While October was a big month for the tire industry, it appears that November was even better thanks in large part to Mother Nature.
While we did get a lot of snowfall very late in the winter season last year, most dealers indicated that it came too late in the season to scare consumers into buying the set of replacement tires that so many people desperately need. That said, Old Man Winter has been far more helpful to tire dealers as the amount of snowfall increased significantly in many markets during November — a key month for tire sales.
According to our survey, consumer demand for replacement tires increased sharply in November as dealers reported the strongest volume growth that we have seen in more than a year. Following the results of our latest study, it is easy to see why the dealers we were talking with at last month’s Specialty Equipment Market Association (SEMA) Show in Las Vegas were so much more optimistic than they had been a year earlier. Obviously, we would expect to see strong volume growth if the inclement weather continues.
Monthly survey
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the November 2013 survey are compared with those of November 2012.
Outlook for early 2014 is relatively upbeat
According to our dealer survey, 38% of passenger tire dealers believed business would improve over the next six months, 50% believed it would stay about the same, while the rest thought it would worsen. Meanwhile, 57% of the truck tire dealers we spoke with saw business improving, while the rest believed that business trends would stay about the same. This as a relatively upbeat outlook for 2014 as dealers clearly felt better about the future than at this time last year.
New tire sales momentum grew
According to dealer reports, replacement tire volume in November improved sharply from the demand levels in October. Specifically, dealers reported that they sold 1.9% more new tires last month on a year-over-year basis, which compares to the 0.7% increase reported in October. In addition to being the strongest growth that we have seen in more than a year, November marked the fourth consecutive month of year-over-year sales increases. The strength was not limited to passenger tires as truck tire volumes increased 4% following a 2.3% increase in October. In the retread business, volumes were essentially flat (declined 0.3%) after increasing roughly 8.0% in October.
Dealers’ costs stabilized, but retail prices drop
Dealers reported that tire costs more or less stabilized in November. While dealers indicated that manufacturers were still offering creative incentives (63% of tire dealers indicated that manufacturer pricing was aggressive), they reported that their effective cost for top-selling branded tires was essentially flat. The value brands, which have seen the most price degradation over the past year, fell less than 0.5%. On the pricing side of things, consumers continued to benefit as prices on premium brands fell roughly 1% at retail, while value brands were off nearly 2%.
Dealers thought inventory was too high
Slightly more than a third (37.5%) of the dealers that we spoke with indicated that they had the appropriate amount of inventory in stock for demand, while the balance of the dealers cited that inventory levels were too high. This compares to October, when 45% of dealers indicated that their inventory level was appropriate and 55% said that it was too high. For the sixth straight month, dealers reported much cleaner inventory levels in the truck tire business. Only 14% of the truck tire dealers we surveyed indicated that their inventory was too high, with the rest indicating that it was at a near-optimal level.
Service work helped drive sales
After hitting a modest speed bump in October, tire dealers reported that service work trends returned to the road they have been on all year: driving sales higher. Sales in the service category, which accounted for almost 25% of the study participants’ total revenues, jumped 2.4% on a year-over-year basis. ■
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.
