Despite a Slight Decrease, Demand Shows Signs of Continued Growth

May 17, 2016

 According to the results of our latest survey, demand for replacement tires decreased slightly in March. Indeed, from a volume standpoint the dealers reported they sold 0.1% fewer tires in March on a year-over-year basis, following a 0.9% increase in January and February.

The lack of a harsh winter has been a headwind to demand trends this year and has provided a tough comparison from the winter of 2014/2015, but March is the first month this year the negative was not completely offset by a strong demand caused by lower unemployment and lower fuel prices. While March’s results were slightly negative, one month does not make a trend, and until we see a sustained decline in the results of our survey, we will continue to believe that the industry will show growth.

In light of the recent strength in demand trends, we continue to believe that the abundance of pent-up demand should lead to decent volume growth throughout 2016, despite the fact that 2015 provides tough comparisons. In fact, demand has increased on a year-over-year basis for 23 of the past 25 months, according to the dealers surveyed. That said, the respondents to our survey are split on demand trends over the next three months of this year. Until next time, keep the tires rolling out the door.

Monthly survey

A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the March 2016 survey are compared with those of March 2015.

Dealers appear confident in market conditions

According to the survey results, 50% of passenger tire dealers believe business will improve and 50% think business will stay about level, which seems to be an early indication of slight pessimism beginning to brew among industry participants. The outlook for truck tire demand was higher than February as 50% of the truck tire dealers we spoke with see business staying about the same and 50% saw  business improving.

Volume trends moderate

As stated, the dealers in our survey reported they sold 0.1% fewer tires last month on a year-over-year basis, following a 0.9% increase in both January and February. Trends remained positive in the truck category as the dealers who responded to the survey reported volumes were up 0.9% after being flat in February and registering a 4.1% increase in January. Lastly, the survey respondents indicated volumes were up 1.5% in the retread business after being down 3.5% in February.

Dealer costs decline

Survey respondents noted manufacturer pricing on value tires decreased 0.3% during March, while the price of branded tires also decreased 0.3%. These reports are in line with what we heard about prices declining during our trip to Las Vegas for the Specialty Equipment Market Association (SEMA) Show, and this trend is consistent with commentary from around the country that pricing has remained flat or declined despite the implementation of tariffs on Chinese import tires. Although we will keep an eye on this metric, February’s phenomenon of a steep decline can largely be attributed to lower raw material prices as well (e.g., lower oil prices).

Dealers think inventories are in line

Of the dealers who responded to the survey for March, 25% noted inventories were too high, and the other 75% noted they had the appropriate amount of inventory in stock for demand (vs. 33% in February), while none noted inventories were too low. Truck tire dealers reported similar results as 75% of those surveyed indicated they had the appropriate amount of inventory and 25% indicated inventory was too high.

Repair sales declined in March

Dealers indicated automotive repair sales trends began to moderate in March. Specifically, the dealers who responded to the survey said service sales, which accounted for 9% of total revenues, were down 1% on a year-over-year basis in March (compared to increases of 2.3% in February and 9.5% in January).    ■

Nick Mitchell is senior vice president, research, for Northcoast Research Holdings LLC based in Cleveland, Ohio. Mitchell covers a variety of subsectors of the automotive industry.

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