September 11, 2009
Tire company financial results should improve in the second half
By: Saul Ludwig
The 1H09 financial results of almost all tire manufacturers were very ugly as low volume, inefficient use of facilities, plant closings and other restructuring costs led to large losses for Goodyear, Michelin, Continental, Bridgestone, Cooper, Sumitomo, Kumho and others. Only Pirelli Tire showed a respectable profit. Looking to 2H09, I expect better results as volume should improve and benefits from restructuring initiatives should help. It is encouraging to see data from the Federal Highway Administration that miles driven have increased for the last three months.
Monthly survey
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the July 2009 survey are compared with those of July 2008.
Business expected to stay about level, dealers say
According to our dealer survey, the majority of passenger tire dealers sense that in the next six months, business will likely improve while the majority of the surveyed truck tire dealers sense business will likely worsen in the next six months. Fifty-eight percent of passenger tire dealers and 33% of truck tire dealers suspect business will improve. In addition, 17% of the passenger tire dealers and 50% of the truck tire dealers feel that business will worsen in the next six months. The remaining 25% of passenger tire dealers and 17% of truck tire dealers feel that business will remain the same in the coming months.
Truck tire sales were under pressure
According to dealer reports, on average, retail sales of new replacement passenger tires were down 1.1% in July 2009 vs. July 2008, a smaller decrease than the 1.8% decline seen in June. Truck tire sales remain pressured, falling 5.3% in July year-over-year. Several of the dealers surveyed noted that there has been some improvement in both passenger and light truck tire sales.
Retreaded truck tire sales decreased by 2% in July
Retreaded truck tire sales were down 2% in July 2009 compared with the same month last year.
Costs rose while selling prices went down
In comparing the month of July 2009 with June 2009, average costs for size 215/60R16 major brand tires were up 0.5%, while selling prices were down 0.5%.
On the private brand side, average costs were up 2.7% while selling prices decreased 2%. Raw material costs have recently risen, and if trends continue, manufacturers may have to raise prices.
Truck tire dealers saw pricing as aggressive
In July 2009, 27% of the passenger tire dealers responding to the survey and 67% of truck tire dealers described pricing as aggressive, suggesting tire dealers are likely seeing more discounting.
In addition, 46% of the passenger tire dealers and 33% of the truck tire dealers felt pricing was normal.
The remaining 27% of the passenger tire dealers felt pricing was very firm.
Inventory levels remained in line with business
Eighty-four percent of the passenger tire dealers and 71% of the truck tire dealers indicated their inventories were in line with business in July. Eight percent of the passenger tire dealers and 29% of the truck tire dealers felt their inventories were too high. The remaining 8% of passenger tire dealers felt their inventories were too low in July.
Service revenue increased again for dealers in July
Dealers who provide automotive service reported that 49% of revenues, on average, were generated by service during July. On average, service business increased 5.2% in July compared with results of the July 2008 survey. ■
Analyst Saul Ludwig is a managing director with KeyBanc Capital Markets Inc. based in Cleveland, Ohio. He concentrates on the tire and chemical industries. He has been writing for Modern Tire Dealer since April 1975.
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