For sure, the retail consumer tire business was rather lackluster in 2011 as the combination of high gasoline prices (that led to a decline in miles driven), high unemployment and low consumer confidence led to tire buying deferral. But quite surprisingly, why didn’t those same pressures thwart sales of new cars which increased about 10% even as the earthquake and tsunami in Japan limited availability of cars and supplies? The U.S. auto industry made great strides in exciting consumers with innovative products and low cost financing and most forecasters expect new car sales to increase again in 2012 — possibly by 6% or more. Contrary to one’s intuition, replacement tire sales are usually stronger in years when new car sales are strong (and conversely, are weaker when new car sales are down). For 2012, I am projecting that replacement consumer tire sales may increase 1% to 2%, but if the projection for new car sales turns out to be correct, I could be too conservative in my thinking.
Monthly survey
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the November 2011 survey are compared with those of November 2010.
Dealer outlooks remained optimistic, but less so
Roughly 33% of passenger tire dealers believe business will improve over the next six months while 53% believe it will stay about the same. Fourteen percent believe it will worsen. As for truck tire dealers surveyed, 67% see business staying level while 25% see business improving. Eight percent see business getting worse. Manufacturer raw material costs will begin to come down in the not too distant future. However, for now, volumes and margins are being pressured.
Passenger volumes were positive , truck volumes flat
According to dealer reports, on average, retail sales of new replacement passenger tires were up 1% when compared with November 2010. Although this seems positive, most dealers indicated that volumes were weak with a few outlets growing unit sales by over 20% and bumping up the overall average. Truck tire sales continued to show signs of slowing as volumes were flat, but maybe more important is that 67% of truck tire dealers surveyed had negative year-over-year growth. Retreaded tire sales were strong, growing 5%.
The gap widens between major and private brand prices
In comparing the month of November 2011 with October 2011, average costs for size 215/60R16 major brand tires were up 1% while selling prices were up 2%. The average cost for a 215/60R16 private brand tire was up less than 1% while selling prices were down roughly 2%. The gap continues to widen between major and private brand tire prices.
Truck pricing again seen as very firm
In November 2011, 40% of passenger tire dealers saw pricing as normal while 40% saw it as aggressive. The remaining dealers (20%) saw pricing as normal. On the other hand, 58% of truck tire dealers saw pricing as very firm as dealer inventories of truck tires remain fairly low and manufacturers are able to pass along higher prices. Twenty-five percent of the surveyed truck tire dealers saw pricing as aggressive while the remaining 17% saw pricing as normal.
Inventories levels were just about right
The survey indicated that 60% of passenger tire dealers believed inventories were in line with current business levels, with the remaining dealers equally split between viewing inventories as too high and too low for current demand. Roughly 50% of truck tire dealers we surveyed indicated inventories were in line with current business levels, while 42% felt inventories were too low. The remaining dealers (8%) felt inventories were too high. Dealers continue to manage inventories well.
Service business stayed strong in otherwise slow market
Dealers who provide automotive service reported that 38% of revenues, on average, were generated by service during November. Dealers indicated that service business grew by 7% in November 2011 vs. November 2010. The diversity of service revenue is aiding dealers in an otherwise slow growth market.
Analyst Saul Ludwig is a managing director with Northcoast Research Holdings LLC based in Cleveland, Ohio. He concentrates on the tire and chemical industries. He has been writing for Modern Tire Dealer since April 1975.
