Sell-Out Trends Experience Dramatic Reversal

May 5, 2021

The following MTD exclusive was provided by John Healy, 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 is the author of MTD's monthly Your Marketplace column.

In a stark contrast to recent months, sell-out trends are improving and have turned positive for the first time since October 2020, right before the second wave of COVID-19 infections happened.

Recent dealer commentary suggests that demand for passenger and light truck replacement tires was up last month compared to the same period last year, while also showing gains versus prior-month levels.

Dealer unit sales increased 10.1% versus the same period in 2020, which is the largest year-over-year increase in sell-out trends ever recorded by our index.

The net number of respondents to our latest survey reported that they saw a 44% increase in year-over-year demand. 

Our contacts attribute demand increases to economic stimulus efforts and tax refund payments, which have been a benefit as consumers are now putting more money into their vehicle.

We also believe this recent sell-out strength can be attributed to continued reopening of state and local economies due to COVID-19 vaccine distribution.

We continue to hold the perspective that volumes in the long run will be more closely aligned with the current level of GDP growth, with the months ahead improving as COVID-19 vaccines continue to be rolled out and economies continue to reopen.

Miles ahead

Given the continued COVID-19 pandemic, we continue to look at a number of data points to assess the health of automobile travel demand, which directly correlates to tire use and wear.

As of mid-April, we have noted that 42 states have mostly reopened and eight states were at mixed stages of reopening. 

This is in line with what we observed during the previous month.

Turning to miles driven over the past few months, trends have moderated in recent weeks. 

On a year-over-year basis, a severe reduction in miles driven began to take place the week of March 15, 2020, as weekly miles driven were down 25.7%, year-over-year - with the next three weeks seeing declines of 40% or more.

Since then, trends have improved on a sequential basis, although there was some choppiness due to the second wave of the coronavirus that swept through the country.

We note that since we have lapped the start of the COVID-19 pandemic, year-over-year comparisons can now be drawn from pre-pandemic levels.

Apple’s Mobility Trends Report has indicated that the number of people who are searching for driving directions is higher than typical levels.

As of early-April, the number of people looking for driving directions in the United States was up 39%. That number was up 15% during the previous month.

Oil prices rebound

Looking at raw material costs, the “basket” of raw materials needed to make a common replacement tire have risen 35.3% on a year-over-year basis.

In assessing specific raw material price movements, we note that carbon black prices have increased for three months in a row, which follows 15 months of declines.

Crude oil prices - which experienced extreme cost pressures at the start of the pandemic, with average prices down 37% year-over-year through the end of 2020 - have been another story as we begin to overcome these cost pressures and demand rebounds due to an increase in miles driven.

Oil prices in March 2021 increased by 113% over March 2020 levels.

Natural rubber prices are on the upswing, too, rising 65.8% in March 2021 versus the same month last year.

However, synthetic oil prices are down again and price pressures on tire reinforcement items like fabric and cord continue to track negative on a year-over-year basis at a low- to mid-single-digit rate.

Renewed optimism

As we look to 2021, many dealers with whom we have spoken in recent weeks tell us they have an upbeat outlook as it pertains to demand and sell-out trends. 

This optimism is being driven by several factors, including the continued upward trajectory in miles driven as economic activity strengthens and the potential for additional stimulus money to help consumer recovery.

Dealers also note that vehicle owners continue to display frugality with their older cars and are continuing to invest in needed maintenance, including tire replacement.

Based on the above trends and factors, we are optimistic that sell-out trends in 2021 will gain even more momentum.

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.