Strong traffic trends benefited repair departments
According to the results of our survey, demand for replacement tires increased slightly in March. Indeed, from a volume standpoint the dealers reported they sold 0.3% more tires In March on a year-over-year basis, following a 0.7% decrease in February and a 0.1% increase in January.
While this performance was clearly not a barn burner, we were encouraged by the fact that demand trends rebounded from the decline witnessed in February despite the added pressure from an unfavorable calendar shift in the period. Notwithstanding the minor setback in February, we continue to believe that the abundance of pent-up demand should lead to decent volume growth throughout the remainder of 2015. In fact, demand has increased on a year-over-year basis for 12 of the past 13 months according to the dealers surveyed.
Furthermore, most dealers stated that they anticipate trends to improve throughout the next three months of this year.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the March 2015 survey are compared with those of March 2014.
Sales trends are likely to improve
Eighty percent of passenger tire dealers believe business will improve over the next six months, while 20% believe it will stay about level. This is the most upbeat the dealers have been in the last six months. The outlook for truck tire demand was slightly weaker as 25% of the truck tire dealers we surveyed see business improving, 50% believe it will stay about level, and 25% believe it will worsen.
Volume trends improve slightly
Consumer demand for replacement tires increased slightly in March despite an added headwind from an unfavorable calendar shift. The dealers in our survey reported they sold 0.3% more tires last month on a year-over-year basis, following a 0.7% decrease in February and a 0.1% increase in January. We remain optimistic that pent-up demand should lead to decent volume growth throughout the remainder of 2015, especially if gas prices remain depressed. Trends turned negative in the truck category as the dealers who responded to the survey reported volumes decreased 6.6% after a 3.8% increase in February. Lastly, the survey respondents indicated volumes decreased 4.7% in the retread business, which is consistent with the performance in the previous month.
Dealer costs increase slightly
Survey respondents noted manufacturer pricing on the best-selling value tires increased 2.5% during March, while the price of the best-selling branded tires increased a similar amount. The increase in value tires is not entirely surprising given the recent duties put in place by the Department of Commerce on passenger and light truck tires imported from China. The increase in branded tires (+2.5%) is slightly surprising given the fact that raw material costs have declined significantly compared to a year ago; however, we have heard that manufacturers are capturing this windfall and sitting on their hands until they see a competitor try to go after market share with price investments.
Dealers’ thoughts on inventory
All of the surveyed dealers indicated they had the appropriate amount of inventory in stock for demand (vs. approximately 78% in February). The inventory levels among truck tire dealers were identical as 100% of those surveyed indicated they had the appropriate amount of inventory (vs. about 63% in February), while no dealers indicated inventory levels were too high or too low.
Repair sales rose in March
Dealers indicated that the softness seen in service revenues in February due to harsh winter weather relative to 2014, including record cold temperatures in the Midwest and Northeast, reversed as sales trends accelerated in March. Service sales, which accounted for 39% of the study participants’ total revenues, were up 7.0% on a year-over-year basis in March (up from an increase of 0.9% in January and February) 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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