For a second straight month, our industry checks with dealers indicate retail sellout trends were down low single digits in June — about 1.4% for the month, compared to a 1.3% drop in May and trends that were slightly down during the first quarter.
Regionally, the Midwest, Northeast and Southeast all saw negative volumes, while the Southwest reported the strongest growth — up a healthy 3.1% year-over-year. From our view, it appears that the onset of summer drove slight declines in consumer tire replacement as tax dollars dried up and weather became milder and less of a volume tailwind.
While the first quarter was affected by another mild winter across much of the U.S., it seems the second quarter saw moderate improvement with only slight declines and May and June, and April’s burst of positivity (a 5.1% volume increase.)
Tough comparables are ahead for both July and August. Given that, we would not be surprised to see similar depressed sellout trends in the coming months.
So given those volume and sellout trends, what’s happening on the road? Looking at miles driven, trends were down low single digits during June following a flat-to-slightly-positive first quarter. Our Miles Driven Momentum Index registered a 1.2% decline in June, a replica of the results in May.
Both months were up against tough year-ago comparisons — in 2023 miles driven grew by 3.5% in May and 3.2% in June, respectively. So we’ll repeat the refrain that we think this year’s June figures are largely a result of difficult comparisons. The numbers are still above pre-pandemic trends.
The climb continues
Raw material costs continue to increase. In June the basket of raw materials to build a basic replacement tire grew 11.7% — a slight decline of 0.1% from the May numbers. This follows a 3.1% year-over-year increase during the first quarter of 2024. So far, it adds up to a 9.3% year-over-year increase in the costs to build a tire, and a sequential increase of 2.8% from the first quarter.
Natural rubber costs grew by 47% in June, and again, that’s due to continued supply pressures in Southeast Asia. But other input costs are rising too: oil prices are up 11.8% in June, synthetic rubber costs rose 8.2% and carbon black prices are up 3.1% year-over-year for the month. Tire fabric and cordage is down 4%.
Using a wider lens, we note our tire raw material index fell 9.7% in 2023 from 2022 levels. In 2024, that index is up 6.3% on a year-over-year basis. We’re not that surprised to see raw material costs moderate and increase slightly on a year-over-year basis. We view this as stability — and a positive for the tire industry given all the volatility experienced since 2020.
A month ago, commentary from tire dealers led us to believe multiple manufacturers had pushed price decreases through to dealers. We had long pondered if this was a possibility given the declines in raw materials in 2023. We’ll continue to monitor the pricing and promotion environment.
Summer slowdown
Dealers suggest consumer demand for passenger and light truck replacement tires was down in June, compared to a year ago. Of our contacts, 42% reported negative demand trends for the month, down sequentially from a net neutral demand in May.
Consumer deferment remains the theme, and the onset of summer and mild weather with little precipitation has allowed consumers to further postpone their tire replacement.
We do note healthy demand for tier-two and tier-three tire brands during the month, but dealers indicated soft sales of premium tire products.
For the second straight month, tier-three tire brands were the most in-demand from consumers, with tier-two tires in second place, and tier-one brands once again in the basement of our rankings. The recent consistency of tier-one brands at the bottom of the rankings reminds us of what we saw for five straight months in the latter half of 2023: from September to January 2024 tier-one brands were the least in demand.
We believe these results to be an indication of the type of tire buyer in the marketplace. Consumers have deferred necessary auto maintenance and they’re entering the market with fewer tax refund dollars in their pockets, so they opt for more value-oriented tires.
While these tire tier rankings can be volatile from month to month, we continue to expect tier-two tires to perform well as they strike a balance between cost and performance.
