Pent-up Demand Should Lead to Decent Volume Growth Through December
According to the results of our survey, demand for replacement tires increased in August. Indeed, from a volume standpoint the dealers reported they sold 0.5% more tires last month on a year-over-year basis following a 1.2% increase in June and July.
We are encouraged by the fact that demand trends are holding strong toward the end of summer, although down slightly from what we saw at the peak of summer’s heat. In light of the recent strength in demand trends, we continue to believe the abundance of pent-up demand should lead to decent volume growth throughout the remainder of 2015, despite the fact that 2014 provides tough comparisons.
In fact, demand has increased on a year-over-year basis for 17 of the past 18 months, according to the dealers surveyed. Furthermore, most dealers stated they anticipate trends to improve throughout the next three months of this year. Until next time, keep the tires rolling out the door.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the August 2015 survey are compared with those of August 2014.
Dealers believe sales trends should continue to improve over the next six months
According to our survey results, 50% of passenger tire dealers believe business will improve over the next six months, while 50% believe it will stay about level. None of the passenger tire dealers felt business would worsen. The outlook for truck tire demand was slightly lower as 50% of the truck tire dealers we spoke with see business improving, while 33% believe it will stay about level and 17% believe it will worsen.
Replacement tire sales volume trends were strong during August
According to dealer reports, consumer demand for replacement tires increased in August. The dealers in our survey reported they sold 0.5% more tires in August on a year-over-year basis, following a 1.2% increase in June and July. Trends reversed themselves in the truck category as the dealers who responded to the survey reported volumes increased 1.4% after a 1.0% decrease in July and a 0.3% increase in June.
Lastly, the survey respondents indicated volumes were also up 3.8% in the retread business after declining 1.8% in July.
Dealer costs declined in August
The tire dealers who responded to the survey noted manufacturer pricing on value and branded tires declined on average in August. In fact, the respondents noted manufacturer pricing on value tires decreased 0.3% during August, while the price of branded tires declined 0.3%.
The recent convergence in prices is not surprising as raw material cost savings are clearly outweighing any pricing benefit from the implementation of tariffs on Chinese tires imported into the U.S.
It is important, as always, to note that one month’s results, however, do not make a trend.
Dealers felt inventories were appropriate
Of the dealers who responded to the survey, 67% indicated they had the appropriate amount of inventory in stock for demand (vs. 60% in July), 17% indicated inventory levels were too high, and 17% indicated inventories were too low.
The inventory levels among truck tire dealers were similar to passenger tire levels as 83% of those surveyed indicated they had the appropriate amount of inventory, while 17% of respondents noted inventory levels were too high, and no respondents indicated inventories were too low.
Repair sales rose in August
Dealers indicated automotive repair sales trends improved once again in August. Specifically, the dealers who responded to the survey indicated service sales, which accounted for 31% of the study participants’ total revenues, were up 4.0% on a year-over-year basis in August (down from an increase of 10.7% in July) as a higher average ticket and strong traffic trends benefited repair departments. ■
Nick Mitchell is senior vice president of research for Northcoast Research Holdings LLC based in Cleveland, Ohio. Mitchell covers a variety of subsectors of the automotive industry.
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