Modern Tire Dealer

JUN 2018

Magazine for the professional tire industry

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M T D J u n e 2 0 1 8 26 Y o u r M a r k e t p l a c e O ur recent discussions with dealers leave of us of the view that sell-out trends in April were slightly higher when compared to levels a year ago. On average, surveyed dealers saw unit sales volumes up around 1% compared to a year ago during April. From our perspective, growth is always good; however, we were hoping for more. But it seems the start-and-stop recovery in retail demand that appears to have been the course for the industry over the last 15 months continues. When exiting March, we were optimistic that we would see a noticeable improvement in sell-out trends in April for several reasons. Another delayed tax refund season would have concluded by the end of the month, normalized winter weather would have abated in the majority of the country to reach the peak of the freeze-thaw cycle that takes an enormous toll on roadways, the timing of Easter that pulled the holiday into March this year giving additional selling days in April, positive industry momentum over the past six months and a very easy compare from April 2017 all should have been a tailwind heading into the month of April. However, it appears that some of the factors that influenced March's results may still be present. Not only was the disbursement of tax refunds delayed again this year, but close to the filing deadline the IRS experienced a system- wide outage that momentarily halted the processing of tax refunds. is forced the government to grant taxpayers an additional day to file taxes, which further delays refunds hitting the consumers' pockets as it could take weeks for households to finally receive their payment. On top of this, the number of total refunds and the total dollar amount of refunds dispersed as of the end of the tax season were down 0.6% and 0.4%, respectively, which means less money among consumers to allocate to bigger-ticket purchases like new tires. Additionally, we wonder if weather had an impact on consumer behavior. Our analysis of weather trends suggests that almost half the United States (22 states), recorded months that were in the top 10% of the coldest Aprils ever in their state's history including Wisconsin and Iowa which registered their coldest April on record. is could have led to consumers keeping specialized tires (snow tires) on their vehicles through the duration of the month until the winter weather had completely passed along with the freeze-thaw cycle. It appears most factors present have been working against the industry to start 2Q and evidently weighed on demand trends. Ultimately, most of the headwinds now appear to be in the rearview and we continue to expect mix trends to improve in the back half of the year as we may begin to see pent-up demand being unleashed for consumers who had delayed tax refunds or adverse winter weather, which is beginning to show through positive industry data. Despite this, ample road lies ahead for dealers to recoup some of the soer trends through the back half of the year. On a more positive note, commentary from industry contacts in early May leaves us feeling incrementally more positive on a go-forward basis despite the poorer performances over the past couple months. In response to best and worst performers, it seems as though mix trends continue to keep a similar cadence as Tier 1 brands remain out-of-favor with consumers. Tier 1 legacy nameplate brands have now been the worst performer for five consecutive months and have only been the top performer in three out of the last 15 months. Meanwhile, Tier 2 brands continue to be the standout performer over the past year as this is a segment value-conscious continually gravitate toward while Tier 3 brands found themselves back in the top spot for the first time since September 2017. MONTHLY SURVEY A number of independent tire dealers were surveyed concerning current business trends. The results of the April 2018 survey are compared with those of April 2017. See the report on www. moderntiredealer.com. REPLACEMENT TIRE SALES VOLUMES STILL MUTED Dealer commentary suggests consumer demand for passenger and light truck replacement was tepidly up in April compared to the prior year's period. A LOOK AT MIX TRENDS IN THE MARKET Our April survey suggests consumer demand has not shown much variance from a product category standpoint. Our survey work continues to illustrate that although consumers may desire a recogniz- able brand, the product's price point is the main factor driving the purchasing behavior. is is especially true when customers arrive at the garage due to unexpected technical difficulties. is theory that an accelerating economy, confident consumer and tight labor market would allow opportunities for industry participants to upsell towards more recognizable (and expensive) nameplate brands has not played out in reality. ■ 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. Delayed tax refunds, weather issues are behind us as mix trends begin to improve John Healy By Tier Feb '17 Mar '17 Apr '17 Feb '18 Mar '18 Apr '18 Tire 1 1 3 3 3 3 3 Tire 2 2 2 2 1 1 2 Tire 3 3 1 1 2 2 1 SOOURCE: NORTHCOAST RESEARCH HOLDINGS LLC Average tire tier rankings

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