Dealer Survey Shows an Early Indication of Demand Uncertainty
According to the results of our survey, demand for replacement tires increased modestly in June. Indeed, from a volume standpoint the dealers reported they sold 1.2% more tires last month on a year-over-year basis, following a 0.6% decrease in May and a 0.2% decrease in April.
The lack of a harsh winter has been a headwind to demand trends this year and has provided a tough comparison from the winter and spring of 2014/2015. However, these headwinds were completely offset by strong demand caused by higher employment and lower fuel prices.
June’s results underscore our opinion that, despite recent lackluster demand trends over the past three months, we continue to believe the abundance of pent-up demand should lead to decent volume growth throughout 2016, regardless of the tough comparisons from 2015. In fact, demand has increased on a year-over-year basis for 24 of the past 28 months, according to the dealers surveyed.
Furthermore, most dealers stated 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 June 2016 survey are compared with those of June 2015.
Dealer outlook was upbeat in June
According to the survey results, 50% of passenger tire dealers believe business will improve over the next six months, and none believe that trends will worsen. The other half of respondents felt business will stay about level, which can be an early indication of demand uncertainty among industry participants.
The outlook for truck tire demand was also split, as 50% of the truck tire dealers we spoke with saw business staying about the same and 50% saw business improving. None of the participants believed truck tire demand trends would worsen.
Replacement tire sales volume trends bounced back
According to dealer reports, consumer demand for replacement tires modestly improved in June. The dealers in our survey reported they sold 1.2% more tires in June on a year-over-year basis, following a 0.6% decrease in May and a 0.2% decrease in April. Based on our contacts’ commentary during July, we believe the results of our next survey also will be positive. As stated, demand has increased on a year-over-year basis for 24 of the past 28 months, according to the dealers surveyed.
Trends turned positive in the truck category as the dealers who responded to the survey reported volumes were up 8.7% after being up 5.5% in May and down 2.3% in April. Lastly, the survey respondents indicated volumes also were up 3.5% in the retread business after being down 1.5% in May.
Dealer-reported costs declined
The tire dealers who responded to the survey noted manufacturer pricing on branded and value tires decreased slightly in June. In fact, the respondents noted manufacturer pricing on branded tires decreased 1.3% during June, while the price of value tires declined 4%.
Dealers’ thought inventory was in line with business
Of the dealers who responded to the survey, 50% of them noted inventories were at the appropriate amount to satisfy demand (vs. 100% in May), while 50% noted inventories were too high (0% in May).
The responses regarding inventory levels among truck tire dealers showed mixed results, as 25% of those surveyed indicated they had the appropriate amount of inventory, and 50% indicated inventory was too high. The remaining 25% reported inventory was too low.
Repair sales remained flat in June
Surveyed dealers indicated automotive repair sales trends remained unchanged in June after a positive May and April. Specifically, the dealers who responded to the survey indicated service sales, which accounted for 18.3% of total revenues, were flat on a year-over-year basis in June (compared to an increase of 1.2% in May and an increase of 4% in April).
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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