'Still pent-up demand waiting to be released'

May 28, 2015

Consumer demand for replacement tires increased slightly in April, and industry analyst Nick Mitchell sees more room for growth as Tier 1 products continue to lead the way.

“Our contacts continue to report that the average tread depth and overall quality of tires coming off light vehicles today remain at lower-than-normal levels. In our opinion these two factors are clearly an indication that there is still pent-up demand waiting to be released,” Mitchell says in the latest Tire Demand Index report. Mitchell is senior vice president of research for Northcoast Research Holdings LLC and the author of Modern Tire Dealer’s monthly Your Marketplace column.

The index measures the demand for tires across the country and includes a monthly poll of approximately 100 independent dealers. The index has been in expansionary territory for 17 of the past 19 months. Mitchell believes the most recent blip in those numbers – in February – was a result of an especially harsh month of winter weather and nothing more.

For the index, a number above 50 shows growth, while a figure lower than 50 shows retraction in the market. For April, the Tire Demand Index was 51.9, just .1 of a point above April.

“Although the index was only slightly above the expansion/contraction threshold in April, it is important to note that this year’s results came on the back of a strong performance in the prior year’s period,” Mitchell says. “We believe that volume trends should improve as weather patterns normalize and the spring and summer maintenance season heats up, especially given the favorable trend in gasoline prices relative to the previous year.”

As has been the case in five of the last seven months, dealers reported the strongest demand for Tier 1 tire brands in April. At the same time, dealers reported a slight shift from Tier 2 to Tier 3 products, “likely reflecting that the downwardly revised terms of the tariffs on Chinese import tires being passed on to end-market tire prices.

“The tariffs continue to narrow the pricing spread and the value proposition between these segments of the market,” Mitchell says.