In May, tire dealers saw average unit declines of 2% year-over-year. This represents a sequential improvement from April’s 4% decline, which was the largest decline since April 2020. It’s an indication that retail sellout trends continue to show softness on a year-over-year basis, marking a sixth straight month of negative retail sellout.
When looking at dealers regionally, it was another month where no region reported positive growth. The Southwest showed the best results, with business levels about the same as a year ago. Dealers in the Midwest reported the softest performance, falling an average of 3.1% during the month of May.
Where there was improvement, dealers indicated it was the consumer auto repair deferment cycle that drove some positive momentum. However, retail sellout trends still remain below year-ago levels. From our view, the inflationary environment driving rising prices for all consumer goods continues to drive negative sellout momentum.
For the third month in a row, miles driven trends remained positive. It’s the first occurrence of three straight months of positive trends since the start of 2022. Our miles driven momentum index increased 3.2% in May, slightly higher than the 3% year-over-year increase in April. While still early, we note miles driven through the first three weeks of June grew another 2.5%. Given the recent improvements in our proprietary miles driven index, we see the potential for sectors related to passenger tires and aftermarket auto parts to improve.
Collectively, raw material costs continue to decline. The raw materials needed to build a basic replacement vehicle tire fell 15.4% in May year-over year, and slipped 2.9% from the previous month. If current spot prices hold steady for the rest of the second quarter, it would equal a 14.3% drop year-over-year. This shift to year-over-year declines is expected to be a welcome sign for both tire manufacturers and dealers, as both tire price increases and overall inflationary impacts have continued to negatively affect retail sellout. There’s still a belief that tire manufacturers may be inclined to reduce prices to jumpstart sellout.
In May, the prices of individual raw material components all continued their decline — with one exception. Carbon black prices had increased for 26 straight months, before dropping in both March and April. But in May prices climbed back, increasing 2.1% from April. Overall, the price is still 7.7% lower than it was a year ago.
Caution on sellout
Consumer tire demand in May was still off the mark compared to May 2022, but trends improved slightly from April. About a quarter of our tire dealer contacts — 27% — saw positive demand trends in May. That’s a big improvement after two straight months with no dealers reporting a positive figure. While retail sellout trends are always a bit finicky, the broader theme of the uneven macro environment s continues to appear to be the driving force behind the ongoing soft retail trends.
Dealers continue to tell us consumer deferment of auto repairs has been a drag on sellout trends this year. However, on the flip side, we do highlight a bit of a shift this month as one of the few respondents to our survey who saw positive sellout trends in May indicated this deferment trend has reached a tipping point and is driving higher volume of both repairs and tire sales. While one month does not make a trend, we do remain encouraged at the possibility of increased summer driving habits and the possible end of the consumer deferment cycle.
That said, our May survey indicates consumer tire demand remains below year-ago levels and we see more “yellow lights” than “green lights” in the consumer replacement through May. So, we proceed with caution with hopes of positive retail momentum in the months ahead.
Topsy-turvy tiers
In terms of the best and worst performers, our latest survey shows tier-two tires were the most in demand in May. It’s the third straight month tier-two brands improved their ranking — they were in last place in March and second place in April. This is consistent with our historical rankings, as tier-two brands have ranked the highest over the previous one-, three- and 10-year periods. Tier-one and tier-three tires tied for second place in May. For the tier-three products, the slip to second place followed two straight months as the tires in most demand.
Over the long run, we continue to expect consumers to opt for tier-two products, since they offer a balance of performance and value.
