Mid-year report: 2009 starts poorly for the average tire dealer...
In five months, 2009 will be history. Can we expect better results in the second half of the year than we experienced in the first half?
Signs point to yes, according to our Magic 8-Ball (sort of a crystal ball for baby boomers). Retail and wholesale tire dealers surveyed by Modern Tire Dealer believe tire sales will be up in the second half compared to last year.
We also checked back with Saul Ludwig, managing director for KeyBanc Capital Markets, not only to see if the predictions he made in January were coming to pass, but also to ask for his assessment of the first half.
“Tire sales in units were down compared to last year,” he says, “but the service business at dealerships was quite good. I think dealers are doing well, measured by their overall profitability.”
January through June
Retail tire dealer sales were down in both units and dollars during the first half compared to 2008, according to MTD’s exclusive “State-of-the-Industry Survey.” Overall unit sales were down 5%, while dollar sales were down 3.7%.
The average wholesale tire dealer also suffered unit and dollar decreases, 4.5% and 1.9%, respectively.
Business was up for a significant percentage of retail and wholesale dealers, however. Nearly 30% of the survey respondents reported unit sales were up in the first half by an average of 11%.
Even more — 37.2% — reported that their tire sales in dollars were up by an average of 11%.
Close to 28% of the wholesale tire distributors were up in units (by an average of 13%), and almost half were up in tire sales dollars (by an average of 12%).
With unit shipments comparatively down at the halfway point, the domestic market continues to be plagued by overcapacity. In January, Ludwig said there was just too much capacity chasing too little demand in the United States. He predicted “further capacity shrinkage this year,” and that has happened.
Michelin North America Inc. announced the closing of its Opelika, Ala., consumer tire plant. Groupe Michelin, Goodyear Tire & Rubber Co., Pirelli & Cie SpA, Bridgestone Corp. and Continental AG have either closed overseas plants or suspended production to some degree.
“There’s still too much capacity,” Ludwig adds.
July through December
When asked, “What do you project your full-year tire sales to be?” retailers and wholesalers were cautiously optimistic. The average retailer believes his overall 2009 tire unit and dollar sales will be down by less than they were at the halfway point, 2.2% and 2.5%, respectively.
Assuming the same volume and pricing in the second half as the first, tire retailers project increases in both unit sales (2.8%) and dollars (1.2%).
Wholesalers even envision an overall increase, although slight, in dollar sales for the year compared to 2008.
In his interview with MTD in January, Ludwig said areas of concern or interest to watch out for included “wild card” oil prices, high unemployment and expiring domestic tire plant labor contracts.
“Oil is not static,” he says, adding that he wouldn’t consider rising oil prices at this point “disconcerting.”
Unfortunately, unemployment has risen to 9.6%. Running at or near 10% “will affect consumers’ ability to buy tires.”
As for the labor negotiations between the United Steelworkers and Goodyear, Michelin and Bridgestone Americas Inc., Ludwig didn’t anticipate a strike in January, and he doesn’t now.
One new issue that could affect business in the second half is the International Trade Commission’s proposal to assign high tariffs on consumer tire imports from China. President Obama is expected to make a decision on the proposal, which calls for implementing tariffs of 55%, 45% and 35% on the imports over the next three years.
“I don’t believe the president will approve them,” says Ludwig. “But if he does, it would be beneficial for capacity utilization in the U.S.”
Truck tire sales
Replacement and original equipment medium and heavy truck tire shipments are down in the United States. Less freight is being hauled — through May, the lowest level in 12 years. “It’s 1997 all over again!” says John Cooney, director of commercial sales for Yokohama Tire Corp.
When asked, “Do you expect conditions to improve as 2009 winds down?” seven of the following eight tire company executives said yes.
Clif Armstrong, director of marketing, commercial vehicle tires, the Americas, Continental Tire North America Inc.: We see business picking up through the remainder of 2009, albeit very slowly.
The consumer is starting to see things in a more positive light and even home sales are improving. This will translate into more consumer spending, which feeds more freight movement, which feeds increased tire usage. Our government certainly has pumped a tremendous amount of stimulus and liquidity into the market. This will have an impact on the overall economic trending.
We do think the remainder of 2009 will get better incrementally, with 2010 being much better.
Tim Chen, vice president of marketing, Bridgestone Bandag Tire Solutions LLC: We’re optimistic that market conditions will improve by the fourth quarter. Once the economy is stabilized and consumer confidence improves, we’ll see the follow-up increase in equipment and replacement tire demand.
Cooney: Economic conditions appear to be stabilizing. Overall demand is leveling out, but at a much lower level than last year. Most businesses have reduced production and inventories to a point where supply and demand are reaching equilibrium. The nation’s recovery should begin next year with a slow but steady increase in overall demand as we all adjust to a leaner economy.
Bill Hoban, national truck tire sales manager, Cooper Tire & Rubber Co.: We believe the commercial market will face challenges in the second half of 2009. Consumer spending is a critical component for the overall U.S. market. We expect consumer spending to rise slightly in the fourth quarter, which will modestly improve commercial business.
Donn Kramer, marketing director, commercial systems, Goodyear Tire & Rubber Co.: The second half conditions in 2009 are expected to improve slightly over first half numbers, but no significant recovery is seen before the second half of 2010.
Marc Laferriere, vice president of marketing, Michelin Americas Truck Tires: Yes. The tire market has declined faster than trucking activity seems to justify. While we believe the market probably had an excess of rubber inventory in 2007 and 2008 due to extra OEM supply of trucks, the replacement market should come back into alignment with ton-mile activity around the end of the year.
Aaron Murphy, vice president, China Manufacturers Alliance LLC: The economy seems to show small signs of life and improvement. Most people feel as if the economic bottom has been reached, but the incline back to previous years’ GDP growth and status will be a long, slow-developing recovery. We feel the market will improve in 2009, but the levels are unknown.
Brian Sheehey, director, commercial tire group, Hankook Tire America Corp.: I do not see any signs or indications that the last six months of 2009 will show any significant improvement in the replacement truck tire market. The most significant factor at the moment is what little effect the 2010 emissions change has (had) on creating fleet OEM orders. The last two emissions changes created a tidal wave of OE and replacement demand. We have yet to even remotely feel any effect for this year. ■