After reporting a modest sales lift in February, the dealers we surveyed indicated that soft sales trends reemerged during March. Indeed, we were disappointed with the responses from our survey as we thought that there was a good chance that momentum would build from February’s improvement — especially as the disbursement of tax refunds normalized and the price of gasoline fell throughout the month.
Alas, it did not prove to be the case, as many dealers reported that any positive traction that they had seen in the first two months of the year evaporated. Interestingly, many areas of the country received significantly more snow than at the same time last year; however, it did not appear to have provided a meaningful sales lift.
Having said that, not all the news is bad. For starters, tire prices at retail have remained relatively resilient, yet all indications are that prices are falling, which allows dealers to keep a little bit larger piece of the pie (for the time being). Secondly, gasoline prices continue to be more accommodating to consumer spending as, on average, prices at the pump have fallen nearly 1% a week for the past seven weeks (through April 15). Third, we can’t help but think that the incremental stress put on roads and vehicles in recent weeks from the late winter will accelerate replacement tire purchases, even though it doesn’t appear to have generated a meaningful sales lift in February or March. And finally, while we would acknowledge that tire dealers are a cheery bunch, the fact that they remained optimistic in the face of March’s slowdown has to count for something. 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 March 2013 survey are compared with those of March 2012.
General outlook: Soft sales couldn’t dampen optimistic outlook
According to our dealer survey, 41% of passenger tire dealers believed business would improve over the next six months while another 35% believed it would stay about the same. The remaining 24% believed it would worsen. Meanwhile, 46% of the truck tire dealers we spoke with saw business improving and 31% believed that business trends would stay about the same. Twenty-three percent believed it would worsen. We think the collective outlook of dealers was very optimistic given the relatively soft results that were reported during the March survey.
New tire sales: Sales trends deteriorated in March
According to dealer reports, business trends slowed down last month following a modest pick-up in February. Specifically, dealers reported that passenger replacement tire sales declined 1.1% year-over-year, compared to a 0.1% increase in February.
Unfortunately, this slowdown was not limited to passenger tires as dealers indicated that sales of truck tires and retreads remained weak as well. Indeed, truck tire dealers indicated that units were down 2% (vs. a 2% drop in February), while retread dealers noted unit sales declined 1% (in line with February).
Tire selling prices and tire costs: Prices remain resilient
Manufacturers appear to have become more competitive in their pricing to dealers as 76% of passenger tire dealers indicated that manufacturer pricing has been more aggressive (vs. 58% in February), while 62% of truck tire dealers believe manufacturer tire prices were aggressive (vs. 50% in February). As it relates to cost, dealers noted that their cost for premium brand tires in March fell 1% from February, while tires in the value spectrum dropped 3%. Despite the lower costs, dealers have generally noted passing on the savings to consumers. For example, premium passenger tire prices at retail actually rose 1% from February, while value tires were essentially flat.
Inventories: Levels remained high
Not surprisingly, many dealers finished the month with more inventory than they needed. Specifically, 59% of passenger tire dealers believe inventories were too high (vs. 46% in February), with 35% believing inventory levels were just right (64% last month). The remaining 6% felt inventories were too low.
Meanwhile, 38% of the truck tire dealers we surveyed indicated that their tire inventories were too high (vs. 36% last month), while the rest thought they were just right (vs. 64% in January).
Service revenues: Dealers reported a bright spot
Last month, automotive service work was a bright spot for tire dealers as survey respondents noted that this category, which accounted for almost 30% of the total revenues of the respondents in our study, increased 2% year-over-year. This compares to roughly flat service sales the dealers reported in February.
In our view, the strength of dealers’ service business could be related to the colder weather that most of the country experienced during March.
Specifically, the unseasonably warm weather last March allowed many consumers to perform basic maintenance work on their vehicles themselves, whereas this year, the colder weather likely shifted much of this work back to the DIFM channel. ■
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.
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