Positive Sellout Streak Continues
Improvement Comes Even As Miles Driven Continue to Lag
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 checks with dealers leave us with a view that retail sellout trends continue to show strength and moved higher year-over-year compared to November 2021. Contacts indicate that November saw the greatest year-over-year growth to date in 2022.
Looking closer at volume for the month of November on a regional basis, we note the Midwest region reported the strongest year-over-year growth. Both the Southeast and Southwest regions saw the “weakest” year-over-year performance, with both reporting approximately flat trends.
Dealers indicate pricing actions from manufacturers continue to be a worry. However, slightly easier comparables and winter weather helped drive more traffic into service bays in November.
Looking at miles driven over the last month, which has a significant correlation with the need for a new set of tires, trends again declined on a year-over-year basis in November 2022.
Driving remains down
The month of November showed a 7% year-over-year decline in our miles driven momentum index, which compares to a 10.2% decline in October and 5.8% decline in September.
We note the index continues to see volatility during a prolonged period of below-normal miles driven. Every month since March, miles driven have declined. The timing coincides with the Russian invasion of Ukraine and subsequent increases in fuel prices in the U.S.
The prolonged contraction in our miles driven index mirrors the prolonged declines seen in the aftermath of the COVID-19 lockdowns. But this time, there’s not the same kind of catalyst, like a nationwide lockdown. Simply put, this prolonged decline represents a true reduction in U.S. miles driven.
Tier-two tires remain the leaders in this uncertain market, which matches the long-term trend of 2022. where tier-two tires have either been the most in-demand or tied for most in-demand in the last seven of 10 months.
And while tier-three tires had been at the bottom of the rankings recently, they tied with tier-one tires in November.
Given rising prices for tires and all consumer goods — as well as an influx of lower-tier inventory in the back half of the year — we were not shocked to see this type of result in November. To us, this indicates demand across all three tiers and confirms our survey work, which showed strong demand during the month of November.
Raw materials moderating
Turning to raw material costs, the “basket” of raw materials to make a basic replacement vehicle tire increased roughly 5.6% year-over-year in November 2022, following an 8.1% year-over-year increase in October.
We note the raw material cost increases have begun to moderate as our raw material index in November fell 2.1% sequentially from October, while the month of October fell 2.0% sequentially from September. Based on data through November, this would equate to a 6.5% decline in raw material costs from the third quarter to the fourth quarter.
Looking forward, holding current spot prices flat would equate to a 6.9% year-over-year increase in input costs in the fourth quarter.
Aggregate costs of raw materials have been increasing since May 2020, with peak year-over-year gains — of 37.7% — occurring in March 2022 as the conflict in Ukraine sent oil prices higher.
In assessing raw material price movements, the price of carbon black has increased on a year-over-year basis for 23 months straight, but the rate of increase has begun to moderate.
Crude oil prices have moderated from their spring 2022 peak.
Oil prices grew an average of 9.7% year-over-year in November, though there have been months of sequential declines. Oil prices fell an average of 2.9% in November from October.
Moving to natural rubber prices, our natural rubber index fell by 20.4% in October and 20.9% in November, with month-over-month declines each month.
At the same time, synthetic rubber costs grew in November by 1.4% year-over-year, though we tracked sequential declines to other raw materials.
Price pressures on reinforcement items continue to show moderation in year-over-year gains as well, with October and November prices up 15.3% and 11.3% respectively, which compares to an average year-over-year gain of 43.3% in the third quarter.