This year has been characterized by soft retail demand, high tire prices forced by surging raw materials, poor fill rates early in the year and new leaders of North American operations at both Goodyear and Cooper Tire. In the last month, gasoline prices and raw materials have begun to come down, but all tire manufacturers instituted another round of price hikes because they are still way behind covering costs. I expect this to be the last round of increases barring further raw material cost changes. With gas prices off sharply, driving levels, and even tire demand, should soon begin to improve. Looking longer term, there are currently 25 new tire plants under construction (40% of them in China) that will start to come on stream in 2012 and 2013. With tire demand growing sharply in China, the local market should consume much of that increased production.
Monthly survey
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the September 2011 survey are compared with those of September 2010.
Dealers are optimistic
According to our dealer survey, roughly 50% of passenger tire dealers believe business will improve over the next six months while 42% believe it will stay about the same. Eight percent believe business will worsen. As for truck tire dealers surveyed, 46% see business staying level while 45% see business improving. The other 9% expect business to worsen. Volumes held steady in September for a second straight month and margins improved slightly. This is giving dealers hope that the next six months may shape up to be pretty good.
Volumes hold steady for a second straight month
On average, retail sales of new replacement passenger tires were flat when compared with September 2010. Many positives, such as lower gas prices and improving unemployment data, should begin to benefit tire volumes. New truck tire sales continue to surge ahead, as volumes were up 5% while retreaded tire sales were up 4%.
Profit margins improved in September
In comparing the month of September 2011 with August 2011, average costs for size 215/60R16 major brand tires were down 1% while selling prices were up 1%. Average costs for a 215/60R16 private brand tire were up 2% while selling prices were up roughly 3%.
Truck pricing seen as very firm
There was no uniformity in passenger tire dealer pricing as an equal number of respondents saw pricing as normal, aggressive and very firm. On the other hand, 64% of truck tire dealers saw pricing as very firm, as high demand for truck tires is causing manufacturers to discount sparingly.
Truck tire inventories slip
The survey indicated that 50% of passenger tire dealers believed inventories were in line with current business levels, with the remaining dealers equally split between viewing inventories as too high and too low for current demand. Truck tire dealers indicated inventories slipped a bit, as 50% believed inventories were too low, compared to only 30% last month. Only 8% of truck tire dealers viewed inventories as too high, which is the lowest level seen since April. Truck tires have been in high demand all year, which is making it difficult for dealers to build inventories
Service business holds steady in September
Dealers who provide automotive service reported that 25% of revenues, on average, were generated by service during September. Dealers indicated that service business has been the key driving force behind their 2011 growth.
Analyst Saul Ludwig is a managing director with Northcoast Research Holdings LLC based in Cleveland, Ohio. He concentrates on the tire and chemical industries. He has been writing for Modern Tire Dealer since April 1975.
