Besides my regular channel checks with tire dealers and manufacturers, I speak often with suppliers of raw materials including producers of synthetic rubber, carbon black, steel cord and polyester. Their message is that they cannot keep up with demand from tire manufacturers.
And that is not just a U.S. comment, but a global one. Tire manufacturers are still struggling to keep up with your demand because their inventories are too low. So I am not surprised when I continue to hear dealer complaints about supplier fill rates — although the shortages are not as acute as they were last year.
It is clear, however, that dealers who have been loyal to their supplier (vs. ones who buy from deal to deal) are getting the best service levels. With gasoline prices now in the $4/gallon range, I do expect to see some back-off in car driving, so consumer tire demand in the second half of 2011 may be a bit less than my initial expectations. Truck tire demand will still be strong all through this year.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the March 2011 survey are compared with those of March 2010.
Dealers’ outlook is positive
According to our dealer survey, dealers who sell passenger or truck tires sense that in the next six months business will either remain the same or improve. Roughly 40% of passenger tire dealers suspect business will remain the same, while the remaining 60% expect improvement. Likewise, 75% of all the truck tire dealers sense that in the next six months business will improve. The other 25% expect business will remain the same. None of the dealers expect business to worsen. These outlook comments tend to be seasonally directed rather than year-to-year comparisons.
Tire sales were again strong in March
According to dealer reports, on average, retail sales of new replacement passenger tires were strong with many reporting as much as a 10% increase in March vs. March 2010. Some dealers we surveyed noted that they expect business to grow, but were very concerned about rising fuel prices deterring people from driving, impacting sales. Truck and retreaded tire sales were also strong, increasing 12% and 7%, respectively, in March year-over-year.
Selling prices for major and private brand tires were up
In comparing the month of March 2011 with February 2011, average costs for size 215/60R16 major brand tires were up 4% while selling prices were up 6%. The average costs for a 215/60R16 private brand tire were up 5% while selling prices were up roughly 7% also for the month.
Tire pricing remained very firm
In March 2011, all of the passenger and truck tire dealers suggested pricing was very firm. None of the dealers felt pricing was normal or aggressive.
Truck tire inventories remained too low
The survey suggests that the majority of passenger tire dealers view future demand as consistent, as 80% of tire inventories seemed to be in line with business levels. Twenty percent said inventories were too high, while none indicated inventories were too low. Conversely, 75% or the truck tire dealers surveyed felt inventories were too low, while the remainder felt inventories were in line with business.
Service revenues are up, dealers reported
Dealers who provide automotive service reported that 25% of revenues, on average, were generated by service during March. Dealers indicated that service business was up over 9% in March vs. March 2010. Unless gas prices continue to trend higher, service business in 2011 should continue to remain strong.
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.