In August, the tire dealers we surveyed indicated retail sellout trends were down low single digits, lagging July results. The average sellout decline among independent dealers was 2.7% year-over-year, compared to a 0.2% drop in July. For the second quarter, trends were flat-to-up slightly.
At the regional level, the Midwest and Southwest both saw negative volumes, while most other regions saw flat or positive volume trends. The Northwest reported the strongest trends, but it was a gain of a moderate 1.3% year-over year.
From our view, this all adds up to a muted summer, with sellout trends that were affected negatively by warm weather and low precipitation, which resulted in low replacement urgency. And there are still a few months before winter weather begins.
August was the fourth month in a row with negative sellout volumes after a robust 5.1% burst of growth in April. The turn of the season typically brings replacement closer to the front of the consumer’s mind. Things could go either way.
Given the tougher comparable from September 2023, we would not be surprised to see a flat-to-slightly declining sellout number. But we also will not rule out the possibility of strong trends given this long period of deferment.
The miles driven data offers a little hope, as trends were up 1.1% year-over-year increase in August. That’s against a healthy comparison of 1.4% growth a year ago. The August figures follow a 1.8% increase from July. We continue to see miles driven trends ahead of pre-pandemic levels. Overall, we continue to expect flat-to-slightly elevated trends, even against healthy comparables from a year ago.
Oil prices reverse course
The costs of the raw materials needed to build a basic replacement tire increased 11.9% year-over-year in August and 3.1% above July figures. The increase in August comes after a 9.5% average year-over-year increase in input costs during the second quarter. These current hikes in the third quarter, if they held steady, would equate to a 10.4% increase in the period.
Natural rubber costs are by far the leading contributor to the increases, with a 67% year-over-year cost in August. The reason? Supply remains pressured in Southeast Asia.
Synthetic rubber prices also increased by 14.5% compared to August 2023. But other input prices are declining. Oil prices recorded their first price decrease since January. In August, oil prices fell an average of 6% year-over-year. Carbon black prices fell slightly, by 0.4%, while tire fabric/cordage costs dropped 3.3% compared to year-ago levels.
Our tire raw material index is up 7.6% on a year-to-date basis in 2024. But we note the index fell 9.7% in 2023 from 2022 levels. Given the rapid price deceleration last year following two years of acceleration, we are not all that surprised that raw material costs are moderating and increasing slightly in 2024.
To us, this points to stability and a positive for the overall tire industry given the volatility the industry has experienced since 2020.
And we’ve heard from tire dealers that price decreases from multiple tire manufacturers have been pushed through to dealers, given the raw material declines of a year ago. We will continue to monitor changes in both the pricing and promotion environments.
The wait continues
Dealers report that consumer deferment trends continue and with that, shoppers are still opting for lower-tiered brands when they do arrive at the sales counter.
Overall demand for passenger and light truck replacement tires was negative, when compared to August 2023. Of our contacts, 14% in the independent dealer channel reported negative demand trends in the month. Those numbers are on the backs of net positive 6% demand trend in July.
The mild weather and low precipitation levels this summer allowed customers to further postpone tire replacement or opt for lower quality tires. Dealers said demand for premium, tier-one tire brands was soft, while low-cost tier-two and tier-three tire brands performed better.
August marked the third consecutive month where tier-three tire brands were the top performers for our dealer contacts. Technically, tier-three and tier-two were tied in August, but the tie aligns with our long-term trends, where tier-two tires overall are the most in-demand segment. That trend remains viable more than a decade into our demand index.
