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While business remains soft, a rebound is predicted for later this year

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While business remains soft, a rebound is predicted for later this year

Last month I commented that at $4 a gallon for gasoline, there would likely be some back-off in driving leading to softer tire sales. Based on contacts with dealers throughout the country, retail tire sales have been weak since April.

And as I write this comment in late May 2011, that condition still exists. Oil prices — and gasoline — have retreated a bit from recent highs, and based on my experience, consumers get accustomed to high gas prices and eventually return to former driving levels. So do not be discouraged if business remains soft for a few months; I predict it will come back.

Be certain you’ve ordered enough winter tires if your stores are in snow areas. I expect tire prices to remain firm and one more round of price hikes from your suppliers may be required for them to fully offset raw material costs. While natural rubber prices appeared to have stopped going up, synthetic rubber and carbon black continue to move much higher. These are indeed unusual times.

Monthly survey

A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the April 2011 survey are compared with those of April 2010.

Passenger tire dealers’ six-month outlook is positive

According to our dealer survey, dealers who sell passenger or truck tires sense that in the next six months business will improve. Roughly 56% of passenger tire dealers suspect business will improve, while the remaining 44% expect business to remain the same. As for truck tire dealers surveyed, 80% see business improving while only 20% see business staying level. Such confidence is a positive outlook for the industry. These outlook comments tend to be seasonally directed rather than year-to-year comparisons.

Tire sales were mixed in April 

According to dealer reports, on average, retail sales of new replacement passenger tires were flat with individual responses varying greatly. Some were up as much as 10% in April vs. April 2010, but most reported declines in the 5% range. On the other hand, new truck and retreaded tire sales were up 4%. There is no doubt consumers are pulling back as they are feeling the effects of rising fuel prices. Some dealers we surveyed noted that lower income areas are particularly affected as the customers have little disposable income to spend on car care.

Selling prices for major and private brand tires continued to inch higher 

In comparing the month of April 2011 with March 2011, average costs for size 215/60R16 major brand tires were up 1% while selling prices were up 1%. Average costs for a 215/60R16 private brand tire were up 3% while selling prices were up roughly 2% for the month. Reflecting tire price increases, we expect data for May to show more significant increases.

Most dealers believed pricing was very firm

In April 2011, approximately 80% of both the passenger tire and truck tire dealers suggested pricing was very firm, while the remaining dealers believed pricing was a bit aggressive.

Truck tire inventories remained too low

The survey indicated that 78% of passenger tire dealers believed inventories were in line with current business levels, while the remainder viewed inventories as too low to meet demand. The truck tire dealers we surveyed had mixed views, as 40% believed inventories were in line with business levels while the other 60% felt inventories were too low.

Service revenues were up 6%, dealers reported

Dealers who provide automotive service reported that 40% of revenues, on average, were generated by service during April. Dealers indicated that service business was up 6% in April vs. April 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.

 

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