Yo u r M a r k e t p l a c e
Retail sell-out drops slightly
MEANWHILE, MORE BUYERS PICK PERFORMANCE OVER VALUE By
John Healy
O
ur recent conversations with dealers leave us with the view that retail sell-out trends are continuing to improve on a year-over-year basis, while also showing strength over 2019 levels. However, activity levels did fall slightly from what our dealer base experienced last month. From a volume standpoint for the month of August 2021, surveyed dealers reported that unit sales were up 10% to 15% versus August 2020. But consumer demand for passenger and light truck tires fell slightly compared to prior-month levels. Contacts noted that the fall-off was likely attributable to the unpredictable nature of the tire and auto repair business. Overall, we believe that August benefited from the continued rebound in driving that has taken place since the initial slowdown in miles driven associated with the early start of the COVID-10 pandemic in March 2020. As stated in previous columns, we continue to believe that long-term volumes will become more closely aligned with GDP growth. That said, there is a degree of uncertainty in the months ahead as the delta variant of COVID-19 has taken root. The bright side, though, is that consumers are expected to continue to drive more, especially when compared to last year.
DRIVING FLUCTUATES
Each month, we look at a number of data points in an effort to accurately assess the
health of automobile travel, which has a direct impact on tire wear and replacement. While states across the country have been fully open the last several months, we note that the delta variant could cause government officials to reimpose some lockdown measures in the coming weeks and months. This has already been observed in some states. The good news is that miles driven trends remain steady. August 2021 levels were down 1.7% versus August 2019 levels, which compares to a year-over-year decline of 1.1%.
RAWS ESCALATE
Raw material prices — in almost every category — continue to escalate. Looking at specifics, we note that the price of carbon black continues to increase on a month-after-month basis. Carbon black prices have experienced double-digit growth over the last several months. Crude oil prices, which experienced extreme cost pressures at the start of the COVID-19 pandemic — with average prices down 37% year-over-year, through the end of the year — continue to spike. As noted in last month’s column, July 2021 saw a year-over-year hike of 76%. Natural rubber prices continue to be on the upswing — continuing to show strong, double-digit gains. And the price of synthetic rubber continues to increase. Last month marked the
Snapshot of Dealer’s PLT Volumes (Year-Over-Year Change) Jun-20
Jul-20
Aug-20
June-21
Jul-21
Aug-21
Average
Increase
22%
75%
38%
24%
65%
61%
41%
Flat
22%
12%
31%
52%
29%
25%
28%
Decline
56%
13%
31%
24%
6%
14%
31%
Total
100%
100%
100%
100%
100%
100%
100%
SOURCE: NORTHCOAST RESEARCH ESTIMATES
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first time this occurred since April 2017. From a pricing standpoint, the only tire component category that continues to track downward is reinforcement items.
PRICE HIKES DOMINATE
Last month, I wrote that tier-two remains the segment of most significant growth among our surveyed contacts and that trend has continued. We note that this is typical of what we have seen in our extensive coverage of the tire industry over time, with fluctuations in other directions likely a function of transitory items, such as what happened during 2020 with the start of the COVID19 pandemic. We note that tier-one brands have been ranked third by respondents to our most recent surveys for the past several months. But recent trends indicate that consumers are very likely leaning more toward performance than value, which is the opposite of what our contacts observed during the earlier days of the pandemic. Dealers also note that inventory remains below desired levels. And the continuation of price increases by tire manufacturers is having an impact on sell-out rates. We believe that aggregate pricing gains of 20% to 30% have taken place over the past 12 months. We have seen throughout the pandemic that consumers seem to change their tire preference based on the current COVID-19 situation. While having significant impact in other ways, we believe the delta variant has caused little change in consumer driving patterns — leading us to believe that sell-out rates will improve over time. ■ 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.
MTD October 2021
9/27/21 10:05 AM
