Magazine for the professional tire industry
Issue link: https://mtd.epubxp.com/i/630954
MTD January 2016 'Will we see a recession?' Analyst and MTD columnist Nick Mitchell chose those fve words as his forecast for 2016. He also looked back on all that shook the industry in 2015 By Joy Kopcha R aw material prices dropped so signifcantly in 2015 that the one thing everyone expected to happen during the year never materialized. Tire prices didn't go up. In June when the U.S. Department of Commerce fnalized tarifs on consumer tires manufactured in China, tire dealers and industry watchers considered it "a mater of time" until all passenger and light truck tire prices increased. But the price hikes never materialized, and industry analyst Nick Mitchell doesn't expect raw material prices to rebound in 2016. Look for them to drop even lower, Mitchell says. Modern Tire Dealer asked Mitchell, senior vice president and research analyst at Northcoast Research Holdings LLC, to talk about the highs and lows of 2015, as well as what's ahead in the new year. He names the tire manufacturer to watch, addresses whether the 2016 presidential election will have any efect on the tire industry, and covers which segment is the most likely subject of the next tarif investigation. MTD also asked Mitchell to pick fve words to describe 2015: "perpetually falling raw material prices." MTD: What are tire dealers saying about the state of their businesses? What are they expecting in 2016? Mitchell: Dealers are saying business is solid, but not exceptional. Volume growth moderated in November and December due to unseasonably warm temperatures in the Great Lakes, Mid-Atlantic, and Northeast. Sentiment among the dealers is defnitely upbeat, albeit not quite as optimistic as the tone at this time last year, as the participants are more divided over the likely strength in 2016. Specifcally, one cohort is expressing optimism that an expanding car parc, including an uptick in the number of cars entering the frst replacement cycle, low gasoline prices, and an improving economy will buoy volumes next year. Tis group expects to see a 2% to 3% increase in sell-out volumes, with some beneft accruing from the release of pent-up demand. Meanwhile, the rest of the dealers we speak with anticipate that sell-out trends will track in the range of fat to up 2%, as they expect less of a windfall from deferred tire purchases arriving in 2016, as well as a more modest tailwind from lower gas prices, especially amidst growing signs that the consumers in markets dependent on the oil and gas industry are starting to retrench in the wake of ongoing weakness in the price of oil. Tying these views together, we think it is prudent to project that domestic volumes will increase in the low-single digit range next year, which is consistent with the assumptions in our models. MTD: How would you sum up the tire industry in 2015? Where is the industry headed in 2016? Mitchell: Tis year can be summarized as a fairly solid year for the industry, with replacement passenger and light truck sell-out volumes running up 1% to 2% through the middle of November. Te higher prices that many expected to see in the w ake of the new tarifs on light vehicle tires imported from China never showed up; however, a precipitous drop in raw material prices relative to the prior year more than made up for the lack of pricing power, and helped improve proft trends. MTD: W hat's the biggest inventory-related story of the year? Who's got it and who doesn't? And what opportunity, or problem, does that present for 2016? Mitchell: Overall inventory seems fairly well controlled. Dealers were able to work down the pre-buy product from feature The 2016 presidential election might lead the evening news, but Mitchell doesn't expect it to alter consumer purchasing or affect the tire industry. 18