For the second straight month, retail tire prices dropped in May.
The Northcoast Research Tire Pricing Index is made up of retail prices for more than 10,000 consumer replacement tires. Nick Mitchell is a managing director and research analyst for Northcoast, and says in May “the broader pricing environment deteriorated” as the channel continued to work through the inventory buildup that occurred in the first quarter.
Mitchell says price declines across seven brands outweighed increases from four other brands. The report says the average price of a light vehicle tire dropped 0.3% to $128.20.
The average price of the most popular passenger tires fell 0.4% to $123.72, and the average price of the most popular light truck tires decreased 0.2% to $158.18. The report also measures prices by tier. The average price of a value tire slipped 0.3% to $116.05. The value tier includes Hankook, Dunlop and various import and private label brand tires. For mid-tier tires, the average cost was essentially the same at $119.77; that tier includes the Continental, Cooper and Yokohama brands.
Premium brand tires, including those from Michelin, BFGoodrich, Pirelli, Goodyear and Bridgestone, dropped the most during the month — down 0.5% to $140.54.
The price drops in April and May are the first noted since September 2016.
“We believe the change in trend reflects the channel’s steps to deal with higher-than-planned inventory levels following weak sell-out trends in the first quarter of 2017. Efforts include increased promotional activity downstream and upstream, with the latter largely, albeit not entirely, concentrated in the Tier 2 and Tier 3 segments of the market.”
Year over year, prices in all three categories — value, mid-tier and premium — have all still increased.
“We remain encouraged by the fact that we have seen retail tire prices across the U.S. increase in five of the past eight months,” Mitchell says. “Dealers continue to indicate they believe the recently implemented price hikes from leading tire manufacturers will end up sticking unless the raw material pressures completely reverse in the coming quarters. However, they have noted ongoing risk to net pricing trends in the short-run, as channel inventories remain elevated following weak sell-out trends in the first quarter.”
The view from tire dealers:
“Dealers reported seeing increased volume-based promotional offers from many manufacturers in April and May, largely among the Tier 2 and Tier 3 suppliers. Some dealers noted that they are funding their own price investments to move inventory and attract customers. Higher-than planned inventory levels downstream also increases the risk that manufacturers might be forced to delay the next round of price increases (assuming they are ultimately needed).”
Goodyear Tire & Rubber Co. announced its second price increase on April 5, and on June 6 Bridgestone Americas Tire Operations LLC followed with a second increase, albeit only on its truck, bus and off-the-road tires.
“The wholesalers and installers that we speak with continue to say they are receptive of the higher prices, as they believe they will be able to effectively pass through the higher product acquisition costs to the consumer without sacrificing their markup, which will result in higher gross profit dollars per tire.”
The effect of raw materials:
“Our raw material cost monitor suggests the average cost of the basket of raw materials utilized in the production of passenger and light truck tires was down 2.5% sequentially in May based on our preliminary inputs. The weakness extends the pullback seen over the past 3 months with declines of 1.5%, 0.9%, and 2.3% in February, March, and April, respectively.
“Declining oil and natural rubber prices account for the recent relief. Despite the recent pullback, the index was still up 15.3% in May relative to the prior year’s period. If spot prices hold at current levels throughout the remainder of 2017, the cost of the basket of raw materials would be 13.5% higher for the year compared to the average throughout 2016.”
To review, here's a look at the pricing situation from April: Tire Prices Fell in April, but...