "here is some money, It's fraction of what the car is worth. You can give it back someday or have the car back when I die. But you are not selling the hot rod, that's just silly"

In any event, I know quite a bit about tires from racing. The fun was at 17, when I had an old rusted out beater Chevy van with 150,000 miles on it, a dirt bike inside worth 4x the van, 4 different tires, all junk used. The van actually ran a 14" Pontiac wheel and tire on one side of the rear and a 15" on the other. The differential howled so bad from the burnt clutches in the limited slip rear end that that was the jimmy rig solution to keep one drive wheel engaged. I always kept 2 spares, a floor jack and a tool box for all road side repairs. I am sure many kids have funny stories about running $5 used tires on their first cars.

The lesson was clear. New tires do not go flat. A nail or a screw will cause a slow leak in a new tire. It will cause a catastrophic failure in a junk tire. I have not had a flat in 20 years. Even my father finally agreed with me last year on my anecdotal point and changed the tires on his "good car". I over do it and put new tires on the van every year before the rainy season. I use BF Goodrich, a medium compound, a 40,000 mile tire, and replace it on a half life. I trade the new used tires to friends for their work trucks. They gladly do timely favors.

On a high performance car with 17"+ wheels, most come with "Z" rated tires. The "Z" is a speed rating good for lets say 150mph. Corvettes, upgraded Lexus, BMW's and sports cars come with these packages. Goodyear does by far the most domestic research, Michelin, Bridgestone, (France/Japan and f-1 racing), Toyo tires are the new new thing for the new sport compact racing. Every tire has a price to value to performance trade off. In the old days Firestone/Ford had a pact back to the model T and Goodyear/GM had the performance pacts on tires from the Muscle car era until the cost cutting corporate reform days. BF Goodrich came from ex Goodyear employees, like a Ross Perot spin off from IBM.

In the 80's the third generation Corvette came with the huge wide tires; BF Goodrich made a much cheaper, yet harder compound tire that lasted much longer. If you drove a Corvette aggressively you could burn up a new set of Goodyears in 10,000 miles. The same BF Goodrich tires would last 20,000. The same was true on the wife's Old Lexus. The Z rated soft compound performance tires, Japanese Bridgestones would burn up in a year, brakes too, with my wife's aggressive driving in a heavy GS 400. She found that Sam's club would order a set of BF Goodrich tires at 60% the cost of the Japanese tires, (back in 2001), and install them with a significant saving over the chain tire stores. We had to take the car back three times to have the tires rebalanced. The wheel weights kept coming off. This was due to incompetent employees. I said never again. That was the gist of the wife's "sorry" this a.m.. She slipped into Costco last year.

A couple of years ago I bought a used G.M. conversion van from eBay. It was hard to find a low mileage older "cash" van with a 350 engine versus the less powerful 305 CID. I found a good deal from a wholesaler in Texas. The van's weight is 5500 pounds. New tires and good brakes are imperative to safety. One blowout can easily cause a rollover. First thing I did was install new brakes and roters. You can't turn brake roters at the parts stores any more. They now have a brake lathe that bolts on the caliper bolt holes and you turn the roter while it is still on the vehicle. It is a cool new innovation. Yet with older GM vehicles new roters are so cheap it is good in this instance just to bolt on the new.

I sent the wife out for new tires and had them order some new BF Goodrich. Even though the company has since been sold to Michelin I figure the old designs and plants were still being used so I was interested in anecdotal testing how the quality has or would change.

Years ago I said "never again to Wall mart" The wife said no, the past few sets of tires I went to Costco. The men seemed very knowledgeable. I said if my husband finds out you incorrectly installed a wheel weight or over torqued the wheels and burn up a set of new brake roters, he is going to kill both of us. "Yes mam we take great care here and we know your exactly concerns. We will put our best man on it." She showed me the receipt this a.m. and they even put wheel torque specs on it! If you over tighten the wheels you can break studs, a certainty is to burn up your brakes. Too loose and the wheel will fall off.

This is a good lesson for all. Please run new tires for safety. Please ensure that the wheels are properly torqued so that your brake roters are not ruined in 20,000 miles. New brakes can easily last 40,000 miles and roters 100,000 miles with the new technologies today.

I saw a report on Costco. The leader pays his workers above average wages. His turn over is 1/8th of other retailers. I found it interesting that he thought it was an advantage to have loyal employees. The analysis was Wall street hates Costco. Their earnings suffer from high labor costs. His quote was along the line of Wall street only cares about next Tuesday. I am trying to run a company for the next decade.

There has been a great deal of Wall Mart bashing. The joke on SNL last night was, "a new report says that 60% of Americans think Wall Mart is bad for the country. The other 40% work for Wall Mart."

We know how great Wall Mart has been for our productivity in the US. It was basically from the use of new-tech in the supply chain. I figured once Sam Walton died the new management would somehow screw up the company. The Walton gist of continually pushing down prices to benefit the consumer, therefore prospering, seemingly continues. We all realize that people will trade service for price. The unionist or local government arguments that Wall Mart hurts economies by driving out high wage jobs and local business has not worked for their self interests. Consumers flock to the lowest price.

Yet, at what point does good service provide a premium for prices? How is it that Costco can compete with Sam's or BJ's when they pay a much higher labor cost? A fourteen year old can be trained to install racing tires on a race car. I was. Therefore the Wall Mart tire centers problems are from poor management. How else could other tire stores stay in business? Chain tire stores are even at a much higher cost to consumers than a discounter like Costco.

Here is the argument from a website on UPS versus Fed X. "The Costco approach of paying living wages, providing decent health care, and treating employees with dignity and respect by rewarding them for participating in self-management, was abandoned by many corporations in the 90s. Numerous companies went in the opposite direction believing, like Wall-Mart, that investing in workers is too costly, and that low-price competitors will drive them out of business if they do so. Sometimes that is true. But in many cases, I believe executives have room for choice. For example, as Fed-Ex has moved to a low-cost model for its drivers (even contracting out), in contrast, its competitor UPS has stayed with its commitment to long-term employment and high pay. For example, their drivers are paid 20% over market, their supervisors, 10% over market, and their CEO is paid way under market. Why has UPS made this choice? They believe their drivers are a key to corporate success, and that having informed and committed workers is the best way to serve customers. It is also the case that the leaders of UPS are former drivers themselves, and as such they have moral empathy with their workers. They understand that the lowliest worker in the organization is as human as they are, with much the same basic needs."

Also in the Costco report there was indeed a sense of what Vic calls false humility. The CEO was presented as some sort of good man for taking "only 300,000" a year in salary, no stock options. Yet, as one of the founders of the company he was worth hundreds of millions "only on paper." Others are chastised for high salaries and ridiculous stock options. Reports have come out all over on bad board governance, CEO's making 300 times the average wage earner of the company.

These are very tricky questions; incentives, loyalty for workers, leaders and shareholders or owners of companies and the bottom line, incentives to the consumers or customers of the business. Dan Grossman made the point that retail start ups have a much lower cost of capital and can grow much faster with a premium stock price. Vic's gist on these new retail concepts and growth is that these businesses can be replicated and drive their profits to zero. Mr Wizz had that point a year ago when someone was talking about investing in high price to sales/earnings momentum "retail", (think it was Krispe Creame), type stocks that are certain to have a major down in price.

It's amazing to me that something as simple as tires, doughnuts and coffee, (Starbucks), could be seemingly so easy to replicate, yet even easier to screw up.

James Lackey is a Florida trader.