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Tire Makers Will Be Less Likely to Offer Volume Incentives

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The average price of a light vehicle tire dropped 0.5% in June. Why? Tire industry analyst Nick Mitchell believes he knows.

Mitchell, senior vice president of research for Northcoast Research Holdings LLC, says the average prices for the most popular passenger and light truck tires tires dropped 0.4% (to $121.12) and 0.7% (to $156.04), respectively.

"We believe the sequential uptick in the rate of the price declines partially reflects efforts by the dealers to optimize inventory balances after softer-than-planned sell-out trends in April and May, especially in the Northeast and Midwest."

Also according to results from the the Northcoast Research Tire Pricing Index,the average June pricing based on tiers is as follows:

* value tire, down 0.4% to $113.38;

* mid-tier tire, down 0.5% to $116.27;

* premium tire, down 0.5% to $138.66.

However for the quarter, the average price for a light vehicle tire was up 0.3% compared to the average price that was recorded in the first quarter of 2016.

"We continue to believe that the overall pricing environment in North America is rational and in-line with our expectations," says Mitchell. "Our contacts throughout the channel suggest that any price adjustments seen at retail over the past few months reflect a portion of the volatility in raw materials, as well as some targeted price repositioning by manufacturers on select products.

"We expect pricing will remain fairly firm going forward as Tier I and Tier II producers remain disciplined in managing the price/volume trade-off to maximize EBIT. In light of this, we think that the manufacturers will dial back some of their volume incentives as they adjust pricing to reflect the recent run in natural rubber and crude oil prices of their respective lows."

The Northcoast Research Tire Pricing Index, which is a proprietary data set comprised of retail prices, surveys more than 10,000 consumer replacement tire SKUs.

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