Modern Tire Dealer

JAN 2019

Magazine for the professional tire industry

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28 M T D J a n u a r y 2 0 1 9 Y o u r M a r k e t p l a c e O ur recent discussions with dealers provide us with confidence that retail sell-out continues to trend in a favorable direction. Feedback from the dealer community indicates that conditions remain healthy with volumes improving year-over-year for a fih straight month. From a volume standpoint, surveyed dealers reported they saw unit sales volumes improve modestly (approximately 1.3%) compared to the same period last year. In our column last month, we surmised that an early start to unseasonable climate conditions would act as a tailwind to sell-out activity through the rest of the year. is hypothesis seems to have come to fruition as commentary from dealers indicated these condi- tions have set up a constructive backdrop for the retailing market. More specifically, our dealer contacts in the northeastern U.S., which has been one of the first regions to experience unfavorable winter weather, have reported immensely higher volume growth than the rest of our domestic contact base over the past two months. Our checks over the last few months suggest that almost every tire manufacturer we monitor introduced or announced some level of price action to offset rising raw material costs; based on our tracking, we have seen 15 increases in recent months. We note most increases were in the 3% to 4% range, were described as reasonable and digestible by retail and wholesale contacts and for the third month in a row, over 70% of contacts asked indicated that price increases will stick. Although raw material pressures have begun to abate, the year-over-year trajectory remains upward, and contacts continue to speculate that further price increases could be on the horizon. In addition to studying the state of tire demand, we also monitor the pricing trends of over 10,000 consumer replacement tire SKUs. Our survey work suggests that the average tire price increased 1.6% from October and roughly 2% versus November 2017. We believe the recent growth in the SKUs we track reflects price increases across manufacturers have stuck and are flowing through to wholesalers and retailers; furthermore, data we have collected in the first half of December show tire prices increasing at similar levels on a month-over-month basis. Looking closer at the recent trajectory of raw material costs, the basket of raw materials to make a common replacement vehicle tire increased over 3% year-over-year in November while decreasing 5.3% from October. MONTHLY SURVEY A number of independent tire dealers were surveyed concerning current business trends. e results of the November 2018 survey are compared with those of November 2017. See the report on www. moderntiredealer.com. REPLACEMENT TIRE SALES ROSE IN NOVEMBER Dealer commentary suggests consumer demand for passenger and light truck replacement rose in November compared to the same period last year. e net number of respondents indicating they saw an increase in demand year-over-year was 36.3% of contacts. Despite the vast majority of price increases having worked their way through the supply chain all the way to the retail level, contacts conveyed that price actions have not detrimentally impacted demand and volumes were healthy through November. A LOOK AT MIX TRENDS IN THE MARKET In response to best and worst performers, our recent survey suggests that Tier 2 brands continued recent momentum and were the top performer last month while Tier 3 brands returned to the bottom of our rankings. Even though consumers may desire a recognizable brand, the combination of price and performance that Tier 2 tires provides continues to be a winning formula among shoppers as value-conscious consumers continue to gravitate toward this segment. is is further exemplified by the fact that Tier 2 brands have only been at the bottom of our rankings one time since September 2016 and have been the best performers in our index over one, two, and three-year time frames. Furthermore, we note that Tier 2 brands have been the segment of most significant growth according to surveyed dealers for nine out of the last 12 months while, on a longer-term basis, Tier 3 brands have been ranked or tied for last place by our respondents in 24 of the past 51 months. Tier 2 was our second-best performer this month and despite external factors that should aid in these legacy nameplates' sellout activity (confident consumer, tax cuts, strong economy), the recent introduction of price increases may have led consumers to shy away from higher prices in favor of Tier 2 brands. However, we feel the mega-trend of the market shiing to HVA shipments remains a long-term opportunity. ■ John Healy is a managing director and research analyst with Northcoast Research Holdings LLC based in Cleveland, Ohio. Healy covers a variety of subsectors of the automotive industry. Majority of dealers surveyed feel tire price hikes will stick John Healy By Tier Sep '17 Oct '17 Nov '18 Sep '18 Oct '18 Nov '18 Tire 1 3 1 1 2 3 2 Tire 2 2 2 3 1 1 1 Tire 3 1 3 2 3 2 3 SOOURCE: NORTHCOAST RESEARCH HOLDINGS LLC Average tire tier rankings

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