Sellout Reverses Course - For Now
Dealers Say Retail Tire Demand Is Increasing
Recent dealer commentary suggests that demand for replacement passenger and light truck tires rose on a year-over-year basis during September 2022 - a departure from sequential declines in recent months.
The net number of respondents to our latest survey who indicated they experienced positive year-over-year demand was 33% — versus down results in August and July 2022.
This breaks the trend of five straight months of negative demand following a healthy first quarter.
We note that there has been a bit of stabilization in pricing actions from tire manufacturers relative to earlier this year, which worked in favor of tire dealers during September.
While trends have turned positive, dealers remain wary of the outlook for the rest of 2022.
Dealers have told us they expect to see more near-term pricing actions from tire manufacturers and they continue to struggle with recruiting and retaining employees.
Looking more closely at volume during September 2022, we note that the Midwest region of the United States reported the strongest year-over-year growth, while other regions underperformed.
Dealers indicate once again that overall inflation is hurting tire demand, though a slowdown in price hikes has helped them.
More driving soon?
We continue to track miles driven as a key data point in determining retail consumer tire demand. Miles driven is still dropping on a year-over-year basis. However, the rate of deceleration has slowed from what was observed this past summer.
We note that as we have lapped the two-year anniversary of the COVID-19 pandemic, year-over-year comparisons are now being drawn from 2021 levels as this reflects a more normalized year-over-year change.
September 2022 showed a 5.8% year-over-year decline in our miles driven index. This compares to a 6% decline in August 2022 and an 8.7% drop the previous month.
We also note that the miles driven index continues to show volatility as miles driven have declined each month since March 2022, following Russia’s invasion of Ukraine and fuel price hikes across the U.S.
That said, gas prices have declined substantially since mid-year, which could prove to be a catalyst for an increase in driving during the fourth quarter.
However, our long-term analysis of miles driven shows that this metric is quick to fall and slow to rise, so a continued slide is not out of the question.
Lower prices at the pump will certainly help.
Is two the magic number?
Dealers who replied to our latest survey indicated that customers continue to show a preference for tier-two products.
Given that our dealer contacts have been impacted by tire manufacturer-driven pricing actions - especially in the tier-one area - this is not surprising.
However, we note that consumer preference for tier-one products has increased in the past month as pricing seems to be less volatile than before.
We know that consumers change their tire preferences based on their personal budgets. We continue to hold the position that many consumers will still opt for tier-two tires as they continue to find a balance between value and performance.
Raws stay elevated
Turning to raw material costs, the “basket” of raw materials needed to build a common replacement consumer tire rose by more than 25% on a year-over-year basis this past August.
This continues the trend of rising raw material costs that we’ve seen for nearly two years.
In looking at specific components, we note that carbon black has seen its price increase on a sequential basis for 20 consecutive months.
The price of carbon black increased by 51.6% in August 2022.
Despite recent price decreases at fuel pumps, the cost of crude oil remains elevated on a year-over-year basis. We note that August saw a 40.2% year-over-year increase.
The price of synthetic rubber also continues to climb. Synthetic rubber prices grew nearly 10% during the month of August..
Price pressures on reinforcement items also are increasing.
On the bright side, natural rubber prices recently fell by nearly 9% on a month-by-month basis — continuing a trend that started this past summer.