Sell-Out Trends Inched Upward as 2021 Ended

Dec. 29, 2021
This MTD exclusive was provided by John Healy, managing director and research analyst with Northcoast Research Holdings LLC and author of MTD's monthly Your Marketplace column.

Our recent conversations with tire dealers leave us with the view that retail tire sell-out trends are climbing upward on a year-over-year basis compared to November of last year, with activity levels rising compared to what we saw in October 2021, where dealers experienced relatively flat sell-out trends.

Specifically, 50% of the net number of respondents to our latest survey indicated that they saw positive demand on a year-over-year basis during the month of November, which compares to October’s levels of 45%.

Contacts noted that volumes would have been higher, but inflationary pressures are causing vehicle owners to defer maintenance, including tire replacement, longer than they normally would.

From a volume standpoint, we note that both the Midwest and Southeast are exhibiting positive sell-out trends, with the Southwest lagging behind compared to 2020 levels. 

We believe that demand trends continue to benefit from the continued rebound in driving, which continues the trend we have seen in recent months.

Apple’s Mobility Trends Report, which we monitor, indicates that more people than normal are searching for driving directions.

COVID-19 impact

COVID-19 continues to be an area of concern that we also track. In previous months, focus was on the delta variant of COVID-19, but macro themes on the pandemic front have shifted to the omicron variant of the virus.

Data thus far has shown that the effects of the new variant are minor for vaccinated individuals, and we note that as of this writing, nearly 62% of Americans are now fully vaccinated. 

While infection rates have risen in recent weeks, our dealer contacts tell us they have not seen a slowdown in business activity because of this.

Rational pricing

We also note that several tire manufacturers have kicked off the new year with more price increases.

However, when examining the tire retail landscape from a longer-term view, we continue to believe that the pricing environment in North America will remain rational and in-line with raw material costs.

As was the case last year, we expect that tire manufacturers will continue to exhibit discipline in managing the trade-off between volume and price, with the goal of maximizing profit rather than market share.

We also are pleased with the disciplined approach we have seen when it comes to production and the fact that global inventory levels remain relatively lean and stable.

Tire dealers and distributors continue to adjust to changing conditions and remain tactical in their approach to inventory in light of volatile pricing and other factors that are beyond their control.

Raws still climb

Looking closely at raw material costs, the “basket” of raw materials that it takes to make a common replacement tire climbed 23% on a year-over-year basis during November 2021, the latest month for which we have data.

This continues a trend that began at the start of 2021, though year-over-year increases have moderated since April highs.

Holding current spot prices flat would yield an estimated 22.5% year-over-year increase in input costs to build a tire — up an estimated 5.9% from the same period last year.

In assessing raw material price movements, we note that carbon black has experienced increases on a year-over-year basis for 11 months in a row, with a continued upward trajectory in year-over-year gains.

Crude oil prices experienced extreme cost pressures right after the start of the pandemic, with average prices down nearly 40%, year-on-year, through the end of 2020.

As noted in previous columns, 2021 was a different story. We note that November 2021 saw a 91.5% year-over-year jump in crude oil price.

Synthetic rubber costs were up 26.9% on a year-over-year basis this past November, ending the trend of year-over-year increases of more than 30% seen from August 2021 through October 2021.

We also note that, on a sequential basis, the cost of synthetic rubber declined 1.8% from October 2021, the first drop in this category since February 2021.

Price pressures on reinforcement items like fabric and cord continue to track negatively, as in months past.  And natural rubber prices dropped  6.6% on a year-over-year basis in November 2021, two months in a row of declines.

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].