The challenge of selling big ticket products in today’s economic climate is indeed daunting, and to boot, with most tire companies just having announced a new round of price hikes, your job won’t get any easier. Driving levels continue to move lower even as gasoline prices come down — possibly the ongoing impact of high unemployment. One bright spot ahead in Northern states might be sales of winter tires. Last winter was very harsh and dealers I spoke with pretty much sold out their winter tire inventory, so be sure you are well stocked in those tires this year. In the South, maybe the record heat experienced this summer chewed up rubber faster than normal so those tires will have to be replaced. So, it’s “tough it out time” again. Get creative.
A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the August 2011 survey are compared with those of August 2010.
Dealers favor optimism
According to our dealer survey, roughly 46% of passenger tire dealers believe business will stay about the same over the next six months while 36% believe it will improve. Eighteen percent of the passenger tire dealers believe business would worsen. As for truck tire dealers surveyed, 55% see business staying level while 36% see business improving. The other 9% of truck tire dealers expect business to worsen. Volumes stabilized in August after being weak for several months. Although one month does not create a trend, it has given dealers optimism about the next six months.
Volumes stabilize while competition heats up
According to dealer reports, on average, retail sales of new replacement passenger tires were flat when compared with August 2010. Results were mixed with some dealers reporting as high as 18% volume gains and others reporting losses of 23%. Price has become the top concern for tire consumers and this is creating a very competitive arena for dealers with lower margins. New truck tire sales continue to show strength, however, as volumes were up 4% while retreaded tire sales were up 8%.
Profit margins pressured in August
In comparing the month of August 2011 with July 2011, average costs for size 215/60R16 major brand tires were up 3% while selling prices were up only 2%. The average cost for a 215/60R16 private brand tire was up 1% while selling prices were down roughly 4%. Increases in manufacturer raw material costs are causing dealer costs to rise, but a weakening economy and consumer demand is not allowing pricing to keep up.
Pricing seen as normal or very firm
In August 2011, 55% of truck tire dealers saw pricing as normal, while 55% of passenger tire dealers viewed pricing as being very firm as inventories stabilize for manufacturers but raw material costs continue to rise.
Truck tire inventories were more stable
The survey indicated that 64% of passenger tire dealers believed inventories were in line with current business levels, while 18% viewed inventories as too high for current demand. The rest felt inventories were too low. Some 50% of truck tire dealers believed inventories were in line with current business levels, while 30% felt inventories were too low. Slow demand over the past few months has allowed dealers to fill inventories to levels that are appropriate for the current economy.
Service business holds steady in August
Dealers who provide automotive service reported that 25% of revenues, on average, were generated by service during August. Dealers indicated that service business grew by 2% in August vs. August 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.