Retail sellout trends finally flipped to positive in April, and were frankly robust, according to our recent check-ins with tire dealers. Independent dealers highlighted average sellout gains of 5.1% year-over-year in April 2024, which follows flat-to-slightly down trends through the first quarter of the year.
Regionally, dealers in nearly every area of the country reported positive gains for the month. Only the Midwest and Northeast regions saw flat or negative volume. The Northwest and Southeast regions saw the strongest trends, as both were up double-digits year-over-year. From our view, it appears the changing of the seasons in much of the country brought consumers into the marketplace and into tire shops in April for both repairs and tire replacements. It appears the second quarter is off to a fast start. According to our survey, the 5.1% volume increase is the greatest monthly gain in three years.
While one month does not make a trend, we are encouraged by the April result as we note the early summer comparables from a year ago are favorable and conducive to a continuation of the April result.
In the miles driven data, the numbers don’t look as rosy. The trends were markedly softer during April, following slightly positive trends in March. Our Miles Driven Momentum Index registered a 4% year-over-year decline in April and that followed a 0.5% increase in March. While on the surface this may appear troublesome, we note the month of April was up against a difficult year-ago comparison as April 2023 miles driven grew a healthy 3%. Further, we note the miles driven trend in April remains above the pre-pandemic trend. Thus we see the month’s miles driven largely as a function of difficult comps rather than the start of a trend of declining miles driven.
Rising natural rubber cost
Turning to raw material costs, natural rubber supply pressures in Southeast Asia continue to affect the price of that raw material. In April, natural rubber costs grew nearly 37% year-over-year in April. Oil prices grew an average of 6.9% in the month given OPEC+ output costs amid tensions in the Middle East. The cost of other inputs (synthetic rubber, carbon black and tire fabric/cords) all fell during the month.
So far in 2024, our tire raw material index is up 3.8%. Given the rapid price deceleration in 2023 following two years of price appreciation, we are not all that surprised to see raw material costs moderate and increase slightly on a year-over-year basis. In fact, we see this level of stability as a positive for the tire industry given the volatility experienced since 2020.
While we had previously pondered if a level of price concession could be hitting the marketplace, recent updates from tire manufacturers lead us to believe they will attempt to hold price given the ending of destocking cycles abroad and softness in the commercial tire segment.
Dealers are more optimistic
Conversations with tire dealers suggest consumer demand for passenger and light truck tires was positive on a net basis compared to April 2023. Almost one out of four dealers saw positive demand trends in April. (Officially, the number was 23% of dealers.) That’s a healthy improvement from the March.
While consumer deferment remains a consistent theme, it appears the changing of the seasons brought car owners into the marketplace for needed auto repairs. Specifically, dealers note healthy demand trends for repairs as well as tire replacement during April.
On the tire front, dealers saw healthy demand for tier-two and tier-three tire brands in April. But they also still pointed to soft trends for premium tire brands and reported continued price inflation for parts and labor as negatives.
April also brought about a return to tier-two tire brands returning to being the most in-demand from consumers. We note this is largely consistent with the long-term trend, as those are the brands that have historically been the top performers in our ongoing surveys. Tier-one tires moved into last place in April, which is consistent with what we saw at the end of 2023.
We believe these tier results to be an indication of the type of buyer who was in the marketplace, as one dealer told us his repair business remains steady as consumers are opting to fix their current vehicle rather than seek out a more expensive new or used vehicle.
