According to the results of our survey, demand for passenger and light truck replacement tires was essentially flat in October despite a slightly adverse calendar shift and headwinds from uncertainty surrounding the presidential election.
From a volume standpoint, the dealers reported they sold about the same number of tires in October relative to the previous year’s period, following a healthy increase in September and a marginal increase in August. October’s performance was aided by higher employment levels and low fuel prices, but these factors were offset by drier and warmer weather in key cold weather markets.
As a reminder, the lack of a harsh 2015/2016 winter was a real headwind to demand trends throughout the first six months of the year, especially given the tough comparisons from the previous two years. Dealers across the Great Lakes, Northeast, and Mid-Atlantic regions believe this factor has created pent-up demand, which should be released when Old Man Winter returns.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the October 2016 survey are compared with those of October 2015.
Dealers still expect small gains
According to the survey results, 50% of passenger and light truck tire dealers believe business will improve over the next six months, and none believe trends will worsen. The rest of the respondents, 50%, felt business will stay about flat with the previous year. While dealer outlook has fluctuated slightly over the past six months, we remain encouraged by the fact that none of the respondents expect trends to decline. The outlook for commercial truck tire demand was also positive, as 50% of the dealers we surveyed see the business improving and 50% see business staying about the same. None of the participants believed commercial truck tire demand trends would worsen.
Replacement sales volume trends steady
Dealers reported they sold about the same number of tires in October relative to October 2015, following a healthy increase in September and a marginal increase in August. The dealers reported medium truck replacement tires volumes were down 7.3% in October after being up 2.4% in September, and 6% in August, while retread units were down 4% after being down 5.8% in September.
Dealer costs decline modestly
Dealers noted manufacturer pricing on branded and value tires decreased in October, 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, especially given the warm winter weather through the first month of the quarter. Dealers noted manufacturer pricing on branded tires decreased 1.5% during October, while the price of value tires declined 3%.
Inventory has returned to appropriate levels
Sixty-six percent of the dealers noted inventories at the end of the month were at the appropriate amount to satisfy demand (vs. 75% in September), while 33% noted inventories were too high (vs. 25% in September). While there was a slight increase in the percentage of respondents noting higher inventories in October, it appears inventory levels are fairly controlled. The modest decline in the net figure over the past several months suggests destocking efforts are having the desired impact. All commercial truck tire dealers surveyed noted they had the appropriate amount of inventory. This is a bit surprising given all the pre-buy activity ahead of the latest antidumping/countervailing duties put on Chinese import tires, so we plan on monitoring this metric closely going forward.
Repair sales increase in October
Dealers indicated automotive repair sales trends increased in October after mixed results over the last few months. Dealers indicated service sales, which accounted for a net 26% of total revenues, were up 7% on a year-over-year basis in October, which compared to flat trends in September, a 4% increase in August, and 1.3% decline in July. ■
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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