The monthly Tire Demand Index by industry analyst Nick Mitchell shows replacement passenger and light truck tires grew on a year-over-year basis in December 2016. Analysis also shows Tier 1 tires lagged behind Tier 2 and Tier 3 products during the final month of the year.
Tire dealers told Mitchell performance benefitted from several things: a stronger consumer due to low energy costs and a solid labor market; favorable miles driven trends over the past 18 months; and an expanding car parc, especially the number of cars entering the first replacement cycle.
Dealers in the Northeast, Great Lakes and Upper Mid-Atlantic regions mentioned the return of normal winter weather in late November and December as a big boost to business compared to the prior year. Dealers in those states also something of a Trump-effect, Mitchell says.
Customers seemed “more willing to make investments in their vehicles, including tires, following the election, as opposed to putting off major, albeit not essential, work, which was the prevalent action as the election season heated up.”
Mitchell says that all adds up to dealers and wholesalers making significant progress during the second half of 2016 in destocking the “slight buildup” of inventory that occurred in the late first quarter and early second quarter.
“Equally important, contacts at the manufacturing level indicate that disciplined production schedules and inventory management upstream are aiding the efforts downstream. As such, we believe that inventory remains in good shape across the entire industry,” Mitchell says.
Tier 2 Tires Are on Top
In his survey, Mitchell asks dealers to indicate which groups of tire brands are performing the best, and worst. Brands are placed in three tiers, and in December dealers once again indicated consumers have moved away from the lower cost Tier 3 brands, and that they’re “having an easier time upselling customers.”
In December, Tier 2 brands were consumers’ top picks, with Tier 2 brands in second place, and Tier 1 tires the least popular.
The return of winter weather reminded consumers of the importance of quality tires, Mitchell says, but they also want to score a good deal.
“This month’s commentary highlighted an increased focus on consumers wanting to find good values — some of the technology available on the premium brand names but at a lower cost,” Mitchell says. “The dealers cited other demands on consumer budgets (holiday spending) as a reason for the increased frugality in the period. This theme fit well with the value propositions of the Tier 2 brands.”