Prices were roughly flat on both premium and value brand tires
According to the results of our survey, demand for replacement tires remained healthy in July. Indeed, from a volume standpoint the dealers reported that they sold 0.4% more tires last month on a year-over-year basis, following a 0.7% increase in June and a 1.3% increase in May.
We were pleased to see that volume trends remained positive for the sixth 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 selling season in an attempt to catch up on work that was deferred in prior months. In our view, the underlying fundamentals remain healthy and consumer demand should remain fairly strong.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, results of the July 2014 survey are compared with those of July 2013.
Dealers remain upbeat about sales trends
According to our dealer survey, 63% of passenger tire dealers believe business will improve over the next six months, while 12% believe it will stay about level and 25% believe it will worsen. Meanwhile, 57% of the truck tire dealers we spoke with see business improving, 14% believe it will stay about level and 29% believe it will worsen. The table above highlights the outlook that the respondents have conveyed to us in recent months.
Volume trends remained strong in July
According to dealer reports, consumer demand for replacement tires remained healthy in July. Indeed, the dealers in our survey reported that they sold 0.4% more tires in July on a year-over-year basis, following the 0.7% increase reported in June and a 1.3% increase in May. We were pleased to see that volumes remained positive for the sixth consecutive month and we believe that the abundance of pent-up demand should lead to decent volumes throughout the remainder of the summer replacement season and into the 2014-2015 winter selling season. Trends remained strong in the truck category as dealers reported that volumes increased 2.7% after increasing 1.1% in June.
Meanwhile, volumes fell 5.5% in the retread business after declining 1.0% in June.
Dealer costs continued to moderate
The tire dealers in our survey noted that manufacturer pricing stabilized somewhat in July. Specifically, only 13% of the respondents characterized manufacturer pricing as aggressive during July, which was down from 60% in June. Additionally, it is worth noting that the sequential declines we are seeing in dealer costs are moderating.
Looking at prices from the eyes of the consumer, we would note that prices on premium brands and value brands were roughly flat after adjusting for a change in the product assortment offered during July, following a minor uptick during June.
Dealers thought inventory was in line
Of the dealers that we spoke with last month, approximately 75% indicated that they had the appropriate amount of inventory in stock for demand (the same as in June), while the remainder were split evenly with approximately 13% indicating that inventory levels were too high and about 12% indicating levels were too low. The inventory levels among truck tire dealers looked encouraging as 71% of the truck tire dealers we surveyed indicated that they had the appropriate amount of inventory (vs. 50% in June and 67% in May), while approximately 14% indicated that inventory levels were too low and 15% indicated that levels were too high.
Summer repair season remained strong
We were encouraged to see that service sales remained stable during July despite the milder summer weather throughout the Midwest and Great Plains, and the lack of a true heat wave in the Northeast. Indeed, the dealers we spoke with indicated that sales in the service category, which accounted for 25% of the study participants’ total revenues, were up roughly 3% on a year-over-year basis in July following a similar performance in June. ■
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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