As I write this comment on March 22, the stock market — often a leading indicator — is saying good things about the tire industry. Year-to-date as of today, the S&P 500 Index is up 4% but the tire stocks are doing even better.
Goodyear is leading the pack with its YTD share price up 27%. Bridgestone and Michelin follow being up about 10%, Toyo and Cooper are up 5%, Kumho is up 3%, while Sumitomo is down 1%. (Prior to the Japanese earthquake, all Japanese tire company stock prices were much higher).
That comment notwithstanding, the expectation is that 2011 will see good volume growth with February year-to-date replacement passenger and truck shipments up 5% and 27%, respectively. Even though raw materials are surging higher, tire prices (along with volume gains and cost containment actions) will compensate. Your business, like the stock market, should be participating in the more favorable tire prospects.
Monthly survey
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the February 2011 survey are compared with those of February 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 either remain the same or improve. Roughly 57% of passenger tire dealers suspect business will remain the same, while the remaining 43% expect improvement. Likewise, 80% of all the truck tire dealers sense that in the next six months business will improve. The other 20% 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 February
According to dealer reports, on average, retail sales of new replacement passenger tires were strong with many reporting as much as a 6% increase in February vs. February 2010. Some dealers we surveyed noted that business was better, but rising fuel prices could deter people from driving, impacting sales. Truck and retreaded tire sales were strong, increasing 6% and 8%, respectively, in February year-over-year.
Costs for major and private brand tires were up
In comparing the month of February 2011 with January 2011, average costs for size 215/60R16 major brand tires were up 2% while selling prices were up roughly 3%. The average costs for a 215/60R16 private brand tire were up 3% while selling prices were up roughly 3% also for the month.
Tire pricing remained firm
In February 2011, 71% of the passenger tire dealers described pricing as firm, and the other 29% perceived pricing as normal. Likewise, 75% of truck tire dealers suggested pricing was very firm, while the balance of the truck tire dealers believed pricing was normal. None of the truck tire dealers felt pricing was aggressive.
Truck tire inventories remained too low
The survey suggests that the majority of passenger tire dealers view future demand as consistent, as 72% of tire inventories seemed to be in line with business levels. Fourteen percent said inventories were too low, and 14% said they were too high. Conversely, all truck tire dealers surveyed felt inventories were too low.
Service revenues are up, dealers reported
Dealers who provide automotive service reported that 44% of revenues, on average, were generated by service during February. Dealers indicated that service business was up over 11% in February vs. February 2010. As in 2010, service business in 2011 should continue to be strong.
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.
