While most of the tire industry is getting ready for the Specialty Equipment Market Association (SEMA) Show, our survey indicates that dealers haven’t taken their eye off of the prize as the respondents in our study noted that demand improved in September.
Moreover, not only was September the strongest month that we have seen since last October, it was the first time all year that the respondents in our survey have seen two straight months of year-over-year sales increases. The strong results at retail are consistent with the anecdotal commentary we have heard from the channel about the release of pent-up demand, as well as the strong shipment data being reported by the Rubber Manufacturers Association.
In addition to wanting to know whether the recent demand pick-up that we have seen represents the rebound in demand trends in North America, dealers are watching the Cooper/Apollo drama unfold with interest. Until next time, keep the tires rolling.
Monthly survey
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the September 2013 survey are compared with those of September 2012.
Dealers remain relatively upbeat
According to our dealer survey, 45% of passenger tire dealers believed business will improve over the next six months, 30% believed it will stay about the same, while the rest think it will worsen. Meanwhile, 27% of the truck tire dealers we spoke with saw business improving and the rest believed that business trends will stay about the same. In short, the collective outlook of the tire dealers in our sample has become more optimistic as evidenced by the table above.
Tire sales built momentum
According to dealer reports, replacement tire demand in September improved modestly from the results that were experienced in August. Indeed, dealers reported that they sold 0.5% more new tires in September on a year-over-year basis, which compares to the 0.1% increase reported in August. Truck tire volumes were up as well, as dealers reported that their sales increased 1.4% following a 1.0% increase in August. In the retread business, volumes were up by more than 3% in September after being down 0.7% in two previous surveys.
Selling prices and costs continued to fall
Dealers reported that tire costs continued to trend lower in September to reflect lower raw material costs and, in some instances, the residual pricing realignments associated with expiration of the tariff on tires from China. They reported that their effective cost for top-selling branded tires fell 1.5% while tires in the value arena were almost 3.0% less in August. Some of the favorable costs that dealers are seeing are benefiting consumers as well, as retail tire prices for premium tires fell 1.1% in September, while prices on value brands were flat.
Inventory levels continue to improve
Whether it is a function of improving demand or tighter inventory levels, it appears that tire dealers are becoming more comfortable that they have the proper amount of merchandise in stock to meet demand. Almost 62% of the passenger tire dealers we spoke with indicated that they had the optimal amount of inventory on hand (vs. 53% in August), while 38% believe they still have too much inventory (vs. 41% in August). For the fourth straight month, dealers reported much cleaner inventory levels in the truck tire business, as 18% of the truck tire dealers we surveyed indicated that inventories were too high (vs. 9% in August), while more than 82% said it was just right (vs. 80% in August).
Strong September sales in service
Sales in the service category, which accounted for more than 30% of the total revenues of the study participants, rose sharply in September. Tire dealers noted that this category increased 3.4% in September, compared to the 4.3% in August. ■
John Healy and Nick Mitchell are research analysts with Northcoast Research Holdings LLC based in Cleveland, Ohio. Healy and Mitchell cover a variety of subsectors of the automotive industry.
