Mitchell: Tier 1 tires are leading the way

March 26, 2015

According to the Northcoast Research Tire Demand Index, replacement tire demand was down in February compared to the same month in 2014.

Nick Mitchell, senior vice president of research for Northcoast Research Holdings LLC, says extremely cold temperatures and constant snowfall "restricted sell-through trends in many markets in the Midwest and Northeast."

(Northcoast Research surveys approximately 100 tire dealers across the country on a monthly basis to create its Tire Demand Index.)

"We are encouraged by the fact that the index has been in expansionary territory for 17 of the past 20 months, which is consistent with our thesis that the U.S. market is in the midst of a volume recovery cycle," he says. "Now that the 'aggressive specials' tied to the so-called 'channel stuffing' of Chinese tires in late summer and early fall have largely expired, dealers now indicate that consumers' preferences have shifted back to Tier 1 and Tier 2 brands. In fact, Tier I brands have either shared, or been atop the podium in four of the past five months, and we have seen Tier 3 brands at the bottom of the list for six consecutive months."

Ranking growth trends by tire tier, Feb. 2015

Growth                    Tier 1     Tier 2     Tier 3

Strongest                 45.6%   31.6%    22.8%  

Second strongest     26.3%   49.1%    24.6%

Weakest                   28.1%   19.3%    52.6%

Weighted avg.           1.82      1.88       2.30

Source: Northcoast Research

"In short, we continue to hear that intermediate-term sell-through trends of premium branded tires at retail remains very solid on an absolute basis in the United States despite the recent hiccup in February," says Mitchell.

"In our view, this trend has bullish implications for Goodyear, as well as other premium producers, as it suggests that 1) the tire manufacturer stands to benefit from a multi-year volume recovery cycle in North America, especially if the preference for HVA (high value added) tires remains solid or accelerates; 2) many consumers have no qualms about paying slightly more for a premium brand like Goodyear in this mixed economic environment if they feel like they are obtaining a product with leading technology/performance capabilities, especially if they own a late model vehicle; and 3) the steep price declines that Tier 3 brands have seen over the past year stimulated demand in this segment of the market without materially cannibalizing volume in the premium range of the market."