As we mark the onset of the holidays, we pause to evaluate where we've been and what lies ahead for our industry.
The independent tire dealer/tire specialist channel is struggling — and has been for months. Let's take a dive into unit sales and prices to deconstruct some trouble spots, and highlight pockets of opportunity.
Over the last 12 months (through July 2018), tire sales were down 7 percent compared with the previous 12 months, according to GfK Group's nationwide tire retail panel.
While metric light truck tire sales fell "only" 3 percent, the market declines are driven by P-metric tires — both passenger and SUV tires. We do see growth in relatively small markets such as run-flat tires, tires with rim diameters greater than 18 inches, and ultra-high-performance (UHP) models, where they are stronger than non-UHP tires.
Coupled with the decline in tire sales, we are seeing a consistent uptick in out-the-door pricing. While some dealers are enjoying the higher margins, more are feeling the heat of price increases from vendors combined with slowed sales.
According to GfK's tire panel, the average selling price for a consumer tire was $136, up $1 or 1 percent from last year. SUV tires experienced the largest price increases; specialized tires – such as summer/winter tires or run-flat tires, some larger rim tires and some UHP tires — also experienced large price increases.
So why the increases? Essentially, replacement tire dealers have their backs against the wall with regard to price increases from the manufacturers.
Sure, specialized tires and new product roll-outs may command higher prices. More broadly, however, major manufacturers instituted price increases, ranging from 3 to 9 percent, throughout 2017 on both passenger and light truck products.
Most manufacturers explain that rising raw materials and logistics costs are behind the tire price increases.
More recently, U.S. tire manufacturers have come out against the tariffs on a specific steel grade imported from Canada, Mexico and the European Union. In addition, automobile industry experts and consumer groups alike are anticipating the domino effects of the new Chinese goods tariffs.
This tariff on tires, as well as tariffs on cord fabric and rubber, might very likely trickle down to further price increases for retail customers.
Furthermore, again, many tire makers have announced 2018 price increases that we expect will impact retail pricing. Concerns are not only the price increases, but the consumer mind-shift to delay tire replacement and auto maintenance/repairs because of the anticipated additional expenses.
So, while the U.S. economy shows some strength, tire unit shipments and retail sales are sluggish. Some speculate that slow sales could be a result of "better, faster, stronger" tires.
Consumers drawn to higher quality tires are paying more and replacing them less often. These specialty tires, combined with extended warranties for tread life, are commanding higher prices and affecting industry growth negatively.
To stay healthy, dealers need to diversify their offerings and give consumers good reasons to change tires more often.
The old models of business are no longer enough to float all boats; we need innovative thinking — as well as top-quality products — to win over today's consumers.
Susan O'Donnell is director of GfK's POS Tracking (Tires) team. GfK captures point-of-sale data from more than 3,250 independent tire retailers nationwide and also tracks tire sales globally.