According to the results of our survey, demand for replacement tires remained healthy in June. From a volume standpoint the dealers reported that they sold 0.7% more tires last month on a year-over-year basis, following a 1.3% increase in May and a 1.3% increase in April.
We were pleased to see that volume trends remained positive in June, as dealers indicated that consumers appear to be allocating a greater portion of their income to tire and automotive repairs at the beginning of this summer selling season in an attempt to catch up on work that was deferred in prior months.
In our view, the data support our belief that the underlying fundamentals remain healthy and that consumer demand should remain fairly strong in the coming months.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, results of the June 2014 survey are compared with those of June 2013.
Dealers remained confident about sales trends
According to our dealer survey, 50% of passenger tire dealers believed business will improve over the next six months, while the rest believed it will remain the same. Meanwhile, 57% of the truck tire dealers we surveyed saw business improving, while the balance saw business trends staying about the same. None of the surveyed dealers felt business would worsen.
Volume trends remained strong in June
According to our dealer survey, consumer demand for replacement tires remained healthy in June. Indeed, as mentioned, the dealers in our survey reported that they sold 0.7% more tires last month on a year-over-year basis, following the 1.3% increase reported in May and a 1.3% increase in April. We were pleased to see that volumes remained positive in June and we believe that the abundance of pent-up demand should lead to decent volumes throughout the remainder of the summer replacement season.
Trends remained strong in the truck category as dealers reported that volumes increased 1.1% after increasing 2.2% in May.
Meanwhile, volumes fell 1.0% in the retread business after increasing 3.0% in May.
Dealer costs continued to moderate; retail prices ticked up slightly
The tire dealers in our survey noted that manufacturer pricing remained aggressive in June, although slightly less so than in May. Specifically, 60% of the respondents characterized manufacturer pricing as aggressive during June, which was down from 67% in May. Additionally, it is worth noting that the sequential declines we are seeing in dealer costs are moderating. Looking at prices from the eyes of the consumer, we would note that prices on premium brands and value brands ticked up slightly in June following relatively benign pricing during May.
Inventory was in line with demand
Of the dealers that we surveyed, nearly 75% indicated that they had the appropriate amount of inventory in stock for demand (vs. 72% in May), while the remainder were split evenly with almost 13% indicating that inventory levels were too high and about 12% indicating levels were too low. The inventory levels among truck tire dealers looked encouraging as 50% of the truck tire dealers we surveyed indicated that their inventory was optimal (vs. 67% in April and 100% in May), while approximately 33% indicated that inventory levels were too low and only 17% indicated that levels were too high.
Summer repair season was off to a solid start
As expected, consumers returned to the service bays during June to repair remaining damage caused by the harsh winter weather, while others opted to prepare their vehicles for summer-time travel. The dealers we surveyed indicated that sales in the service category, which accounted for 13% of the survey participants’ total revenues, were up roughly 3% on a year-over-year basis in June following a strong performance in May. ■
Nick Mitchell is a research analyst with Northcoast Research Holdings LLC based in Cleveland, Ohio. Mitchell covers a variety of subsectors of the automotive industry.
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