According to the results of our survey, demand for replacement tires remained somewhat encouraging in September. Indeed, from a volume standpoint the dealers reported that they sold 1.2% more tires last month on a year-over-year basis, following a 0.1% increase in August and a 0.4% increase in July.
We were pleased to see that volume trends remained positive for the eighth consecutive month, as dealers indicated that consumers appear to be allocating a greater portion of their income to tire and automotive repairs during this summer/fall selling season in an attempt to catch up on work that was deferred in prior months. In our view, the data supports our belief that the underlying fundamentals remain healthy and that consumer demand should remain fairly strong in the coming months.
Monthly survey
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the September 2014 survey are compared with those of September 2013.
Dealers believe business will improve or stay level
According to the MTD dealer survey, 50% of passenger tire dealers believe business will improve over the next six months, while 50% believe it will stay about level. Meanwhile, 57% of the truck tire dealers we spoke with see business improving, and 43% believe it will stay about level.
Volume trends remain positive in September
According to dealer reports, consumer demand for replacement tires remained positive in September. Indeed, the dealers in our survey reported that they sold 1.2% more tires last month on a year-over-year basis, following the 0.1% increase reported in August and a 0.4% increase in July. We were pleased to see that volumes remained positive for the eighth consecutive month and we believe that the abundance of pent-up demand should lead to decent volumes heading into the 2014-2015 winter selling season. Trends remained strong in the truck category as the dealers who responded to the MTD survey reported that volumes increased 7.3% after increasing 4.4% in August. Meanwhile, the MTD survey respondents indicated that volumes rose 5.0% in the retread business after increasing 4.5% in August.
Costs remain a mixed bag; retail prices were flat
Manufacturer pricing on branded tires was relatively stable in September. On the other hand, dealers reported seeing declines in the effective cost for value tires in September. We believe a portion of the decline may be due to the fact that Chinese manufacturers offered significant volume rebates during the period in order to right-size their inventories ahead of a potential tariff on Chinese passenger tires imported into the U.S. Despite the event-driven (i.e. potential tariff) pricing pressure on value tires, we believe that pricing in the aggregate market is continuing to stabilize, as evidenced by the healthy trends in manufacturer pricing of branded tires.
Inventory levels were seen as appropriate
Of the dealers who responded to the MTD survey, about 63% indicated that they had the appropriate amount of inventory in stock for demand (the same as in August), while about 25% indicated that inventory levels were too high and about 13% indicated levels were too low. The inventory levels among truck tire dealers looked encouraging as 88% of the truck tire dealers we surveyed indicated that they had the appropriate amount of inventory (again the same as in August vs. 71% in July), while about 12% indicated that inventory levels were too high (vs. 13% in August who indicated levels were too low).
Repair sales remain strong; show an 8% increase
Dealers indicated that consumers appear to be allocating a greater portion of their income to tire and automotive repairs during this summer/fall selling season in an attempt to catch up on work that was deferred in prior months. Dealers who responded to the MTD survey indicated that sales in the service category, which accounted for 30% of the study participants’ total revenues, were up roughly 8% on a year-over-year basis in September following an increase of roughly 13% in August. ■
Nick Mitchell is a research analyst with Northcoast Research Holdings LLC based in Cleveland, Ohio. Mitchell covers a variety of subsectors of the automotive industry.
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Healthy sales trends continued for manufacturer-branded tires
Prices were roughly flat on both pre,iu, and value brand tires
