Leap Year’s Extra Selling Day Helps Boost Tire Demand Trends
According to the results of our survey, demand for replacement tires increased in February. From a volume standpoint, the dealers reported they sold 0.9% more tires last month on a year-over-year basis, following a 0.9% increase in January and a 0.8% increase in December.
While the lack of a harsh winter was a headwind to demand trends this year and provided a tough comparison from the winter of 2014/2015, this negative was more than offset by strong demand trends and, to a lesser extent, the benefit from an additional selling day related to the leap year. We are encouraged by the fact that demand trends are holding strong, although down slightly from what we saw at the peak of last summer’s heat. In light of the recent strength in demand trends, we continue to believe the abundance of pent-up demand should lead to decent volume growth throughout 2016, despite the fact 2015 provides tough comparisons.
Demand has increased on a year-over-year basis for 23 of the past 24 months according to the dealers surveyed. Furthermore, 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 2016 survey are compared with those of February 2015.
Dealers are confident in the future
According to the survey results, 67% of passenger tire dealers believe business will improve and 33% think business will stay about level, which is a welcome improvement from what we have seen over the past few months. The outlook for truck tire demand was lower as 33% of the truck tire dealers we surveyed see business staying about the same, 50% saw business improving, and 17% saw business worsening. The table highlights the outlook the respondents have conveyed to us in recent months.
Volume sales trends are strong
As noted, dealers in our sample reported they sold 0.9% more tires last month on a year-over-year basis, following a 0.9% increase in January and a 0.8% increase in December. Trends continued positive in the truck category as the dealers who responded to the survey reported volumes were essentially flat after a 4.1% increase in January and a 0.7% increase in December. Lastly, the survey respondents indicated volumes were down 3.5% in the retread business after increasing 4.0% in January.
Dealer costs decline
The tire dealers who responded to the survey noted manufacturer pricing on branded and value tires decreased in February. The respondents noted manufacturer pricing on value tires decreased 4.8% during February, while the price of branded tires decreased 1.6%. While we were initially surprised at hearing about any prices declining, this trend is consistent with commentary from around the country that pricing has remained flat or declined despite the implementation of tariffs on Chinese import tires. This phenomenon continues to be largely caused by lower raw material prices as well (e.g., lower oil prices).
Truck tire inventory is in line with business
Of the dealers who responded to the survey, 33% noted inventories were too high, another 33% noted inventories were too low, and the remaining third indicated they had the appropriate amount of inventory in stock for demand (vs. 100% in January). The respondents regarding inventory levels among truck tire dealers reported 83% of those surveyed indicated they had the appropriate amount of inventory and 17% indicated inventory was too high.
Repair sales rose in February
Dealers indicated automotive repair sales trends improved once again in February. The dealers who responded to the survey indicated service sales, which accounted for 21% of the study participants’ total revenues, were up 2.3% on a year-over-year basis in February (compared to an increase of 9.5% in January) 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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