According to the results of our survey, demand for replacement tires increased modestly in September despite a slightly adverse calendar shift. Indeed, from a volume standpoint the dealers reported they sold 1.1% more tires last month relative to the previous year, following a marginal increase in August and a slight decrease in July.
The lack of a harsh winter has been a headwind to demand trends this year, especially given the tough comparisons from the previous two years, but it is apparent some pent-up demand caused by these headwinds was released in September. Additionally, the period’s strong demand was aided by higher employment and lower fuel prices.
Despite the slowdown in demand trends over the last few months, 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 rest of 2H16, regardless of the tough comparisons from 2015.
It is worth noting that most dealers shared this sentiment, as a large percentage of respondents indicated that they anticipate trends to 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 September 2016 survey are compared with those of September 2015.
Dealers still expect small gains in business
According to the survey results, 25% of passenger tire dealers believe that business will improve over the next six months, and none believe that trends will worsen. The rest of the respondents, 75%, felt business will stay about flat with the previous year. While dealer outlook is not as upbeat as August, we are still encouraged none of the dealers surveyed expect trends to decline in spite of the tough comparisons. The outlook for truck tire demand was also positive, as 50% of the truck tire dealers we surveyed see business improving and 50% see business staying about the same. None of participants believed truck tire demand trends would worsen.
Sales trends showed solid improvement
Consumer demand for replacement tires improved 1.1% in September compared to the prior year’s period. In the truck category, volumes were up 2.4% in September after being up 6% in August and down 3.3% in July. Survey respondents indicated volumes were down 5.8% in the retread business after being down 4% in August.
Dealer costs declined modestly
Manufacturer pricing on branded and value tires decreased in September, as some of the raw material relief continues to trickle through the supply chain, and incentives ticked slightly higher in an effort to balance inventory levels. Respondents noted manufacturer pricing on branded tires decreased 1.5% during September, while the price of value tires declined 1%.
Inventory returned to appropriate levels
Seventy-five percent of survey respondents noted inventories at the end of the month were at the appropriate amount to satisfy demand (vs. 80% in August), while 25% noted inventories were too high (vs. 20% in August). For consecutive months, August and September, none of the respondents said that inventories for passenger tires were too low. The modest decline in the net figure, over the last several months, suggests destocking attempts are having the desired impact. Truck tire dealers indicated mixed results, as 50% of those surveyed indicated they had the appropriate amount of inventory, and 25% indicated inventory was too high. The residual 25% reported inventory was too low.
Repair sales remained flat in September
Dealers indicated automotive repair sales trends remained unchanged after mixed results over the last few months; a positive reading in August, negative reading in July, and flat trends in June. Specifically, the dealers who responded to the survey indicated service sales, which accounted for a net 19% of total revenues, were flat on a year-over-year basis in September, which compared to a 4% increase in August, 1.25% decrease in July, and flat trends in June.
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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