Dealers report sales gains year-over-year
According to the results of our survey, demand for replacement tires remained strong in April. Indeed, from a volume standpoint, the dealers reported that they sold 1.3% more tires in April on a year-over-year basis, following a 0.1% increase in March and a 0.6% increase in February.
We were pleased to see that volume trends remained strong at the beginning of the spring season, as dealers indicated that consumers replaced tires that were damaged by potholes and opted to prepare their vehicles for summertime travel. In fact, it appears that sales trends remained strong across most of the country. In our view, the data supports our belief that the underlying fundamentals remain healthy and that consumer demand should remain solid in the coming months.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, results of the April 2014 survey are compared with those of April 2013.
Dealers think the good times will keep rolling
Sixty-four percent of passenger tire dealers believe business will improve over the next six months, while the rest believe it will remain the same. Meanwhile, 75% of the truck tire dealers we surveyed see business improving, while the balance see business trends staying about the same.
Replacement tire volume trends remained strong
Consumer demand for replacement tires remained strong in April. Indeed, the dealers in our survey reported that they sold 1.3% more tires last month on a year-over-year basis, following the 0.1% increase reported in March and a 0.6% increase in February. We were pleased to see a sequential acceleration in volumes in April as we believe that the pent-up demand should lead to a solid spring replacement season. Trends remained strong in the truck category as dealers reported that volumes increased 8.0% after increasing 2.8% in March. Meanwhile, volumes rose 9.3% in the retread business after increasing 4.5% in March.
Retail prices were mixed in April
The tire dealers in our survey noted that manufacturer pricing was more aggressive in April than it was in March. Specifically, the percent of respondents who characterized manufacturer pricing as aggressive increased from 58% in March to 73% in April. The more aggressive pricing stance was evident in the effective pricing dealers saw from value manufacturers, as they noted that prices fell slightly more than 2% in the period. However, the prices on branded tires were not explicitly representative of the aggressive pricing indicated by dealers, as our survey respondents noted that their costs only fell 0.2% in the period. That said, it is worth noting that the sequential declines are moderating. Specifically, the average decline in premium tire prices has been 0.4% since November 2013, which compares to an average decline of 1.5% through the first 10 months of 2013. This trend is also present in the value arena. Namely, we have seen price declines slow to 1.5% from 2.6%. Looking at prices from the eyes of the consumer, we would note that premium brands were flat in April while value brands were down 1.7%.
Inventories for truck tire dealers looked ideal
Approximately 24% of surveyed passenger tire dealers indicated that they had the appropriate amount of inventory in stock for demand (vs. 50% in March), while the remainder were split evenly with about 38% indicating that inventory levels were too high and approximately 38% indicating levels were too low. The inventory levels among truck tire dealers looked to be ideal as 100% of the truck tire dealers we surveyed indicated that their inventory was optimal (vs. approximately 66% in March).
Spring repair season is off to a great start
As expected, consumers flooded service bays during April to repair the damage caused by the harsh winter weather and prepare their vehicles for summertime travel. The dealers we spoke with indicated that sales in the service category, which accounted for almost 23% of the study participants’ total revenues, were up roughly 5% on a year-over-year basis in April following a relatively flat performance in March. ■
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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