Retail Sell-Out Continues to Fluctuate
Year-Over-Year Numbers Remain Positive
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.
Our recent conversations with tire dealers leave us with the view that retail sell-out trends are climbing on a year-over-year basis, while also are elevated over February 2020 levels.
While activity levels are up year-over-year, we note that volumes are slightly down sequentially when compared to January 2022 after January showed a slowdown from December 2021 due to cost increases from tire manufacturers, difficulty securing tires and customers spending less on repairs.
The net number of respondents to our latest survey indicating they witnessed positive demand year-over-year was 14%. This compares to January’s reading of 15% and 43% reported in December 2021.
Our contacts cited a tight supply environment, inflationary pressures on raw materials and labor and vehicle owners not investing as much in maintenance and repairs as drivers of this trend.
On the other hand, our contacts have noted that more of their customers are open to lower-cost imports, which we see as a potential tailwind to demand given the current inflationary environment.
From a volume standpoint, we note that the Southeast and Southwest regions exhibited positive performance trends. Meanwhile, the Midwest, Northwest and Mid-Atlantic regions were the main regional laggards compared to 2021 levels.
As has been our expectation, we continue to believe volumes in the long run will become more closely aligned with GDP growth. We also acknowledge that rising costs and lack of tire inventory could be headwinds in the near term.
Goodbye to omicron
Given volatile industry conditions due to the COVID-19 pandemic, we continue to look at a number of data points to assess the health of automobile travel, which directly correlates to tire wear.
In previous months, our focus was on the omicron variant of COVID-19. Now it appears the variant is behind us as states roll back restrictions and COVID-19 infections continue to drop. This marks a return to a more normalized environment.
That said, looking at miles driven over the last few months, trends have softened a bit due to winter weather, though this occurred at a lesser rate than in January 2022. February saw a 6% decline in miles driven from the previous month, but an increase of 1.5% from December of last year.
While rising gas prices due to geopolitical risks remain a concern, our recent historical analysis suggests demand for gas is relatively sticky and poses a minimal threat to a severe reduction on vehicle miles traveled.
Our analysis of Apple’s Mobility Trends Report indicates that people searching for driving directions remained elevated last month after declining earlier in the year due to risks surrounding omicron.
As of March 16, 2022, mobility trends in the United States were up 62% compared to the baseline that was established two years ago. One month prior, they were up 58%.
Raws on the rise
Most raw material prices continue to rise. The basket of raw materials needed to make a common replacement vehicle tire rose 30.1% on a year-over-year basis in February 2022, while increasing on a sequential basis by 7.7% the previous month. This continues the trend of increasing raw material inputs that started at the beginning of 2021.
Holding current spot prices flat would yield a 29.3% year-over-year increase in input costs to build a tire, up nearly 9% from the fourth quarter of 2021.
In examining raw material cost fluctuations, we note that carbon black has seen its price increase on a year-over-year basis for 14 consecutive months, while jumping 13.5% sequentially from the first month of 2022.
February posted a year-over-year carbon black price hike of 63%.
Previously referenced geopolitical factors continue to drive up natural oil prices. The price of oil increased 55.6% on a year-over-year basis in February 2022. That also represented a sequential increase of 11.2% over January 2022 levels.
The cost of synthetic rubber continues to climb and was up 20.5% on a year-over-year basis in February, down just 0.1% from January. And we have noted that price pressure on reinforcement items like fabric and cord continues to track higher.
This trend has continued during 2022 as February posted a 39% year-over-year increase - the largest increase we have tracked in this segment since 2005. On the flip side, we observe that natural rubber prices are tracking downward, declining 4.9% in February 2022.
John Healy is a managing director and research analyst with Northcoast Research Holdings LLC and author of MTD's monthly Your Marketplace column. Healy covers a variety of subsectors of the automotive industry.