According to the results of our survey, demand for replacement tires was slightly better than flat in August despite greater-than-normal volatility in the sample of responses. From a volume standpoint the dealers reported they sold marginally more tires in August relative to the previous year.
Despite the small gains, the dealers noted the lack of a harsh winter remained a headwind to tire volumes in August, especially as it is restricting the number of vehicles coming in for repair work. Fewer cars mean fewer chances to sell tires.
Despite the recent slowdown in demand trends, we continue to believe that a favorable backdrop, including lower fuel prices, solid job growth, and healthy miles driven trends should lead to decent volume growth throughout the second half of 2016, regardless of the tough comparisons from 2015. It is worth noting that most dealers shared this sentiment, as the majority of respondents indicated they anticipate trends will improve throughout the next three months.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the August 2016 survey are compared with those of August 2015.
Dealers turn more optimistic
According to the survey results, 80% of passenger tire dealers believe business will improve over the next six months, while 20% felt business will stay about flat. This is the highest percentage expecting improving trends in a handful of months, which reflects more dealers experiencing modest improvements in sales trends, an optimistic bent toward the benefits of a more normalized winter, and improved inventory levels. The outlook for truck tire demand was also positive, as 75% of the truck tire dealers we spoke with see business improving and 25% see business staying about the same.
Sales volume trends were marginally positive
Consumer demand for replacement tires was slightly positive in August compared to the prior year’s period. Indeed, the dealers in our survey reported they sold slightly more tires in August relative to the previous year, following a marginal increase in July and a 1.1% increase in June. While August’s performance was not a barn burner, we were encouraged that the dealers speculated volumes would increase going forward. Stable passenger volumes were not the sole bright spot in the period, with trends turning very positive in the truck category, as the dealers reported volumes were up 6% in August after being down 3.3% in July, up 8.7% in June, and up 5.5% in May. Lastly, the survey respondents indicated volumes were also up 4% in the retread business after being down 7.3% in July.
Dealer costs increased slightly
Manufacturer pricing on branded and value tires marginally increased in August, as dealers reported seeing fewer incentives now that inventory balances have improved following destocking activity. In fact, the respondents noted manufacturer pricing in both categories increased 0.5% in August versus a 1.7% decrease in July.
Inventory returned to appropriate levels
Eighty percent of the dealers noted inventories at the end of the month were at the appropriate amount to satisfy demand (vs. 20% in July), while 20% noted inventories were too high (60% in July). None of the respondents said that inventories for passenger tires were too low (20% in July). The modest decline in the net figure suggests destocking attempts are having the desired impact. As for truck tire dealers, 33% indicated inventory was too high and 33% reported inventory was too low. The residual 33% indicated they had the appropriate amount of inventory.
Repair sales improve
Dealers indicated service sales, which accounted for a net 28% of total revenues, increased 4% on a year-over-year basis in August, which compared to a 1.25% decrease in July and flat trends in June. The favorable calendar shift and a late summer heat wave in the Midwest and Northeast accounted for much of the improvement.
Nick Mitchell is senior vice president, research, for Northcoast Research Holdings LLC based in Cleveland, Ohio. Mitchell covers a variety of subsectors of the automotive industry.
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