Tire Dealers Show 'Tactical' Approach With Flux of Pricing and Promotions

Posted on August 10, 2017

For the second straight month there are signs that retail tire prices are stabilizing, but industry analyst Nick Mitchell has found “an unusual amount of volatility in the SKU count by manufacturers.”

Mitchell, who produces the monthly Northcoast Research Tire Pricing Index, says the volatility was evident across the tire dealers surveyed.

“We believe this phenomenon largely reflects the fact that dealers and wholesalers are being very tactical with their approach to inventory allocation given the promotional environment, timing of various pricing actions, elevated channel inventory and volatile raw material prices.

“In short, the downstream players are directing orders in the most advantageous way to capitalize on the relative pricing spreads in the market. In our opinion, this dynamic should only impact near-term sell-in, and, to a lesser extent, sell-out market share rather than alter market share trends on a longer-term basis.

“The brands most affected, as measured by SKU count, by the dynamic in our sample include Cooper, Goodyear, Yokohama and Bridgestone.”

Mitchell, Modern Tire Dealer’s monthly columnist, says firmer tire prices in June and July show that channel inventories are improving “ever so slightly,” though he still believes there is higher-than-planned inventory following weak sell-out trends in the first half of 2017. Manufacturers have responded with pricing promotions and consumer rebates in the U.S., which Mitchell says “have been a little more aggressive than we expected, especially in the Tier 2 and Tier 3 segments of the market.”

After analyzing June’s numbers, Mitchell said individuals were expecting Goodyear’s second round of price hikes wouldn’t stick. His report from July is more firm and says it the increases “have not stuck.”

“We think the market needs to see more of an uptick in sell-out trends before the promotional activity meaningfully moderates.”

As for raw material prices, in July Mitchell says they were essentially flat, up .2%. “July’s data marks the first month our cost monitor did not decline since January.” Despite those monthly declines, year-over-year the index is still up 6.1% in July.

“If spot prices hold on current levels throughout the remainder of 2017, the cost of the basket of raw materials would be 10.9% higher for the year compared to the average throughout 2016, largely driven by gains in the first half of 2017.”

Tire prices in July

Here’s a quick glance at tire prices in July 2017, as compiled by Mitchell:

  June 2017 July 2017 Change since July 2016
Average Tire $128.43 $128.88 +$3.37
Average Top 10 Passenger Tire $123.79 $124.07 +$3.05
Average Top 10 Light Truck Tire $159.50 $161.06 +$5.53

Related Topics: Nick Mitchell, Northcoast Research Tire Pricing Index, tire prices

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