Look for Results Next Month to be More Positive

According to the results of our survey, demand for replacement tires decreased slightly in May. Indeed, from a volume standpoint the dealers reported they sold 0.6% fewer tires in May on a year-over-year basis, following a 0.2% decrease in April and a 0.1% decrease in March.

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. Additionally, May is the third month this year the negative was not completely offset by a strong demand caused by lower unemployment and lower fuel prices. While May’s results were slightly negative, we still consider declines of below 1% to be essentially flat. We would also point out that there were fewer weekend days in the month of May, which are typically strong selling days. Furthermore, based on our contacts’ commentary during June, we believe the results next month will be more positive.

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, despite the fact that 2015 provides tough comparisons. In fact, demand has increased on a year-over-year basis for 23 of the past 27 months, according to the dealers surveyed.

That said, the respondents to our survey are split on demand trends over 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 May 2016 survey are compared with those of May 2015.

Dealer outlook was neutral in May

According to the survey results, no passenger tire dealers believe that business will improve over the next six months, but none believe that trends will worsen either. Every respondent felt business will stay about level, which seems to be an early indication of demand uncertainty among industry participants. Outlook for truck tire demand was split, as 50% of the truck tire dealers we spoke with see business staying about the same and 25% saw the business worsening. The other 25% remained optimistic and responded they thought demand would improve.

Replacement tire sales volume moderated

According to our dealer survey, consumer demand for replacement tires slightly decreased in May. Indeed, the dealers in our survey reported they sold 0.6% fewer tires last month on a year-over-year basis, following a 0.2% decrease in April and a 0.1% decrease in March. Trends turned positive in the truck category as the dealers who responded to the survey reported volumes were up 5.5% after being down 2.7% in April and up 0.9% in March. Lastly, the survey respondents indicated that volumes were down 1.5% in the retread business after being down 1.5% in April as well.

Dealer costs declined

The tire dealers who responded to the survey noted manufacturer pricing on branded and value tires decreased slightly in May. In fact, the respondents noted manufacturer pricing on value tires decreased 0.1% during May, while the price of branded tires remained flat.

Dealers believed inventories were in line

Of the dealers who responded to the survey, all of them noted inventories were at the appropriate amount to satisfy demand (vs. 67% in April), while none noted that inventories were too high (versus 33% in April) or too low. The responses regarding inventory levels among truck tire dealers indicated mixed results, as 50% of those surveyed indicated they had the appropriate amount of inventory, and 25% indicated inventory was too high. The remaining 25% reported inventory was too low.

Service repair sales remain positive in May

Dealers indicated automotive repair sales trends remained positive in May after a positive April. The dealers who responded to the survey indicated service sales, which accounted for 18.3% of total revenues, were up 1.2% on a year-over-year basis in May (compared to an increase of 4% in April and a decrease of 1% in March).

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.

How dealers view near-term business

Dealers JAN FEB MAR APR(R) MAY(P) MAY('15)

Passenger tire

Will improve 25% 67% 50% 50% 0% 44%

Will worsen 0% 0% 0% 0% 0% 0%

Will stay level 75% 33% 50% 50% 100% 56%

Truck tire

Will improve 50% 50% 50% 50% 25% 56%

Will worsen 25% 17% 0% 0% 50% 0%

Will stay level 25% 33% 50% 50% 25% 44%

R-Revised P-Preliminary

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