Consumer demand should remain solid in the coming months
According to the results of our survey, demand for replacement tires remained firm in March. 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 0.6% increase in February and a 0.6% decline in January.
We were particularly pleased to see that volume trends remained positive despite the fact that the channel lost the boost created by the early and strong onset of winter weather. In fact, it appears that sales trends remained strong across most of the country as we entered the spring selling season. In our view, the data supports our view that the underlying fundamentals remain healthy and that consumer demand should remain solid in the coming months.
Until next time, keep the tires rolling out the door.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, results of the March 2014 survey are compared with those of March 2013.
Dealers think the good times will keep rolling
According to our dealer survey, 42% of passenger tire dealers believe business will improve over the next six months, while the rest believe it will remain the same. Meanwhile, 62% of the truck tire dealers we spoke with see business improving, while the balance see business trends staying about the same. The table below highlights the outlook that the respondents have conveyed to us in recent months:
Replacement tire sales volume trends held firm in March
According to dealer reports, consumer demand for replacement tires remained firm in March. The dealers in our sample reported that they sold 0.1% more tires last month on a year-over-year basis, following the 0.6% increase reported in February and a 0.6% decline in January. We are not overly concerned by the sequential deceleration in March as we believe that the harsh winter pulled demand forward into the early winter months this season, which inherently would lead to a slowdown a few months out. Trends remained strong in the truck category, as dealers reported that volumes increased 2.8% after increasing 4.3% in February. Meanwhile, volumes rose 4.5% in the retread business after increasing 1.0% in February.
Dealer costs fell, but the declines moderated
The tire dealers in our sample noted that manufacturer pricing was less aggressive in March than it was in February. Specifically, the percent of respondents who characterized manufacturer pricing as aggressive fell from 71% in February to 58% in March. However, the less aggressive pricing stance was not clearly evident in the effective pricing dealers saw from branded manufacturers as they noted that prices still fell over 1.0% last month. Additionally, the prices on tires in the value arena also fell slightly, as our survey respondents indicated that their costs fell slightly more than 1% 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 0.5% 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 1.3% from 2.6%. Looking at prices from the eyes of the consumer, we would note that premium brands fell less than 1% in March while value brands actually increased roughly 2%.
Inventories were seen as optimal to too high
Of the dealers that we spoke with last month, approximately 50% indicated that they had the appropriate amount of inventory in stock for demand (vs. 86% in February), while the rest indicated that inventory levels were too high (vs. 0% in February). The inventory levels among truck tire dealers looked similar to the levels seen on the passenger side as 58% of the truck tire dealers we surveyed indicated that their inventory was optimal, while the balance of the respondents thought that it was too high.
Service work remains strong entering spring
Despite the fact that service work was hampered slightly by the lingering winter weather at the beginning of the month, revenue tied to service work remained firm in March. The dealers we spoke with indicated that sales in the service category, which accounted for almost 39% of the study participants’ total revenues, were essentially flat on a year-over-year basis following a 2% increase in February.
Nick Mitchell is a research analyst with Northcoast Research Holdings LLC based in Cleveland, Ohio. He covers a variety of subsectors of the automotive industry.
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