Higher average ticket totals amount to a 10.7% increase in service sales

According to the results of our survey, demand for replacement tires increased in July. Indeed, from a volume standpoint the dealers reported they sold 1.2% more tires last month on a year-over-year basis, following a 1.2% increase in June and a 0.3% increase in May.

We are encouraged by the fact that demand trends seem to be accelerating throughout the summer after some slight weakness seen in February earlier this year. In light of the recent strength in demand trends, we continue to believe that the abundance of pent-up demand should lead to decent volume growth throughout the remainder of 2015, despite the fact that 2014 provides tough comparisons. In fact, demand has increased on a year-over-year basis for 16 of the last 17 months, according to the dealers surveyed.

Furthermore, most dealers stated that they anticipate trends to improve throughout the next 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 July 2015 survey are compared with those of July 2014.

Sales trends should continue to improve

According to the survey results, 20% of passenger tire dealers believe business will improve over the next six months, while 80% believe it will stay about level. The outlook for truck tire demand was slightly better as 40% of the truck tire dealers we surveyed felt they with see business improving, while 60% believed it will stay about level.

Volume trends improved for replacement tires

According to dealer reports, consumer demand for replacement tires increased in July. The dealers in our survey reported they sold 1.2% more tires last month on a year-over-year basis, following a 1.2% increase in June and a 0.3% increase in May. We are encouraged by the fact that demand trends seem to be accelerating throughout the summer after some slight weakness seen in February As stated, we continue to believe the abundance of pent-up demand should lead to decent volume growth throughout the remainder of 2015.

Trends remained slightly negative in the truck category as the dealers who responded to the survey reported volumes decreased 1.0% after a 0.3% decrease in June and a 2.2% increase in May.

Lastly, the survey respondents indicated that volumes were also down a modest 1.8% in the retread business after remaining flat in June.

Dealers reported tire costs declined

The tire dealers who responded to the survey noted that manufacturer pricing on value and branded tires both declined on average in July. In fact, the respondents noted that manufacturer pricing on value tires decreased 2.0% during July, while the price of branded tires declined 1.3%. The convergence in prices is not surprising as raw material cost savings are clearly outweighing any pricing benefit from the implementation of tariffs of Chinese tires imported into the U.S. It is important, as always, to note that one month’s results, however, do not make a trend.

Inventories levels felt appropriate

Of the dealers who responded to the survey, 60% indicated they had the appropriate amount of inventory in stock for demand (vs. 67% in June), 20% indicated inventory levels were too high, and 20% indicated inventories were too low. The inventory levels among truck tire dealers were similar to passenger tire levels as 80% of those surveyed indicated they had the appropriate amount of inventory, while 20% of respondents noted inventory levels were too high, and no respondents indicated inventories were too low.

Service revenues rose in July

Dealers indicated automotive repair sales trends improved once again in July. Service sales, which accounted for 20% of the study participants’ total revenues, were up 10.7% on a year-over-year basis in July (up from an increase of 7.0% in June) as a higher average ticket and strong traffic trends 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.

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