How to Start a Used Tire Business

Part 1 - How to start a Used Tire business - Background

Starting a used tire business can be an exciting and rewarding business venture for entrepreneurs who are looking for a business in the automotive industry with relatively manageable startup costs.

Having said that, you should keep in mind that launching a successful used tire business will require an understanding of how to grade and price tires accurately, a solid business plan, and a strong work ethic.

In this comprehensive guide, we’ll walk you through all the essential steps you’ll need to take to start your own used tire business, from setting up a reliable business model and securing funding to obtaining the necessary licenses and attracting your first customers.

Our guide is in 3 parts:

• Part 1 - How to start a Used Tire business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

Industry Overview

The global secondhand tire market has grown significantly in recent years — a trend which is expected to continue at a compound annual growth rate (CAGR) of 4.00% until it hits a valuation of USD $12.5 billion in 2032.

While at a global level this growth has been primarily driven by rising populations and an increase in vehicle ownership, within the US, the primary reason for this growth is thought to be a rising consumer preference for cost-effective alternatives amid inflationary pressures.

As the prices of new tires rise, secondhand tires are increasingly becoming an attractive, budget-friendly option for consumers who want quality tires without the premium price tag. This — compounded with the increased availability of secondhand tires at both local dealerships and online platforms — has made them a viable alternative for many consumers.

However, this market is not without challenges, with the main ones new entrants should be prepared for being strict regulations regarding the sale of used tires and a potentially inconsistent product supply.

Unlike new tire dealers, secondhand tire businesses aren’t reliant on a consistent supply, which can make it difficult to maintain a steady inventory of tires — particularly those that are in desirable sizes and are both high-quality and can be sold legally.

Speaking of used tires that are legal to sell, US regulations on tire safety and tread depth can be quite strict, and many states have additional laws governing the sale of used tires. This represents an extra challenge for business owners as non-compliance can result in costly fines and even business closure.

Despite these hurdles, the market remains strong, with future expectations for sustained demand that indicate it’s a viable opportunity for new entrants who can effectively manage this industry’s issues.

Startup Costs

If you’re considering whether a used tire business is right for you, the first thing you’ll need to know is whether it’s a) affordable, and b) worth the investment. I mean, how much can you actually make running your own used tire business?

Well, it depends; the initial investment for a used tire business varies widely based on factors such as its location, the quality of its equipment, and the size of its initial inventory:

• Workshop Lease and Setup: When setting up your used tire business, securing an appropriate location for it is one of the biggest startup costs you’ll face. For a space that includes enough room for tire storage, a small retail area for customer service, and a garage to install tires on customers’ vehicles, you can expect to pay anywhere from $3,000 to $7,000 per month. Including the additional fees associated with any necessary renovations to set this space up, you should budget to pay anywhere from $5,000 to $15,000 for this space in total.

• Essential Equipment: Alongside selling tires, many used tire businesses also offer tire installation as a way of increasing their revenue sources. However, in order to be able to offer this service, your business will need certain specialist equipment like tire changers, balancers, jacks, and air compressors. While the cost of these can vary widely depending on the quality of the tools you select, obtaining all the equipment you need will typically fall somewhere between $5,000 and $15,000.

• Initial Inventory of Tires: In order to ensure that your business has a diverse selection of used tires that appeal to a variety of different customer needs, you should be prepared to spend between $5,000 and $10,000 stocking your initial inventory. This should be enough to obtain a varied stock covering the most common customer needs, including car, truck, low-profile, and high-performance options in various sizes.

• Employee Salaries: The final key expense to bear in mind when starting out is the cost of hiring the employees needed to keep the business running smoothly. While the exact amount you’ll spend on monthly wages will largely depend on your business’s size and location, you can typically expect to pay between $5,000 and $10,000 for a small team of two to three employees. However, you’ll need to decide whether the decision to hire employees is a viable decision at all for your business based on the level of demand it receives.

As such, you should plan to need between $20,000 and $50,000 in total startup capital to comfortably start a used tire business. While you may be able to get away with much less if you decide to run your business from home and sell tires online, we generally don’t recommend this approach.

The main reason for this is because your profit margins will be significantly reduced due to the high shipping costs associated with the size and weight of tires, which quickly eats into potential profits.

When it comes to ongoing costs, the main ones to bear in mind for a used tire business are those related to inventory replenishment, utilities, employee wages, and equipment maintenance.

Outside of the standard ongoing costs faced by most businesses, one key expense that’s unique to used tire businesses is the cost of getting rid of unusable tires —- which you’ll need to pay to have disposed properly due to the fact that they contain petroleum.

Earning Potential

Depending on how you choose to run it, a used tire business has the potential to generate significant amounts of revenue, with profit margins that range between 30% and 50%.

This is largely due to the fact that second-hand tires can be purchased so cheaply from junkyards and retreading centers, yet can be sold for anywhere between $25 and $65 each, depending on their grading and quality.

With that being said, it’s essential to point out that making profit in this line of work is tricky and will require a lot of time and effort as there are a number of challenges you’ll need to overcome. One of the most important ones is the long life cycle of used tires, which typically last at least several years each.

This is an issue because it means that even if you offer excellent service and the customer is thrilled with the product they received from you, it will be several years before they return (assuming they remember). As a result, it can take you much longer to reap the benefits of repeat business that satisfied customers can bring.

For this reason, many used tire businesses choose to diversify their offerings with services that complement tire installation — such as alignments, tire balancing, brake checks, and even suspension work — in order to increase the average revenue per customer visit.

While these services may not generate as big of a profit margin as selling used tires, people tend to need them much more frequently. In this way, they can help you to create a steady income stream, allowing your business to build momentum and be less reliant on returning customers to be profitable.

Day-to-Day and Growth

Who is the target market?

The target market for a used tire business includes budget-conscious vehicle owners seeking affordable alternatives to new tires, as well as commercial operators (e.g., fleet managers), who need cost-effective tire replacements for frequent maintenance.

Additionally, niche markets like motorsports enthusiasts and off-road drivers often require types of tires that are frequently replaced.

How much can you charge customers?

Used tires are typically priced between $25 and $65 each, depending on factors such as tread depth, quality, and tire type.

Specialized tires, like those for trucks or high-performance vehicles, can command higher prices, while standard passenger vehicle tires generally fall within the lower end of this range.

How much profit can a used tire business make?

A well-run used tire shop can achieve profit margins of 30% to 50%, thanks to the low cost of acquiring used tires compared to their resale value.

How can you make your business more profitable?

To increase profitability, a used tire shop can offer complementary services like alignments, tire balancing, and brake checks, which encourage repeat visits.

Diversifying inventory to include niche or high-demand tires and building partnerships with local mechanics for customer referrals can also help drive more consistent revenue.

Part 2 - Is a Used Tire business the right fit for you?

Part 3 - Action plan to launch your Used Tire business in 90 days