9 minute read
‘Nothing is off the table’
from MTD - July 2021
by EndeavorBusinessMedia-VehicleRepairGroup
By John Healy
Retail sell-out remains healthy
DEALERS REPORT UNIT SALES INCREASES
Recent commentary from our dealer contacts indicates that consumer demand for passenger and light truck tires at the replacement level continues to climb compared to last year. e net number of respondents to our latest survey reported they saw a 6% increase in demand year-over-year.
Our contacts noted that the increase in demand can be attributed to the “lapping” of the early months of the COVID-19 crisis, where some businesses at this time last year were still closed.
Dealers also reported that economic stimulus checks have been a bene t as consumers continue to put more money into their vehicles.
Retail sell-out remains healthy. Recently surveyed dealers reported unit sales increases of 5.7% last month versus May 2020, which is the second-largest yearover-year increase in sell-out trends ever recorded by our index. is follows the previous month, which saw record-breaking sell-out trends.
VOTE OF CONFIDENCE
Our latest survey reveals that tier-two brands continue to experience the most signi cant growth among our contacts, which has been consistent with previous months. is may be a sign that consumers continue to gain con dence in their nancial outlook and are more willing to balance both performance and value when buying replacement tires.
We also note that tier-one brands have moved upwards in our rankings for the rst time in 10 months, as this segment has been impacted most profoundly by COVID-19 shutdowns.
Dealers have told us that inventory remains low, as tire manufacturers continue to push price increases through.
As we have seen throughout the COVID19 pandemic, customers seem to change their preferences for certain tiers and brands of tires depending on the current situation.
With high vaccination rates and broad reponenings throughout the country, we believe that more consumers will display a preference for tier-two brands. at said, we continue to believe that the pricing environment in North America will remain in-line with raw material costs and other market factors and tire manufacturers will continue to demonstrate discipline and control in their e orts to manage the trade-o between price and volume — with the continued goal of optimizing pro t instead of market share.
We also continue to be impressed by the extremely disciplined approach to production displayed by tiremakers, which enables global inventory levels to remain lean.
In response, tire dealers and distributors are being tactical with their approach to inventory. is gives them the continued ability to capitalize on pricing spreads within the market, while remaining exible in the face of additional price hikes.
Snapshot of Dealers’ PLT Tire Volumes (Year-Over-Year Change)
Mar-20 Apr-20 May-20 Mar-21 Apr-21 May-21 Average
Increase 29% 0% 25% 67% 83% 34% 41% Flat 14% 12% 50% 11% 0% 33% 28% Decline 57% 88% 25% 22% 17% 33% 31%
Total 100% 100% 100% 100% 100% 100% 100% RAWS CONTINUE TO CLIMB
Looking at raw material costs, the “basket” of raw materials needed to build a standard replacement vehicle tire has climbed 34.8% on a year-over-year basis, while also increasing on a sequential basis by 2.5%. is continues the trend of increasing raw material prices that began at the start of the year.
Holding current spot prices at would yield a 33.3% year-over-year hike in input costs during the second quarter of 2021 — up nearly 4% from the rst quarter of the year.
In assessing raw material price movements, we note that carbon black has seen its price increase for the h month in a row, with double-digit growth in both May and April.
Crude oil prices experienced extreme cost pressures at the beginning of the pandemic, with average prices down 37% year-over-year, on average, through the end of 2020. is year, however, has been a di erent story as we begin to lap these cost pressures and the number of miles driven increases. Oil prices jumped 128% year-over-year in May.
Meanwhile, natural rubber prices rose 63.3% in May, which marks strong doubledigit gains over the last 10 months.
Synthetic rubber costs have increased, as well.
However, price pressures on tire reinforcement items continue to track negatively yearover-year at a low- to mid-single-digit rate.
Dealers remain upbeat in their outlook for the second half of the year, as overall miles driven continue to increase, consumers continue to invest more in their cars and economic stimulus continues to bolster consumer spending. ■
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.
ON THE MOVE
BUSINESS IS BACK, DEMAND IS UP AND MTD 100 DEALERS ARE INVESTING IN THE FUTURE
Welcome to this year’s MTD 100, our exclusive look at the 100 largest independent tire dealerships in the United States. As the lead-in to this edition of the MTD 100, we interviewed executives from ve of the 10 biggest dealerships on our list — each providing insight into their companies’ activities, plus candid assessments of the U.S. tire market as we enter the second half of the year.
DISCOUNT TIRE’S CEO TALKS NEW MARKETS, ELECTRIC VEHICLES, THE ADDITION OF NEW SERVICES AND WHAT THE REST OF 2021 HOLDS
MTD: You mentioned Pennsylvania as a new market. Has the company entered any other new markets during the past 12 months?
Muglia: I’m sure there have been markets in existing states. We’re targeting St. Louis, Mo., later this year. You’ll see some stores pop up in St. Louis.
By Mike Manges
As CEO of Discount Tire, Dean Muglia oversees the largest independent tire dealership in the U.S.
With 1,100 total stores, Discount Tire is known for its traditional, “tires-only” model, but “I think you will see us experiment with other services more,” Muglia recently told MTD. e Scottsdale, Ariz.-based chain — which was founded by 2014 MTD Tire Dealer of the Year Bruce Halle — recently began selling and installing windshield wipers at its locations.
“We recognize the world is changing fast and so are the needs of our customers,” says Muglia, who has been with Discount Tire for more than 30 years and in his current role since January 2020.
In this MTD exclusive — Muglia’s rst interview with a tire industry publication — he discusses why “nothing is o the table” when it comes to adding other services.
He also discusses new and future markets for Discount Tire, the dealership’s ongoing investment in technology, how it’s preparing for electric vehicles and more.
MTD: Discount Tire maintains the largest footprint of any independent tire dealership in the United States and continues to add stores in new markets. Has it become increasingly challenging to maintain Discount Tire’s value proposition as growth continues?
Muglia: We’re at 1,100 stores now and we’ve actually ventured into our 36th state, which is pretty exciting. We now operate in Pennsylvania. at’s a nice entrance into the East Coast market, which we’re really focusing on.
When I think about our value proposition and consistency throughout the chain since 1960, when Bruce Halle started the company, we’ve worked tirelessly to provide a consistent experience and even more so over the years, the focus on ‘customer obsession’ has increased within the company.
I think a big part of what makes us so successful is our people. We’re still a family-run company, we’re people- rst and we have a very strong culture.
MTD: When you move into a new area, you have to recruit people. Where do you nd good employees to perform tire service and also work the sales counter?
Muglia: When we go to a new market, we’ll ask people who might be interested in living in that market because we want to sta some of the more senior positions with existing employees. It’s a way for them to grow and move up in the company. So we will typically sta stores in new markets with people from other markets and they will begin recruiting to ll out their sta . We don’t need ASE-certi ed technicians, so I think that also “We see the helps. It hasn’t been easy. is second half of the is a tight (labor) market. But year to be pretty we’ve been managing through it.
strong,” says Dean Muglia, CEO of Discount Tire. MTD: Discount Tire has made signi cant investments in its eet service business. What opportunities do you see in that segment?
Muglia: We’ve always been in the fleet business. It’s just never been a very big push on our part. It almost grew out of necessity. But I would say that stepping
Discount Tire has reached the 1,100-store mark. “We traditionally target 50 new locations each year,” says Muglia. “During the pandemic, we slowed down a little, but we’ve restarted our engines and are moving at full speed.”
back and looking at fleets today, we felt we were under-represented in that space.
MTD: Discount Tire has never been shy about investing in technology, as exempli ed recently by the roll-out of your mobile tread depth check system.
Muglia: at’s really part of our focus on that end-to-end, omni experience — starting with the online investments we’ve made, enhancing our website and leveraging Treadwell, which is our priority tool and big data initiative that can hone in on customers’ true needs, based on what they drive, where they drive and how they drive. We also leverage that tool in all of our stores. en that transitions into our customers investing in booking a time and coming to our stores. And we’re leveraging tools like the tread depth readers to capture (tire) data more accurately. It also makes it easier for our people. Instead of pen and paper, they now have a digital device in the palm of their hand that they can use to capture tread depth data.
MTD: Among its competitors, Discount Tire has remained unique in that it has stayed true to its original format of tire installation-only and has not ventured into auto service. Do you foresee a time when this could change?
Muglia: I think you will see us experiment with other services more. We recognize the world is changing fast and so are the needs of our customers. ere may be some services that we choose to o er in our stores and there may be other services we may choose to partner on, depending on the needs of our customers.
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