Higher average service tickets more than offset weak traffic trends
According to the results of our survey, demand for replacement tires was down slightly in February. From a volume standpoint, the dealers reported they sold 0.7% fewer tires last month on a year-over-year basis, following a 0.1% increase in January and a 0.7% increase in December.
While it was slightly concerning at first glance to see tire volumes turn negative after 12 consecutive months of growth, the regions that experienced declines were struck especially hard by temperatures that were much colder than historical norms. This included some markets that faced added pressure from excessive amounts of snow which inhibited driving abilities.
Notwithstanding this 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. 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 February 2015 survey are compared with those of February 2014.
Dealers believe sales trends should likely improve
According to the survey results, 78% of passenger tire dealers believe business will improve over the next six months, while 22% believe it will stay about level. Similarly, 75% of the truck tire dealers we surveyed see business improving, and 25% believe it will stay about level. The table highlights the respondents’ outlook.
Replacement tire sales: Volume trends decline slightly
According to dealer reports, consumer demand for replacement tires was down slightly in February. As stated, the dealers in our survey reported they sold 0.7% fewer tires last month on a year-over-year basis, following a 0.1% increase in January and a 0.7% increase in December. Historically cold temperatures and record-breaking snowfalls which inhibited travel might be reasons for the decline. Despite this minor setback in February, we continue to believe that pent-up demand should lead to decent volume growth during the remainder of 2015. Trends were positive in the truck category as the dealers who responded to the survey reported that volumes increased 3.8% after a 2.7% increase in January. Lastly, the survey respondents indicated that volumes decreased 4.7% in the retread business after increasing 2.0% in January.
Dealer costs increase slightly
The tire dealers who responded to the survey noted that manufacturer pricing on value tires and branded tires increased in February. In fact, the respondents noted that manufacturer pricing on value tires increased 2.0% during February, while the price of branded tires increased 0.5%. The increase in value tires is not entirely surprising given the recent duties put in place by the U.S. Department of Commerce on passenger and light truck tires imported from China.
Dealers felt inventory levels were appropriate
Of the dealers that responded to the survey last month, 78% indicated they had the appropriate inventory in stock for demand (vs. approximately 67% in January), while the remaining 22% indicated that inventory levels were too high for demand. The inventory levels among truck tire dealers were similar as nearly 63% of those surveyed indicated that they had the appropriate inventory (vs. about 67% in January), while approximately 25% indicated that inventory levels were too high, and about 13% indicated that inventory levels were too low.
Repair sales rose slightly in February
Dealers indicated that the harsh winter weather relative to 2014 also inhibited traffic and sales trends on the service side of the business. Specifically, the dealers who responded to the survey indicated that service sales, which accounted for 28% of the study participants’ total revenues, were up 0.9% on a year-over-year basis in February (unchanged in January) as a higher average ticket more than offset weak traffic trends. ■
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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