According to the results of our survey, demand for passenger and light truck replacement tires was up marginally in November primarily due to a better economic backdrop for consumers including higher employment levels and low fuel prices.
A beneficial calendar shift also provided an extra boost. From a volume standpoint, the dealers reported they sold only 0.1% more tiresin November relative to the previous year’s period. While the headline number was far from a barn burner, we were encouraged to hear the respondents say that trends accelerated throughout the month as concerns over the election results moderated and weather conditions turned more favorable.
Despite the slowdown in demand growth in 2016, we continue to believe that a favorable backdrop, including low fuel prices, solid job growth, and healthy miles driven trends, combined with more normal weather patterns, should lead to improving volume growth this year.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the November 2016 survey are compared with those of November 2015.
Dealers expect gains assuming normal winter weather
According to the survey results, 50% of passenger and light truck tire dealers believe business will improve over the next six months, and none are worried that 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 100% of the dealers we spoke with see business improving in the coming months.
Replacement sales volume trends improve
Dealers reported they sold about 0.1% more tires last month relative to November 2015, following a flat performance in October and a healthy increase in September. Anecdotally, dealers reported trends strengthened as the month progressed. Dealers also reported a sequential uptick in the demand across the other tire categories in the period, with trends turning flat and positive in the commercial truck and retread categories. Medium truck replacement tire volumes were essentially flat in November after being down 7.3% in October, while retread units were up 11% after being down 4% in October. The latest figures on retread volume suggest that the swift decline in Chinese import tires, due to the recent tariffs, has caused an equally swift increase in demand for retread tires due to tighter supply of low-cost options.
Dealer costs unchanged from the prior year’s period
The tire dealers noted manufacturer pricing on branded and value tires were essentially the same as November 2015, as raw material prices come off of their respective lows and manufacturers start to adjust for higher raw material prices. Meanwhile, incentives were benign in the period due to the industry’s successful rebalancing of inventory levels, and a portion of the traditional fall/winter point-of-sale incentives being pulled forward to October due to sluggish trends earlier in the year.
Dealers believe inventory has returned to normal
Fifty percent of dealers noted inventories at the end of the month were at the appropriate amount to satisfy demand (vs. 67% in October), while 50% noted inventories were too high (vs. 33% in October). For four consecutive months, none of the respondents said that inventories of passenger and light truck tires were too low. All of the commercial dealers surveyed noted they had the appropriate amount of inventory. This suggests that the channel continues to work off the product associated with all the pre-buy activity ahead of the latest anti-dumping/countervailing duties.
Repair sales increase in November
Dealers indicated automotive repair sales trends increased in November after mixed results over the last few months. Service sales, which accounted for a net 28% of total revenues, were up 6% on a year-over-year basis in November, which compared to a 7% increase in October and flat trends in September. ■
How dealers view near-term business
Dealers JUL AUG SEP OCT(R) NOV(P) NOV(15)
Will improve 20% 80% 25% 50% 50% 33%
Will worsen 0% 0% 0% 0% 0% 0%
Will stay level 80% 20% 75% 50% 50% 67%
Will improve 17% 75% 50% 50% 100% 50%
Will worsen 16% 0% 0% 0% 0% 0%
Will stay level 67% 25% 50% 50% 0% 50%
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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