Last month I warned about softer retail sales and based on my dealer contacts, business in May and thus far in June was especially challenging. Weak consumer tire shipments (May 2011 vs. May 2010 was down 12%) allowed manufacturers to build their inventories so fill rates are getting better. Also noteworthy is a recent decline in gasoline prices to the $3.65/gallon range, and if that trend continues I would expect to see driving — and tire purchases — resume a modest upward trend during the summer months. Looking to the winter, we all recall how harsh last winter was and most dealers sold nearly every winter tire they had in stock. Be sure to have your winter tire orders firmly in place, as I predict manufacturers will not be able to fill all the orders they receive. Many manufacturers have announced plans to expand their capacities here in the U.S. and that will be a positive in future years.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the May 2011 survey are compared with those of May 2010.
Truck tire dealers were optimistic
According to our dealer survey, roughly 45% of passenger tire dealers believe business will improve over the next six months while 41% believe it will stay about the same. The remaining 14% expect business to worsen. As for truck tire dealers, 56% see business improving, 39% see business remaining level and 5% feel business will worsen. Optimism remains for truck dealers as May truck tire sales continued to show strength. These outlook comments tend to be seasonally directed rather than year-to-year comparisons.
Passenger tire sales were down sharply
According to dealer reports, on average, retail sales of new replacement passenger tires were down around 4%. On the other hand, new truck tire sales were up 7% while retreaded tire sales were up 5%. There is no doubt consumers are pulling back as they are feeling the effects of rising fuel prices. Some dealers we surveyed believe that these are only short-term pullbacks, and are more optimistic about the next six months.
Costs show signs of slowing on raw materials
In comparing the month of May 2011 with April 2011, average costs for size 215/60R16 major brand tires were flat while selling prices were up 1%. Average costs for a 215/60R16 private brand tire were down 1% while selling prices were down 1% for the month also.
Dealers believed pricing was very firm
In May 2011, the vast majority of passenger tire and truck tire dealers suggested pricing was very firm, indicating dealers are seeing a lower level of discounting than normal from manufacturers.
Truck tire inventories remained too low
The survey indicated that 50% of passenger tire dealers believed inventories were in line with current business levels, while 32% viewed inventories as too high for current demand. Some 18% felt inventories were too low. The truck tire dealers we surveyed indicated inventories have improved slightly, as 47% believed inventories were in line with current business levels and 29% felt inventories were too low. Twenty-four percent felt inventories were too high. (For a comparison, in April, 40% felt truck tire inventories were in line with current business and 60% felt they were too low.)
Service revenues were up 10%, dealers reported
Dealers who provide automotive service reported that 25% of revenues, on average, were generated by service during May. Dealers indicated that service business was up 10% in May 2011 vs. May 2010. Service business has been strong through most of 2011.
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.