Retail Sell-Out Levels Drop Slightly

Sept. 27, 2021

This MTD exclusive was provided by John Healy, managing director and research analyst with Northcoast Research Holdings LLC, based in Cleveland, Ohio. Healy covers a variety of subsectors of the automotive industry.

Our recent conversations with dealers leave us with the view that retail sell-out trends are continuing to improve on a year-over-year basis, while also showing strength over 2019 levels.

However, activity levels did fall slightly from what our dealer base experienced last month.

From a volume standpoint for the month of August 2021, surveyed dealers reported that unit sales were up 10% to 15% versus August 2020. But consumer demand for passenger and light truck tires fell slightly compared to prior-month levels.

Approximately 47% of  the net number of respondents to our latest survey indicated that they saw positive demand year-over-year. This compares to 59% who reported gains during the previous month.

Contacts noted that the fall-off was likely attributable to the unpredictable nature of the tire and auto repair business.

Overall, we believe that August benefited from the continued rebound in driving that has taken place since the initial slowdown in miles driven associated with the early start of the COVID-10 pandemic in March 2020.

As stated in previous columns, we continue to believe that long-term volumes will become more closely aligned with GDP growth.

That said, there is a degree of uncertainty in the months ahead as the delta variant of COVID-19 has taken root. The bright side, though, is that consumers are expected to continue to drive more, especially as compared to last year.

Driving fluctuates

Each month, we look at a number of data points in an effort to accurately assess the health of automobile travel, which has a direct impact on tire wear and replacement.

While states across the country have been fully open the last several months, we note that the delta variant could cause government officials to reimpose some lockdown measures in the coming weeks and months if case counts continue to worsen and vaccination efforts stall.

This has already been observed in states like New York and California, where some activities have been restricted.

The good news is that miles driven trends remain steady. August 2021 levels were down 1.7% versus August 2019 levels, which compares to a year-over-year decline of 1.1%.

As covered before, mobility trends cratered in April 2020. But as of Sept. 5, 2021, miles driven in the United State are up 39% compared to the baseline for this metric. A month ago, they were up 43%. 

Sequential declines of this nature are typical when summertime draws to a close.

Raws escalate

Raw material prices - in almost every category - continue to escalate.

Looking at specifics, we note that the price of carbon black continues to increase on a month-after-month basis, having experienced double-digit growth over the last several months.

Crude oil prices, which experienced extreme cost pressures at the start of the COVID-19 pandemic - with average prices down 37% year-over-year, on average, through the end of the year - continue to spike. (As noted in last month’s column, July 2021 saw a year-over-year hike of 76%.)

Natural rubber prices continue to be on the upswing - continuing to show strong, double-digit gains. And the price of synthetic rubber continues to increase. Last month marked the first time this had occurred since April 2017.

From a pricing standpoint, the only tire component category that continues to track downward is reinforcement items.

Price hikes dominate

Last month, I wrote that tier-two remains the segment of most significant growth among our surveyed contacts and that trend has continued.

We note that this is typical of what we have seen in our extensive coverage of the tire industry over time, with fluctuations in other directions likely a function of transitory items, such as what happened during 2020 with the COVID-19 pandemic.

We note that tier-one brands have been ranked third by respondents to our most recent survey for four consecutive months.

These trends indicate that consumers are now leaning more toward performance than value, which is the opposite of what our contacts observed during the earlier days of the pandemic.

Dealers also note that inventory remains below desired levels. And the continuation of price increases by tire manufacturers is having an impact on sell-out rates.

We believe that aggregate pricing gains of 20% to 30% have taken place over the past 12 months.

We have seen throughout the pandemic that consumers seem to change their tire preference based on the current COVID-19 situation. While having significant impact in other ways, we believe the delta variant has caused little change in consumer driving patterns - leading us to believe that sell-out rates will improve.

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].