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Demand for premium, Tier 1 tires on the rise

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Demand for replacement tires is higher than it was a year ago, and tire dealers report customers are choosing premium, Tier 1 tires over other less expensive products in the market.

The monthly Tire Demand Index report from Northcoast Research Holdings LLC in Cleveland notes the index “has been in expansionary territory for 17 of the past 19 months.

“These findings reinforce our confidence that the domestic replacement market is in the midst of a volume recovery cycle.”

The results of the tire demand index stem from a monthly survey of approximately 100 tire dealers across the country. An index above 50 demonstrates growth, while a number below 50 indicates a contraction of demand.

For January 2015, the index was 53.3. And though still a sign of expansion, the January figure is four points lower than December’s 57.5. Still, the Northcoast analysts see good things ahead.

“We remain confident in the strength of end-market demand going forward as dealers continue to indicate that consumers are allocating a greater portion of their income to tire and automotive repairs this year compared to the prior year, and those drivers who skirted replacing relatively bald tires this past winter (2013-14) and spring appear to be purchasing tires this winter season. This trend bodes well for the (2015) spring selling season.”

With the volume discounts on Tier 3, Chinese-made tires now in the past, analysts expect a steady business for premium, Tier 1 tires. “Tier 1 brands have either shared, or been atop the podium in three of the past four months, and we have seen Tier 3 brands at the bottom of the list for five straight months.”

At the same time analysts believe Tier 1 and Tier 2 sales benefitted from customers’ fears that the 2014-15 winter could be as treacherous as the year prior, which boosted demand, especially for winter tires.

The analysts also cited comments during recent earnings calls from executives at both Cooper Tire & Rubber Co. and Goodyear Tire & Rubber Co. about “exceptionally strong demand” for high value-added tires in the U.S. market.

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