According to the results of our survey, demand for passenger and light truck replacement tires declined slightly in January. Indeed, from a volume standpoint, the dealers reported they sold 0.1% fewer tires last month relative to the previous year’s period, following a slight increase in December and November.
The more normal winter weather relative to the prior year in December quickly turned warmer for many regions of the country in January, which had an unfavorable impact on demand trends. The sharp move in raw material prices since 3Q16 combined with a handful of tire manufacturers already announcing sharp price hikes at the start of the year almost guarantees that tire costs are going to be meaningfully higher in FY18.
At this point, we think the dealer community will be able raise prices to offset the cost pressures. The impact of a border adjustment tax would impact some manufacturers more than others, so the resulting price impact to tire dealers and consumers is a little less clear
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the January 2017 survey are compared with those of January 2016.
Dealers expect gains in 1H17
According to the survey results, 40% 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, 60%, felt business will stay about flat with the previous year. The outlook for commercial truck tire demand was also positive, as 75% of the dealers we spoke with see the business improving in the coming months and 25% see business staying about the same. None of the participants believed commercial truck tire demand trends would worsen.
Volume trends were off to softer start in 2017
Consumer demand for passenger and light truck replacement tires declined slightly in January compared to the prior year’s period. From a volume standpoint, the dealers reported they sold 0.1% fewer tires last month relative to the previous year’s period, following a slight increase in December and November.
Dealers reported medium truck replacement tire volumes were down 0.4% in January after being up 0.4% in December and flat in November, while retread units were up 1.8% after being down 11% in December.
Costs decline slightly from the prior year’s period
The dealers noted manufacturer pricing on value tires was flat while branded product pricing decreased in comparison to January 2016. It is important to remember that the numerous manufacturers that announced pricing increases were effective in February 2017, so any price declines were likely due to volume incentives and aggressive pre-buy heading into the impending hikes that have currently taken hold. Specifically, branded tire costs decreased 2.5% and value tires were flat versus the same period a year ago.
Tighter inventory should help price hikes stick
Sixty percent of responding dealers noted inventories at the end of the month were at the appropriate amount to satisfy demand (vs. 50% in December), while 20% noted that inventories were too high (vs. 50% in December) and 20% noted that inventories were too low. The responses regarding inventory levels among commercial truck tire dealers indicated more mixed results than we’ve seen over the previous few months, as 50% of those surveyed noted they had the appropriate amount of inventory, 25% of respondents indicated inventory was too high, and 25% thought inventory was too low during the period.
Auto repair sales increased in January
Dealers indicated automotive repair sales trends increased for the fourth consecutive month in January after mixed results throughout the first half of the year. Specifically, the dealers indicated that service sales, which accounted for a net 30% of total revenues, were up 5% on a year-over-year basis in January, which compared to a 7% increase in October, November and December. ■
Nick Mitchell is a managing director, research analyst with Northcoast Research Holdings LLC based in Cleveland, Ohio. Mitchell covers a variety of subsectors of the automotive industry.
How dealers view near-term business
Dealers SEP OCT NOV DEC(R) JAN(P) JAN(15)
Will improve 25% 50% 50% 50% 40% 25%
Will worsen 0% 0% 0% 0% 0% 0%
Will stay level 75% 50% 50% 50% 60% 75%
Will improve 50% 50% 100% 50% 75% 50%
Will worsen 0% 0% 0% 0% 0% 25%
Will stay level 50% 50% 0% 50% 25% 25%
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