Lower Raw Material and Oil Prices Cause Decrease in Tire Costs
According to the results of our latest tire dealer survey, demand for replacement tires increased in January. Indeed, from a volume standpoint the dealers reported they sold 0.9% more tires in January on a year-over-year basis, following a 0.8% increase in December and a 0.6% increase in November.
We are encouraged by the fact demand trends are holding strong, although they are down slightly from what we saw at the peak of summer’s heat. This is likely due to a shortened winter selling season caused by a later winter weather catalyst and a tough comparison from the winter of 2014/2015. 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.
In fact, demand has increased on a year-over-year basis for 22 of the past 23 months, according to the dealers surveyed. Furthermore, most dealers state 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 January 2016 survey are compared with those of January 2015.
Dealers believed sales trends may level off
According to the survey results, 75% of passenger tire dealers believe business will stay about level and 25% think business will improve, which is a marked decline from what we have seen in the past; however, much of this decline in optimism may be related to the fact that business was very strong in 2015. The outlook for truck tire demand was slightly lower as 25% of the truck tire dealers we surveyed saw business staying about the same, 50% saw business improving, and 25% saw business worsening. The table highlights the outlook survey respondents have conveyed to us in recent months.
Dealers reported replacement tire sales volume trends were strong
According to the dealer survey, consumer demand for replacement tires increased in January. The dealers in our survey reported they sold 0.9% more tires last month on a year-over-year basis, following a 0.8% increase in December and a 0.6% increase in November. Trends continued positive in the truck category as the dealers who responded to the survey reported volumes increased 4.1% after a 0.7% increase in December and a 3.9% decrease in November. Lastly, the survey respondents indicated volumes were up 4.0% in the retread business after increasing 3.5% in December.
Manufacturer pricing on tires declines
The tire dealers who responded to the survey noted manufacturer pricing on branded and value tires decreased in January. In fact, the respondents noted manufacturer pricing on value tires decreased 6.0% during January, while the price of branded tires decreased 5.0%. While we were initially surprised at hearing about any prices declining during our trip to the Specialty Equipment Market Association (SEMA) Show, 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. Again, this phenomenon is being largely caused by lower raw material prices as well (e.g., lower oil prices).
Inventories termed appropriate
Of the dealers who responded to the survey, 100% indicated they had the appropriate amount of inventory in stock for demand (vs. 83% in December). Concerning inventory levels among truck tire dealers, 75% of those surveyed indicated they had the appropriate amount of inventory and 25% indicated inventory was too high.
Repair sales rose in January
Dealers indicated automotive repair sales trends improved once again in January. Specifically, the dealers who responded to the survey indicated service sales, which accounted for 18% of the study participants’ total revenues, were up 9.5% on a year-over-year basis in January (compared to an increase of 4.3% in December) 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.
How dealers view near-term business
Dealers SEP OCT NOV DEC(R) JAN(P) JAN(15)
Will improve 83% 0% 66% 17% 25% 50%
Will worsen 0% 0% 0% 0% 0% 0%
Will stay level 17% 100% 44% 83% 75% 50%
Will improve 100% 17% 57% 33% 50% 60%
Will worsen 0% 0% 0% 50% 25% 0%
Will stay level 0% 83% 43% 17% 25% 40%
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