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Tire pricing environment becomes more competitive at retail

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Tire pricing environment becomes more competitive at retail

Dealers noted that unit volumes fell 1.1% compared to June of 2012, which marks a slowdown from May when dealers said that year-over-year tire sales were essentially flat.

While we never want to see sales slow, we would point out that volumes were negatively impacted by an unfavorable calendar shift this year that resulted in an extra Sunday this June.

In spite of the fact that the magnitude of last month’s slowdown was exaggerated by the aforementioned calendar shift, we believe that consumer demand for replacement tires was not quite as strong as it had been in April and May. Unfortunately, the price of gasoline is not helping matters as it has now been priced higher, on a year-over-year basis, for the past eight weeks. In our view, this could be one of the factors that has caused the collective outlook of the dealers we survey to moderate.

Having said that, we feel that some consumers have delayed tire replacements to the point that we will see some pent-up demand released in the coming months as consumers adjust to the incremental headwind created by the expiration of the payroll tax earlier in the year.

Monthly survey

A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the June 2013 survey are compared with those of June 2012. 

According to our dealer survey, 29% of passenger tire dealers believe business will improve over the next six months with 64% believing it will stay about the same. The remaining 7% believe business will worsen. Meanwhile, only 19% of the truck tire dealers we spoke with see business improving and 64% believe that business trends will stay about the same. Seventeen percent believe it will get worse. While the results of the survey do not indicate that dealers see a sharp slowdown on the horizon, the collective outlook of the respondents clearly became less optimistic.

New tire sales: Dealers report June swoon

Replacement tire demand in June slowed from relatively lackluster levels in April and May.  Dealers reported that they sold 1.1% fewer passenger tires in June than they did in June 2012 after a 0.1% decline in May. The weakness was also seen in truck tires, as dealers reported that their sales fell 1.3% (off 3.2% in May). The lone bright spot in our latest survey was seen in the retread area, where unit sales rose 1.4%. While this is positive, it represents a slowdown from the 4.3% increase reported a month earlier.

Selling prices and costs both fall

Tire costs have been trending lower for months as manufacturers adjusted prices to reflect lower raw material costs and, in some instances, the expiration of opening price point tires from China. This trend has benefited dealers, who had been able to benefit by holding onto much of their previous price increases. However, it appears as if dealers finally started to pass these savings on to consumers as retail prices fell during June. Indeed, retail tire prices for premium tires fell 1.4% in June, and prices on value brands fell 1.9%.

While our survey indicates that the pricing environment has become more competitive at retail, dealers noted that manufacturer pricing was not as aggressive.

For example, 57% of passenger tire dealers characterized manufacturer pricing as aggressive (vs. 93% in May.), vs. the 73% of truck tire dealers that believe manufacturer tire prices are aggressive (vs. 92% just one month earlier).

Inventories: Passenger tire inventories look a little better

Despite the fact that dealers have been reluctant to over-order inventory, the June slowdown contributed to a modest increase in the number of passenger tire dealers citing that they were sitting on too much inventory. Specifically, 51% of passenger tire dealers believe inventories are too high (vs. 46% in May), with the balance believing inventory levels are just right (42% last month).

Meanwhile, 64% of the truck tire dealers we surveyed indicated that inventories were too high (vs. approximately 24% last month), with the rest thinking they were just right (vs. approximately 75% in May).

Service revenues represent a bright spot once again

While service work continued to be a tailwind to dealers in June, the results of the survey suggest that service business slowed down as well.

Specifically, tire dealers noted that this category, which accounted for almost 50% of the total revenues of the study participants, rose less than 2%.

This marks a deceleration from the 2.8% sales lift dealers reported last month, but nevertheless continues the trend of service out-performance.    ■

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.

For more Your Marketplace columns, see:

Lower gas prices remain key to releasing pent-up demand

Service sales are seen as a bright spot in an otherwise soft market

Despite obstacles, dealers remain optimistic about near-term tire demand


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