Demand Trends are Holding Strong Despite Lack of Harsh Winter Weather

According to the results of our dealer survey, demand for replacement tires increased in November. Indeed, from a volume standpoint the dealers reported they sold 0.6% more tires in November on a year-over-year basis, following a 0.1% increase in October and a 0.6% increase in September.

We are encouraged by the fact that demand trends are holding strong, although they are down slightly from what we saw at the peak of summer’s heat, which is likely due to a lack of harsh winter weather and a tough comparison from 2014.

In light of the recent strength in demand trends, we continue to believe the abundance of pent-up demand should lead to decent volume growth in 2016, despite the fact that 2014 and 2015 provide some tough comparisons.

In fact, demand has increased on a year-over-year basis for 20 of the past 21 months, according to the dealers surveyed.

Furthermore, most dealers stated they anticipate these sales trends to improve throughout the first three months of this year.

Until next time, keep the tires rolling out the door.

Monthly survey

A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the November 2015 survey are compared with those of November 2014.

Dealers believe sales trends may level off

According to our survey results, 67% of passenger tire dealers believe business will stay about level, which is a marked decline from what we have seen in the past; however, much of this decline in optimism may be related to mild weather conditions relative to 2014. The outlook for truck tire demand was slightly higher, as 50% of the truck tire dealers see business staying about the same and 50% saw business improving.

Dealers noted volume trends were strong for replacement tire sales

According to our dealer survey, consumer demand for replacement tires increased in November. As stated, the dealers in our survey reported they sold 0.6% more tires on a year-over-year basis, following a 0.1% increase in October and a 0.6% increase in September. Trends continued positive in the truck category as the dealers who responded to the survey reported volumes increased 3.9% after a 0.8% increase in October and a 1.6% decrease in September. Lastly, the survey respondents indicated volumes were up 6.3% in the retread business after decreasing 1.8% in October.

Dealer reported tire costs were mixed

The tire dealers who responded to our survey noted manufacturer pricing on branded tires increased, while prices on value tires decreased in November. In fact, the respondents noted manufacturer pricing on value tires decreased 0.1% during November, while the price of branded tires increased 0.2%. While we were initially surprised at hearing about any prices declining during our recent trip to the Specialty Equipment Market Association (SEMA) Show in November, this trend is consistent with commentary from around the country that pricing has remained flat or declined despite the implementation of tariffs on Chinese import tires. This phenomenon is being partially aided by lower raw material prices as well.

Inventory levels were OK to high

Of the dealers who responded to our survey, 67% indicated they had the appropriate amount of inventory in stock for demand (the same percentage as in October), and 33% indicated that inventory levels were too high. As for inventory levels among truck tire dealers, 60% reported they had the appropriate amount of inventory, 20% indicated inventory was too high, and 20% indicated inventory was too low.

Automotive repair sales rose in November

Dealers indicated automotive repair sales trends improved once again in November. Specifically, the dealers who responded to our survey indicated service sales, which accounted for 28% of the study participants’ total revenues, were up 4.5% on a year-over-year basis in November (compared to an increase of 8.7% in October) as a higher average ticket and strong traffic trends again benefited repair departments. ■

Nick Mitchell is senior vice president of research for Northcoast Research Holdings LLC based in Cleveland, Ohio. Mitchell covers a variety of subsectors of the automotive industry.

How dealers view near-term business

Dealers JUL AUG SEP OCT(R) NOV(P) NOV(14)

Passenger tire

Will improve 20% 50% 83% 0% 33% 66%

Will worsen 0% 0% 0% 0% 0% 0%

Will stay level 80% 50% 17% 100% 67% 44%

Truck tire

Will improve 60% 50% 100% 17% 50% 57%

Will worsen 0% 17% 0% 0% 0% 0%

Will stay level 40% 33% 0% 83% 50% 43%

R-Revised P-Preliminary

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