Despite higher prices, tire demand to increase by 3%
As expected, wholesale tire prices are going up as much as 8% in March as raw materials took a big jump up in January 2011. While natural rubber is the most visible as its climb is unprecedented in history, other materials including synthetic rubber, carbon black, steel and chemicals also are up.
I estimate that the total raw material basket cost in January 2011 was at least 30% greater than January 2010 (and up 10% vs. just one month earlier) so manufacturers have no alternative but to move up tire prices. Y
es, this is tough on consumers, but there is no option for them except to trade down in quality. Your job is to explain to them that quality is the lowest cost in the long run. As noted in my comments last month, fuel-efficient tires can offer a partial offset to higher tire prices. Despite this tire price inflation, I still expect consumer tire demand to increase as much as 3% this year.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the January 2011 survey are compared with those of January 2010.
Passenger tire dealers’ six-month outlook is mixed
According to our dealer survey, dealers who sell passenger or truck tires sense that in the next six months business will remain the same or improve. Roughly 54% of passenger tire dealers suspect business will remain the same, while the remaining 46% think business will actually improve. Likewise, 71% of all the truck tire dealers sense that in the next six months business will improve, but surprisingly, some are concerned about future business. The other 29% expect business will remain the same. None of the passenger or truck tire dealers expect business to worsen. These outlook comments tend to be seasonally directed rather than year-to-year comparisons.
Tire sales were strong in January
According to dealer reports, on average, retail sales of new replacement passenger tires were strong with many reporting as much as a 12% increase in January vs. January 2010. Some dealers we surveyed noted that traffic was slower than they had expected (weather related) but remained optimistic. Truck and retreaded tire sales were strong, increasing 9% and 13%, respectively, in January year-over-year.
Costs for major and private brand tires were up
In comparing the month of January 2011 with December 2010, average costs for size 215/60R16 major brand tires were up 2% while selling prices were up roughly 1%. The average costs for a 215/60R16 private brand tire were up 2% while selling prices were up roughly 3% for the month.
Pricing remained normal to firm
In January 2011, 67% of the passenger tire dealers described pricing as firm, 25% perceived pricing as aggressive, while the remaining 8% of the passenger tire dealers thought pricing was normal. Likewise, 67% of truck tire dealers suggested pricing was very firm, while the balance of the truck tire dealers believed pricing was aggressive None of the truck tire dealers felt pricing was normal.
Truck tire inventories are too low
The survey suggests that passenger tire dealers view future demand with equanimity, as 54% of tire inventories seemed to be in line with business levels and 39% are too low. Conversely, 57% of truck tire dealers feel inventories are too low, while 43% believe inventories are in line with business levels.
Service revenues are up, dealers reported
Dealers who provide automotive service reported that 40% of revenues, on average, were generated by service during January. Dealers indicated that service business was up over 13% in January vs. January 2010.
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.