Dealer Opinions are Split on Tire Demand Trend Forecast

June 21, 2016

According to the results of our survey, demand for replacement tires decreased slightly in April. Indeed, from a volume standpoint the dealers reported they sold 0.2% fewer tires last month on a year-over-year basis, following a 0.1% decrease in March and a 0.9% increase in 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, and April is the second month this year the negative was not completely offset by a strong demand caused by lower unemployment and lower fuel prices.

While April’s results were slightly negative, we are not yet convinced that this is forming a trend, and until we see a sustained decline in the results of our survey, we will continue to believe 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 26 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. 

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 2016 survey are compared with those of April 2015.

Dealers’ confidence waned in April

According to the survey results, none of the passenger tire dealers believe business will improve, 33% believe that trends will worsen, and 67% 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 similar as 67% of the truck tire dealers we spoke with see business staying about the same and 33% saw business worsening.

Tire sales volume trends are moderating

According to our dealer survey, consumer demand for replacement tires slightly decreased in April. Dealers reported they sold 0.2% fewer tires in April on a year-over-year basis, following a 0.1% decrease in March and a 0.9% increase in February. Trends turned negative in the truck category as the dealers who responded to the survey reported volumes were down 2.7% after being up 0.9% in March and flat in February. Lastly, the survey respondents indicated volumes were down 1.5% in the retread business after being up 1.5% in March.

Dealers report costs declined

The tire dealers who responded to the survey noted manufacturer pricing on branded and value tires decreased slightly in April. In fact, the respondents noted manufacturer pricing on value tires decreased 3% during April, while the price of branded tires also decreased 2.3%. These reports are in line with what we heard about prices declining during last year’s trip to the Specialty Equipment Market Association 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.

Dealers felt inventories were appropriate

Of the dealers who responded to the survey, 33% noted inventories were too high, and the other 67% noted they had the appropriate amount of inventory in stock for demand (vs. 75% in March), while zero noted that inventories were too low. The responses regarding inventory levels among truck tire dealers reported similar results as 67% of those surveyed indicated they had the appropriate amount of inventory and 33% indicated inventory was too high.

Service repair sales increased

Dealers indicated automotive repair sales trends returned to the positive in April, after being slightly down in March. Specifically, the dealers who responded to the survey indicated service sales, which accounted for 37% of total revenues, were up 4% on a year-over-year basis in April (compared to a decrease of 1% in March and an increase of 2.3% in February).  

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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