Will Weakness Spur Summer Tire Sales?

May 1, 2024

Retail sellout dropped 1.5% in March, the weakest number recorded so far in 2024 — following flat sellout trends in February and a slight decline of 0.4% in January.

For the first quarter of the year, average sellout was down 0.6% year-over-year.

Only a few of our independent tire dealer contacts indicated positive trends in March, while several said both service and tire replacement trends were weak for the month. We believe the mild winter weather trends continue to put pressure on sellout trends. For a second year in a row, we haven't seen much of a weather-driven uptick in demand.

We note that a year ago, the spring and early summer months saw similarly weak demand and sellout trends. We’re of the view that these soft comparisons and the continued deferment by consumers of necessary automotive maintenance could drive positive sellout trends in the months ahead.

Miles driven data returned to positive territory in March 2024, following a negative turn in February. Our miles driven momentum index registered a 0.5% year-over-year increase, following a 1% decline in February. The early indicators for April might be misleading, given the early timing of Easter this year. The index showed a 3.9% decrease for the first week of April, but in 2023, Easter was on April 9, compared to March 31 this year.

We continue to believe the soft numbers from February were a result of severe weather in California, which kept drivers there off the roads. Since California accounts for almost 12% of all registered vehicles in the U.S., traffic conditions there affect overall numbers.

From our view, we see miles driven trends as largely OK at this point in 2024 and we believe the underlying trend represents a healthier backdrop compared to this same time a year ago for both tire replacement and the broader automotive aftermarket.

On the raw materials front, overall costs are rising. In February, those costs rose 1.4%, and in March they were up 6.7%. For the first quarter, we believe it equates to a 2.8% increase in the cost to build a basic replacement tire. Note that this follows a 3.4% decrease in costs during the fourth quarter of 2023. In the first quarter of this year, natural rubber prices climbed 29% year-over-year — due in large part to severe weather in southeast Asia. Oil prices were up 9.9% year-over-year in March due to a multitude of geopolitical factors.

In 2023, our raw material index fell 9.7% compared to 2022. And for 2024, we expect prices to remain largely stable moving forward. With a level of stability in raw material prices, healthier inventory levels compared to this time a year ago and still muted demand trends, we wonder if an incremental price concession could be on the horizon by manufacturers to reward tire dealers and distributors willing to restock.

What dealers are reporting

Dealer commentary suggests consumer demand for passenger and light truck replacement tires was slightly negative on a net basis compared to March 2023.

A net 7% of independent tire dealer contacts experienced negative demand in March, a slight drop off from the 5% of contacts who saw positive demand in February.

Contacts recorded another month of positive demand for tier-one tire brands. On the negative side, consumers continue to defer automotive maintenance.

This remains a consistent theme within our survey. One dealer noted that business as a whole was down and that there are days with few booked appointments. That same dealer said no-show appointments are up, as well.

Another dealer said business remained soft and both car counts and overall number of invoices are down year-over-year.

Our contacts indicate tier-one tire brands were the most in demand in March for the second consecutive month.

While tire dealers continue to talk about consumers trading down, it appears there are some shoppers willing to purchase premium brands. It remains a bit of a surprise, as tier-one brands had been the least popular products in the four final months of 2023.

We suspect tax refunds might have contributed to some consumers choosing premium tires.

As we look ahead, we note tier-two brands were the most in-demand products for half of 2023, and historically have been the most popular option in our 10-plus years of survey history.

About the Author

John Healy

John Healy is a managing director and research analyst with Northcoast Research Holdings LLC, based in Cleveland, Ohio. Healy covers a variety of subsectors of the automotive industry and writes MTD's monthly Your Marketplace column. If you would like to be included in the monthly dealer discussions, contact him at [email protected].