According to the results of our survey, demand for replacement tires increased slightly in April, which is consistent with the trends recorded in March. We are encouraged by the fact that demand trends have remained positive for two straight months following the sharp decline witnessed in February.
In our opinion, the performance over the past two months added support to the thesis that the softness in February was largely due to the harsh winter weather across the Midwest and Northeast, which negatively impacted traffic levels and unit volumes for installers in these regions of the country during the period. We continue to believe that the abundance of pent-up demand along with the benefit of lower gasoline prices (each $0.01 of relief adds $1 billion to consumers’ wallets on an annual basis) should lead to decent volume growth throughout the remainder of 2015, despite the fact that 2014 provides tough comparisons. The view is buoyed by the fact that the market remains healthy with demand increasing on a year-over-year basis for 13 of the past 14 months, according to the dealers surveyed.
Furthermore, most dealers stated that they anticipate trends to improve throughout the next three months of this 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 April 2015 survey are compared with those of April 2014.
Dealers believe sales trends should likely improve
According to the survey results, 50% of passenger tire dealers believe business will improve over the next six months, while 50% believe it will stay about level. The outlook for truck tire demand was slightly stronger as 75% of the truck tire dealers we spoke with see business improving, while 25% believe it will stay about level.
Volume trends improve slightly
The dealers in our survey reported they sold 0.2% more tires in April on a year-over-year basis, following a 0.3% increase in March and a 0.7% decrease in February. Trends turned slightly positive in the truck category as the dealers who responded to the survey reported that volumes increased 0.4% after a 6.6% decrease in March and a 3.8% increase in February. Volumes increased 1.5% in the retread business after decreasing 4.7% in March.
Dealers report mixed costs
Dealers noted manufacturer pricing on value tires declined on average, while costs increased for branded tires in April. In fact, the respondents noted manufacturer pricing on value tires decreased 2% during April, while the price of branded tires increased 2.5%. The decrease in value tires is not entirely surprising given the recent reduction in aggregate duties put in place by the Department of Commerce on passenger and light truck tires imported from China. The increase in branded tires is slightly surprising given the fact that raw material costs have declined significantly compared to a year ago. That said, we continue to hear some manufacturers are having a hard time meeting the strong demand for high-value-added product.
Dealers’ thoughts shift on inventory
Of the dealers who responded to the survey, 50% indicated they had the appropriate amount of inventory in stock for demand (vs. 100% in March), 25% indicated inventory levels were too high and 25% indicated inventories were too low. The inventory levels among truck tire dealers were identical to March’s results, as 100% of those surveyed indicated they had the appropriate amount of inventory.
Repair sales rose in April
Dealers indicated the weakness seen in February due to harsh weather relative to 2014 continued to reverse in April. Specifically, the dealers who responded to the survey indicated service sales, which accounted for 17% of the study participants’ total revenues, were up 12.3% on a year-over-year basis in April (up from an increase of 7% in March) as a higher average ticket and strong traffic trends benefited repair departments. ■
Nick Mitchell is senior vice president, research, for Northcoast Research Holdings LLC based in Cleveland, Ohio. Mitchell covers a variety of subsectors of the automotive industry.
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