According to the results of our survey, demand for replacement tires business snapped back in February, after encountering a bit of speed bump in January. In fact, the dealers in our sample reported that they sold 0.6% more tires last month on a year-over-year basis, following the 0.6% decline reported in January, which we believe was largely a reflection of the days that dealers lost on account of the inclement weather conditions this year.
Indeed, we were particularly pleased to see the positive results in February in spite of the fact that dealers in many parts of the country still had to contend with harsh winter weather early in the month. In our view, the data support our view that the underlying fundamentals are improving and that consumer demand should remain healthy in the coming months. Until next time, keep the tires rolling.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, results of the February 2014 survey are compared with those of February 2013.
Dealers think the good times will keep rolling
According to our dealer survey, 57% of passenger tire dealers believe business will improve over the next six months, 29% think that it will stay about the same, and the rest believe it will remain the same. Meanwhile, 59% of the truck tire dealers we spoke with saw business improving, while the balance saw business trends staying about the same.
Tire sales rebounded in February
After reporting that consumer demand for replacement tires slowed down in January, it looks like consumers made it back to the market last month. The dealers in our sample reported that they sold 0.6% more tires in February on a year-over-year basis, following the 0.6% decline reported in January and the 0.8% increase in December. While we are encouraged that dealers reported improved demand trends last month, we are more excited about the fact that the reported results were likely suppressed by the number of closed days that affected traffic trends early in the month (i.e., consumers stayed at home). The aforementioned strength was also seen in the truck category as dealers reported that volumes increased 4.3% after increasing 1.2% in January. Meanwhile, volumes rose 1% in the retread business after being off almost 5% in January.
Retail prices fall, dealer costs remain stable
After nearly all of the passenger tire dealers in our sample noted that manufacturer pricing was aggressive in January, this figure fell last month as only 71% indicated that manufacturer pricing was aggressive. Indeed, the dealers we spoke with indicated that they did not see a change in their costs for branded tires, which we believe reflects the less aggressive pricing stance of manufacturers in the market today. That said, it appears that prices on tires in the value arena were not as stable, as our survey respondents indicated that their costs fell more than 1% in February. Looking at prices from the eyes of the consumer, we would note that both premium brands and value labels fell less than 1% in February.
Dealers believed inventory levels were fine
Of the dealers that we spoke with last month, nearly 86% indicated that they had the appropriate amount of inventory in stock for demand (vs. 38% in January), while the rest indicated that inventory levels were too low (vs. 0% in January). The inventory levels among truck tire dealers looked similar to the levels seen on the passenger side as 85% of the truck tire dealers we surveyed indicated that their inventory was optimal, while the balance of the respondents thought that it was too low.
Service work continued to drive overall sales
Despite the fact that service work was hampered by the days lost to Mother Nature at the beginning of the month, revenue tied to service work remained strong in February. Indeed, the dealers we spoke with indicated that sales in the service category, which accounted for almost 30% of the study participants’ total revenues, rose almost 2% on a year-over-year basis following a 4% increase in January.
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.
For more Your Marketplace reports, see:
Underlying consumer demand for tires remains healthy
Wintry weather contributs to gains in tire, service sales across the industry
