Fill rates show improvement as manufacturers build inventories
The U.S. consumer is stretched and purchases that can be postponed are being put off. My survey of tire dealers across the country point to slow sales of consumer tires with many dealers reporting comp store tire volume declines of more than 5% in June with not much improvement seen in July. While some dealers are doing quite well, the business, overall, is challenged. Inventories at the tire manufacturers are building, so fill rates for the tires you order should be improving. While the consumer business is slow, commercial business is strong. Truck, farm and OTR tire supplies are still tight. As to raw materials, while natural rubber prices have receded from their highs, synthetic rubber and carbon black costs continue to increase, so the total basket of tire raw materials continues to move higher. I expect to see commercial tire prices move higher, but sluggish consumer tire demand may keep a lid on those prices for a while longer.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the June 2011 survey are compared with those of June 2010.
Passenger tire dealers lost confidence
Roughly 31% of passenger tire dealers believe business will improve over the next six months while 63% believe it will stay about the same. Six percent believe it will worsen. As for truck tire dealers surveyed, 62% see business improving while 38% see business remaining level. Despite gas prices falling roughly 6% in June, they are still up 16% in 2011 and are negatively affecting passenger tire dealer sentiment. These outlook comments tend to be seasonally directed rather than year-to-year comparisons.
Passenger tire sales continue to slide
According to dealer reports, on average, retail sales of new replacement passenger tires were down around 3%. Disparity amongst dealers is great with some dealers indicating sales increased by 25% while others were down as much as 25%. Some dealers we surveyed still feel gas prices, while falling, are still hurting sales, but they are pleased that manufacturer inventory levels are rising, which is leading to better fill rates. On the other hand, new truck tire sales continue to show strength as volume was up 6% while retreaded tire sales were up 5%.
Major and private brand pricing was up slightly
In comparing the month of June 2011 with May 2011, average costs for size 215/60R16 major brand tires were up 2% while selling prices were up 1%. The average costs for a 215/60R16 private brand tire were up 1% while selling prices were up roughly 2%.
Dealers believed pricing was very firm
In June 2011, 75% of truck tire dealers saw pricing as very firm, while passenger tire dealers were much more mixed with a slight bias, 44% toward pricing being very firm.
Truck tire inventories remained too low
The survey indicated that 56% of passenger tire dealers believed inventories were in line with current business levels, while 31% viewed inventories as too high for current demand. The rest (13%) felt inventories were too low. The truck tire dealers we surveyed indicated inventories have slightly deteriorated, as 46% believed inventories were too low compared to 29% in May, while 39% felt inventories were in line with current business levels. Some 15% felt inventories were in line. Strong demand for truck tires throughout the second quarter is likely the culprit for decreasing dealer inventories, while weak passenger tire demand is having the opposite effect.
Service revenues were up 10%, dealers reported
Dealers who provide automotive service reported that 25% of revenues, on average, were generated by service during June. Dealers indicated that service business was up 10% in June vs. June 2010. Service business has been very strong through most of 2011, but the rate of growth has slowed slightly the past two months.
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.