Tire dealers indicate sellout in July was flat, if not down slightly, and the numbers show a tiny bit of improvement from June.
Dealers were down 0.3% in July, compared to the 1.4% drop they reported in the previous month. And for August, we’re expecting similar results, as we’re faced with a tough year-ago comparable. We would not be surprised to see similar flat to slightly declining trends in the month ahead.
Regionally, both the Midwest and Southeast were in the negative, while other regions saw flat or positive volume trends. The best numbers were reported in the Northeast, with dealers showing a 5% increase in volume year-over-year.
Given the turbulence and volatile conditions tied to inflation and other macroeconomic factors, we turn to additional data points to get a view that pertains to automobile travel.
Miles driven often correlates with the tire volume data, but that’s not an absolute rule and July was one of those examples. Mileage was actually up slightly in July — in the low single digits. But that’s an improvement over the slight decline measured during the second quarter of 2024. Our Miles Driven Momentum Index registered a 1.8% year-over-year increase in July, following a 1.2% drop in June. The July increase comes on top of the 2.9% gains measured in July 2023. We continue to see miles driven trends ahead of pre-pandemic trends.
Raw material costs continue to increase. The price of the basket of raw materials needed to build a basic replacement tire grew 11.7% in July and that follows a 9.4% average increase during the second quarter. If this pricing was to hold steady, it would equate to an 8.5% year-over-year hike in supply costs.
The biggest driver in the raw material price increases is tied to natural rubber, which as of July has risen 42% year-over-year as supply remains under pressure in Southeast Asia. The tensions in the Middle East also prompted oil prices to increase an average of 7% in the month compared to year-ago numbers. Synthetic rubber and carbon black prices were both on the rise, as well, while tire fabric and cord costs slipped 2.6%.
About a quarter of the tire dealers who responded to our survey said there had been some price concessions from tire manufacturers. We believe those were primarily tier-one tiremakers and those in the upper ranks of tier-two manufacturers.
Defer and trade down
When it comes to consumer demand, tire dealers continue to point to drivers who are deferring tire purchases until later and those who are buying are still opting for lower-priced options. We note healthy demand for low-cost, tier-three tire brands during the month. Dealers said demand for premium tier-one and tier-two brands was soft during the period.
Overall, July consumer demand for passenger and light truck replacement tires was down year-over-year. Six percent of our independent dealer contacts reported negative demand trends in July, an improvement from the 42% who were down in June.
For the third month in a row, tier-three tire brands were the most popular among consumers, according to dealers who participate in our survey.
As we’ve noted before, this doesn’t match the long-term trends of our survey, which typically puts tier-two tires in the top of the demand charts. But in July, tier-two brands sunk to last place in our survey, with tier-one products taking second place.
We see July as another month of consumers trading down to lower-priced, value-oriented tires. Despite this recent focus on tier-three, we continue to expect that tier-two brands will be the most in demand long-term, given their balance of performance and price for consumers.
We believe these summer trends are largely muted and with tire sellout slightly depressed, in part, because of little precipitation and thus little urgency to drive consumer demand. The second quarter was boosted by a robust April, which we believe was largely driven by tax refund dollars being utilized in the tire retail space.
