Gasoline prices seem to be increasing again with prices for regular north of $3 a gallon almost everywhere. While I do not expect driving levels to be meaningfully impacted anytime soon (unless gasoline approaches $4 a gallon), you should cite higher gasoline prices as a way to foster sales of fuel efficient tires.
Those tires, now available from most manufacturers, sell at a premium but with proper training (and maybe a spiff, too), your counter staff should be able to convince the customer of the benefits of those (higher margin to you) tires.
During 2010 there was indeed some trading down by cash-strapped consumers, but 2011 may see a renewed focus on performance vs. price. For 2011, most economists are projecting a stronger economy. Additionally, 2010 was a strong year for the stock market, so consumers may soon be feeling better about their own financial health than was the case last year. Strong Christmas sales were the most recent evidence of improving consumer spending.
Monthly survey
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the December 2010 survey are compared with those of December 2009.
Passenger tire dealers’ six-month outlook is mixed
Roughly 50% of passenger tire dealers suspect business will remain the same in the next six months, 17% expect improvement, while the remaining 33% think business will worsen. Conversely, 75% of all the truck tire dealers sense that in the next six months business will improve while 25% expect business to worsen. These outlook comments tend to be seasonally directed rather than year-to-year comparisons.
All tire sales were higher in December
According to dealer reports, on average, retail sales of new replacement passenger tires were strong with many reporting as much as a 9% increase in December 2010 vs. December 2009. Some dealers we surveyed noted that traffic was very good in December. Truck and retreaded tire sales were strong, increasing 8% and 13%, respectively, in December year-over-year.
Costs for major and private brand tires were up
In comparing the month of December 2010 with November 2010, average costs for size 215/60R16 major brand tires were up 5% while selling prices were unchanged. The average costs for a 215/60R16 private brand tire were up 7% while selling prices were essentially flat for the month. In light of further raw material cost increases, we expect manufacturers to again increase prices soon.
Pricing remained normal to firm
In December 2010, 66% of the passenger tire dealers described pricing as normal, 17% perceived pricing as aggressive, while the remaining 17% of the passenger tire dealers thought pricing was firm. Conversely, 75% of truck tire dealers suggested pricing was very firm, while the balance of the truck tire dealers believed pricing was normal. We continue to expect that dealers will likely see less discounting as manufacturers attempt to raise prices.
Truck tire inventories are too low
The survey suggests that passenger tire dealers view future demand with some degree of uncertainty because their view regarding tire inventories was equally split with about 33% believing they were either too high, too low or in line with business conditions. Conversely, all truck tire dealers feel inventories are too low.
Service revenues are up, dealers reported
Dealers who provide automotive service reported that 50% of revenues, on average, were generated by service during December. Dealers indicated that service business was up over 12% in December 2010 vs. December 2009. Automoitve service business remained strong through most of 2010 for the surveyed dealers.
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.
