Tire Pricing Remained Flat or Declined Despite Tariffs on Chinese Imports

Dec. 16, 2015

According to the results of our survey, demand for replacement tires increased in October. Indeed, from a volume standpoint the dealers reported they sold 0.1% more tires last month on a year-over-year basis, following a 0.6% increase in September and a 0.5% increase in August.

We are encouraged by the fact that demand trends are holding strong toward the beginning of winter, although down slightly from what we saw at the peak of summer’s heat, which is likely due to a lack of harsh winter weather and a tough comparison from 2014. In light of the recent strength in demand trends, we continue to believe the abundance of pent-up demand should lead to decent volume growth throughout the remainder of 2015, despite the fact that 2014 provides tough comparisons.

In fact, demand has increased on a year-over-year basis for 19 of the past 20 months, according to the dealers surveyed. Furthermore, most dealers stated they anticipate trends to improve throughout the next three months of this year. Until next time, keep the tires rolling out the door.

Monthly survey

A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the October 2015 survey are compared with those of October 2014.

Dealers believe sales trends may level off

According to the survey results, 100% of passenger tire dealers believe business will stay about level, which is a marked decline in optimism from what we have seen in the past. For instance, in September, 83% of those surveyed felt business would improve, while 50% felt so in August. However, much of this decline in optimism may be related to mild weather conditions relative to 2014. The outlook for truck tire demand was slightly higher as 83% of the truck tire dealers we spoke with see business staying about the same and 17% saw business improving.

Replacement tire sales volumes were strong

According to the dealers surveyed, consumer demand for replacement tires increased in October. As noted, the dealers in our sample reported they sold 0.1% more tires last month on a year-over-year basis, following a 0.6% increase in September and a 0.5% increase in August. Trends continued to be positive in the truck category as the dealers reported volumes increased 0.8% after a 0.6% increase in September and a 1.4% decrease in August. Lastly, the survey respondents indicated volumes were down 1.8% in the retread business after increasing 1.3% in September.

Dealer reported their costs have declined

The respondents noted manufacturer pricing on value tires decreased 2.0% during October, while the price of branded tires declined 1.2%. While we were initially surprised at hearing this during our recent trip to the Specialty Equipment Market Association (SEMA) Show, 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. This phenomenon is being partially aided by lower raw material prices as well.

Most dealers had adequate inventories

Of the dealers who responded to the survey last month, 67% indicated that they had the appropriate amount of inventory in stock for demand (the same percentage as in September) and 33% indicated inventory levels were too high. Fifty percent of the truck tire dealers who responded to our survey reported inventory levels were appropriate, 33% indicated inventory was too high, and 17% indicated inventory was too low.

Repair sales rose in October

Dealers indicated automotive repair sales trends improved once again in October. Specifically, the dealers who responded to the survey indicated service sales, which accounted for 20% of the survey participants’ total revenues, were up 8.7% on a year-over-year basis in October (up from an increase of 6.0% in September) as a higher average ticket and strong traffic trends benefited the dealers’ repair departments.   ■

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.

To read more Your Marketplace columns, see:

Dealers Anticipate Sales Trends to Improve Through the End of the Year

Pent-up Demand Should Lead to Decent volume Growth Through December

Higher Average Ticket Totals Amount to a 10.7% Increase in Service Sales