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The KeyBanc Industry Report

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Earlier this year, Tire Review and KeyBanc Capital Markets Inc. in Cleveland began working together on a monthly survey of U.S. tire dealers to gauge real-world factors – such as wholesale and over-the-counter pricing, supply levels, and tire unit and dollar sales. Here are some of the findings as of Dec. 2:

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  • Price/mix outlook continues to look positive in the U.S. market as lower tier manufacturers have been raising prices recently and higher tier tiremakers have been maintaining prices during this period of declining raw material costs.

Consumer Tire Pricing: Tire dealers indicate that sell-in pricing is increasing on Chinese products and non-Chinese lower tier products. There is anecdotal evidence of low-to-mid single digit sell-in price increases over the past several months in lower tier segments. We have received further info on price increases since the SEMA Show, which gave us conviction of the favorable pricing environment. Research also indicates the higher tier portion of the market is experiencing stable sell-in pricing. Additionally, 88% of retailers we surveyed in October indicated consumer pricing was “Normal” and 5% indicated pricing was “Firm;” only 7% of dealers indicated consumer pricing was “Aggressive.”

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Commercial Tire Pricing: Pricing for commercial tires continues to improve. Based on revenue and volume statistics gathered from commercial dealers, revenue per tire was up 1.2% in October vs. up 0.4% YoY in 3Q14 and down -2.2% YoY in 2Q14. On the negative front, 62% of contacts indicated “Aggressive” commercial pricing in October, while the remaining 38% of contacts indicated pricing was either “Firm” or “Normal.”

  • Raw Material Costs: The blended average of NR and synthetic rubber (combined approximately 50% of raw material cost) is down approximately 2% thus far in 4Q14 vs. 3Q14. The overall trend of raw material costs is an incremental positive. As a result of stable to improving pricing ahead of the impending duties on Chinese consumer tires and lower raw materials sequentially, we believe manufacturers are on track to post price/mix vs. raw materials spread in the U.S. market again in 4Q14.
  • Industry demand in October was healthy as retail dealers indicate tire revenue was up 1.7% YoY, driven by a 2.7% increase in tire units. Service revenue was also reported positive, up 6.7% YoY. Dealers reported a 1.7% YoY increase in consumer tire revenue in October and a 2.7% YoY increase in consumer tire unit demand. October revenue/tire was down -1.0% YoY, similar to September’s results. On the service side, dealers indicate service revenue was up 6.7% YoY in October. Service margin expansion remains solid with dealers reporting margins up 160bps YoY in October.
  • While U.S. tire shipments should continue to be positive over the coming months, dealers expressed concern over inventory levels on consumer tires. For October, 57.5% said their consumer tire inventories were too high, while 39.4% were comfortable with their inventory level. It was the reverse on the commercial tire side; 60.8% said their tire stocks were good, and 38.4% said their inventories were too high.

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