Dealers are seeing early stages of release of pent-up tire demand
Dealers reported that July sales trends were much improved relative to June. The respondents of our survey noted that unit volumes were essentially flat, which marks a significant improvement from June when dealers indicated that passenger replacement tire sales fell 1.1% year-over-year.
We would acknowledge that June’s results were likely hampered by an unfavorable calendar shift, and last month’s results were probably enhanced by a favorable shift.
That said, the anecdotal commentary that we have picked up from our conversations with dealers, the positive shipment data being reported by the Rubber Manufacturers Association, and the more upbeat outlook of the dealers taking part in our survey reinforces our belief that the industry could be seeing the early stages of the release of the pent-up demand that has characterized recent years. 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, the results of the July 2013 survey are compared with those of July 2012.
General outlook: Dealers liked what they saw in July
According to our dealer survey, 46% of passenger tire dealers believed business would improve over the next six months with 45% believing it would stay about the same. The remaining 9% felt it would worsen. Meanwhile, 29% of the truck tire dealers we spoke with saw business improving and the rest believed that business trends would stay about the same. In short, the collective outlook of the tire dealers in our sample has become more optimistic as evidenced by the data in the table.
New tire sales: July brought better news for tire dealers
According to dealer reports, replacement tire demand in July improved from the weak results that were experienced in June.
Indeed, dealers reported that they sold roughly the same number of passenger tires in July as they did in July of 2012. While this is far from spectacular, it is the strongest report since February and represents a material improvement from June when respondents noted that they sold 1.1% fewer passenger tires on a year-over-year basis.
Truck tire sales improved as well, as dealers reported that their sales increased 3.6% vs. the 1.3% decline in June. Meanwhile, volumes fell 4.0% in the retread category (vs. a 1.4% increase in June).
Selling prices and costs continue to fall
Dealers reported that tire costs continued to trend lower in July to reflect lower raw material costs and, in some instances, the expiration of opening price point tires from China.
Indeed, they reported that their effective cost for top-selling branded tires fell 1.0% while opening price point tires were almost 2% less in July. Not surprisingly, the lower effective costs are partially related to increased manufacturer promotional activity.
For example, 50% of passenger tire dealers characterized manufacturer pricing as aggressive (in line with 57% in June), while 86% of truck tire dealers believed that manufacturer promotional activities had increased, which is up sharply from 73% just one month earlier.
Consumers saw lower tire costs last month also, as retail tire prices for premium tires fell 0.8% in July, while prices on value brands fell 2.5%.
Inventories: Passenger tire inventories look little improved, truck tire inventories look fine
Despite the fact that July sales trends improved sequentially and dealers have remained reluctant to over-order inventory, many dealers noted that they still have too much inventory in stock at the end of last month.
Specifically, 41% of passenger tire dealers believed inventories were too high (vs. 51% in June), with the balance believing inventory levels were just right (vs. 49% in June).
Truck tire dealers reported cleaner inventory levels, as 29% of the truck tire dealers we surveyed indicated that inventories were too high (vs. approximately 64% in June), with the rest thinking they were just right (vs. about 36% in June).
Service revenues are still helping sales
While service work continued to be a tailwind to dealers in July, the results of the survey suggest that service business slowed down again in July.
Specifically, tire dealers noted that this category, which accounted for almost 25% of the total revenues of the study participants, increased approximately 0.7% last month, compared to the 2.0% and 2.8% increases that they reported in June and May, respectively. ■
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.