Wintry weather contributes to gains in tire, service sales across the industry
In what has become a recurring theme in recent months, dealers noted that Mother Nature helped drive strong sales trends across much of the industry in December. In fact, after three straight months of dealers reporting strong volume gains there is no doubt that the increased amount of snowfall in many markets has played a big part in the recent surge in tire demand across the industry.
This has been a welcome change for tire dealers from the recent “green winters” we’ve had, where weather failed to provide consumers the extra incentive they needed to change their tires in early winter.
While the sales lift that dealers reported in December represents a modest slowdown from November, we would point out that the average unit increase during the fourth quarter was 1.1%, which is a clear improvement from the average decline of 0.4% reported in the first nine months of 2013.
Looking ahead, early reports from January suggest that the strength has continued into the new year in conjunction with more wintery weather. Indeed, the most encouraging sign from all of the data might be the fact that tire dealers expect the good times to continue into the early stages of 2014.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the December 2013 survey are compared with those of December 2012.
Outlook for early 2014 remains upbeat
According to our dealer survey, 33% of passenger tire dealers believe business will improve over the next six months, 56% believe it will stay about the same, while the rest think it will worsen. Meanwhile, 51% of the truck tire dealers we spoke with see business improving, while 36% believe that business trends will stay about the same and the rest expect conditions to worsen.
Strong tire sales growth continued
Dealers in our sample reported that they sold 0.8% more new tires in December on a year-over-year basis, which compares to the 1.9% increase reported in November and the 0.7% gain in October. While December’s results represent a modest slowdown from November, we would point out that it is a clear improvement from the average decline of 0.4% reported in the first nine months of 2013. Truck tire volumes fell 4% following a 4% increase in November, while volumes fell 4% in the retread business after declining 0.3% in November.
Retail prices fell, dealer costs remained stable
After months of reporting lower manufacturer pricing, the dealers in our survey reported that their costs remained relatively stable in December as 44% noted that manufacturer pricing was aggressive (vs. 63% in November). Dealers indicated that their effective cost for top-selling branded tires fell less than 1.0% while the value brands, which have seen the most price degradation over the past year, were unchanged during December. On the retail side of things, premium tire prices fell 2.7%, while value brands were off 0.8% during the month.
Dealers’ thoughts on inventory
About 45% of the dealers that we spoke with indicated that they had the appropriate amount of inventory in stock for demand (vs. 37.5% in November), while 43% indicated that inventory levels were too high (vs. 62% in November) and almost 12% indicated that the strong sales trends over the past three months have left their inventory levels too low. The inventory levels among truck tire dealers are roughly in-line with passenger tire dealers as 47% of the truck tire dealers we surveyed indicated that their inventory was too high, 11% thought that it was too low and the rest believed that it was at a near-optimal level.
Harsh winter weather helps drive service sales
Dealers indicated that the harsh winter conditions that many parts of the nation saw helped drive robust traffic and sales trends on the service front. Sales in the service category, which accounted for almost 30% of the study participants’ total revenues, jumped almost 6.0% on a year-over-year basis following a 2.4% increase in November. ■
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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