According to the results of our survey, demand for replacement tires remained somewhat encouraging in August. Indeed, from a volume standpoint, the dealers reported that they sold 0.1% more tires last month on a year-over-year basis, following a 0.4% increase in July and a 0.7% increase in June.
We were pleased to see that volume trends remained positive for the seventh 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 August 2014 survey are compared with those of August 2013.
Dealers remain upbeat about sales trends
According to our dealer survey, 50% of passenger tire dealers believe business will improve over the next six months, while 38% believe it will stay about level and 12% believe it will worsen. Meanwhile, half of the truck tire dealers we surveyed see business improving, and the other half believe it will stay about level.
Replacement tire sales volume trends were positive
Consumer demand for replacement tires remained positive in August. The dealers reported that they sold 0.1% more tires in August on a year-over-year basis, following the 0.4% increase reported in July and a 0.7% increase in June. We were pleased to see that volumes remained positive for the seventh 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 reported that volumes increased 4.4% after increasing 2.7% in July. Meanwhile, the survey respondents indicated that volumes rose 4.5% in the retread business after declining 5.5% in July.
Dealer costs were a mixed; prices were flat
Manufacturer pricing on branded tires continued to stabilize in August. Dealers indicated that the effective cost for top-selling branded tires fell less than 1% during August. Moreover, 40% of the respondents indicated that their effective cost of branded tires actually increased during the period. On the other hand, declines in the effective cost for value tires, which had been moderating in recent months, reemerged in August when the tire dealers in the survey noted that manufacturer pricing on value tires fell roughly 3.0%. 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 pricing pressure on value tires, pricing in the aggregate market is continuing to stabilize, as evidenced by the healthy trends in manufacturer pricing of branded tires.
Inventories were seen as appropriate
Nearly 63% of survey respondents indicated that they had the appropriate amount of inventory in stock for demand (vs. 75% in July), while almost 25% indicated that inventory levels were too high and almost 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 (vs. 71% in July and 50% in June), while nearly 13% indicated that inventory levels were too low.
Repair sales remain strong despite lack of heat
Service sales were strong during August despite the milder summer weather throughout the Midwest and Great Plains, and the lack of a true heat wave in the Northeast. Indeed, dealers indicated that sales in the service category, which accounted for 15% of the study participants’ total revenues, were up roughly 13% on a year-over-year basis in August following an increase of roughly 3% in July. ■
John Healy 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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Prices were roughly flat on both premium abd value brand tires
Consumers are spending money on deferred tire and service purchases
