Volume trends have remained positive for 10 consecutive months
With the year quickly coming to an end, we were pleased to hear that dealers reported selling more tires in November compared to the previous year’s period despite the fact that consumers were being pulled in different directions as the demand of the holiday shopping season intensified.
Specifically, the dealers who participated in our survey reported selling 0.9% more tires on a year-over-year basis, which was fairly similar to the growth in the previous two months (increases of 0.8% and 1.2% in October and September, respectively). Needless to say, we were happy to see that volume trends remained positive for the 10th consecutive month. More importantly, we were encouraged that dealers speculated that consumers continue to allocate a greater portion of their income to tire and automotive repairs during this winter selling season in an attempt to catch up on work that was deferred in prior months. In our view, the data supports our belief that the underlying fundamentals remain healthy and that consumer demand should remain fairly strong in the coming months, especially given the favorable outlook for gasoline prices in 2015.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the November 2014 survey are compared with those of November 2013.
Dealers remain upbeat about sales trends
According to the MTD dealer survey, 56% of passenger tire dealers believe business will improve over the next six months, while 44% believe it will stay about level. Meanwhile, 57% of the truck tire dealers we spoke with see business improving, and 43% believe it will stay about level. The table highlights the outlook that the respondents have conveyed to us in recent months.
Volume trends were positive in November
Consumer demand for replacement tires remained positive in November. The abundance of pent-up demand should lead to decent volumes throughout the 2014-2015 winter selling season despite tough comparisons from last year’s harsh winter.
Trends were flat in the truck category as the dealers who responded to the MTD survey reported that volumes decreased 0.5% after increasing 4.3% in October. Meanwhile, the MTD survey respondents indicated that volumes fell 2.0% in the retread business after decreasing slightly in October.
Costs and retail prices were roughly flat in November
The surveyed dealers noted that manufacturer pricing on branded and value tires continued to stabilize in November. As you will recall, during September we hypothesized a portion of the decline in manufacturer pricing may have been due to the fact that Chinese manufacturers offered significant volume rebates during the period in order to right-size their inventories ahead of a potential tariff on Chinese passenger tires imported into the U.S.
Despite the event-driven (i.e. potential tariff) pricing pressure on value tires that occurred during September, we believe that pricing in the aggregate market stabilized somewhat in October and continued to do so in November, as evidenced by the healthy trends in manufacturer pricing of both branded and value tires, which were roughly flat during the month.
Dealers thought inventory was appropriate
Of the dealers who responded to the MTD survey, 100% indicated that they had the appropriate amount of inventory in stock for demand (vs. about 38% in October). The inventory levels among truck tire dealers looked encouraging as nearly 72% of the truck tire dealers we surveyed indicated that they had the appropriate amount of inventory (vs. about 50% in October), while approximately 4% indicated that inventory levels were too high and about 14% indicated levels were too low.
Repair sales remain healthy
The dealers who responded to the MTD survey indicated that service sales, which accounted for 27% of the survey participants’ total revenues, were up roughly 5% on a year-over-year basis in November (versus a 2% increase in October). ■
Nick Mitchell is senior vice president and research analyst for Northcoast Research Holdings LLC based in Cleveland. Mitchell covers a variety of subsectors of the automotive industry.
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