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Retail Sell-Out Trends Continue to Climb

Miles Driven Should Increase in 2022

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"As we look to the rest of 2022, many tire dealers tell us they have an upbeat outlook on volume trends, driven by the continued upward trajectory in miles driven," says Healy.

This MTD exclusive was provided by John Healy, managing director and research analyst with Northcoast Research Holdings LLC and author of MTD's monthly Your Marketplace column.

Recent conversations with tire dealers leave us with the view that retail sell-out trends are climbing on a year-over-year basis versus the same period last year.

We note that activity levels are rising on a sequential basis compared with what we saw near the end of 2021.

From a volume standpoint, during December 2021 — the most recent month for which data is available — we note that the Southeast, Midwest and Mid-Atlantic regions exhibited positive sell-out trends.

December benefited from the continued rebound in driving levels, which were at slightly more depressed levels during the same period in 2020.

Good demand

Looking at specifics, dealer commentary suggests that demand for replacement passenger and light truck tires was higher on a net basis during December 2021 versus the same period in 2020, while rising sequentially from levels seen in November of last year.

The net number of survey respondents indicating they saw positive year-over-year demand was 64.3%, which compares to up to 50% during November 2021.

Our contacts report that volumes could have been higher, but inflationary pressures — coupled with lower stocking levels, which drove prices even higher — hurt volume levels.

Over the long-term, we continue to hold the perspective that volumes will be more closely aligned with current gross domestic product growth, while consumers take to the road in greater numbers.

Consumer preference

When examining product mix, our recent survey of tire dealers reveals that tier-two brands are still holding strong as the most favored tier by consumers.

Industry contacts tell us this is likely a function of price increases on tier-one brands as consumers have been more willing to embrace the tier-two price point.

Given the extensive price increases that have taken place in our industry over the last year — we believe up to 25% to 35% at most tire manufacturers — we are not surprised to see that many consumers favor tier-two brands versus more expensive tires.

Going forward, we have observed throughout the pandemic that consumers seem to change their preference for certain tires and tiers based on the current COVID-19 situation.

In the right direction

Turning to miles driven over the last few months, which has a significant correlation with the need to buy new tires, trends have improved sequentially. 

One of the services we track, Apple’s Mobility Trends Report, has indicated that the number of people who are searching for driving directions is higher than typical levels, but lower than our last update.

Mobility trends plummeted 62% in April 2020, when indexed to January 13, 2020. But as of Jan. 15, 2021, trends had increased by more than 40%. We maintain the view that miles driven will continue to increase as travel returns to a more normalized state.

Price fluctuations

The “basket” of raw materials to build a common replacement consumer tire rose 19.6% on a year-over-year basis in December 2021. This is a decrease from levels seen during the month of November.

We note that carbon black saw its price increase on a year-over-year basis each month during 2021, with a continued upward trajectory in year-over-year gains and a record-high increase of 54.3% this past December.

Crude oil prices jumped 50.4% in December 2021, but experienced a sequential decline of nearly 9% from November 2021.

On the flipside, natural rubber prices declined by 6.2% in December 2021 — a third straight month of declines.

Synthetic rubber costs were up 19.7% on a year-over-year basis this past December. Synthetic rubber costs also fell 3.2% from November 2021 levels and declined 1.5% from October to November.

The cost of reinforcement materials continues to track at a negative rate.

Upbeat outlook

As we look to the rest of 2022, many tire dealers tell us they have an upbeat outlook on volume trends, driven by the continued upward trajectory in miles driven and frugal customers who will continue to operate — and invest in — older vehicles.

As such, we are hopeful that sell-out trends will gain momentum.

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