Jul. 13, 2009 – A quickly changing sales ratio for powersports

By Neil Pascale
Editor
POWAY, Calif. — Six months ago, the preowned market made up perhaps 25-30 percent of the total vehicles sales at Sound Harley-Davidson in Marysville, Wash.
More recently, that preowned sales percentage has increased twofold, the dealership’s assistant sales manager, Frank Kai, says.
Those findings were repeated by a number of dealers interviewed by Powersports Business at the grand opening of National Powersport Auction’s (NPA) new San Diego-area facility. In an overall smaller vehicle sales market, the used vehicle and its lower price tag and perceived value are making up a larger percentage of the overall sales, dealers at the auction reported.
“It’s the appetite of the buyer,” Lee Palm, chief operating officer for Thunder Mountain Harley-Davidson, Loveland, Colo., said of the preowned market. “The buyer is looking for a lower-priced bike. They still want the Harley, the Harley experience, but they’re more conservative in their purchasing habits.”
Palm, on hand for the NPA live auction that featured 1,600 units, says the Colorado Harley store is approaching a ratio of one used bike sold to every one new bike sold, a vast difference from some six months ago when the ratio was closer to 2 new to every 1 used.
“We’re focusing right now on getting the right mix of bikes,” Palm said. “We’re going a little lighter on the new bikes because of the market demand and we’re stepping up our purchase of certain price point bikes.”
That is a common trend among both Harley and metric dealers, says Justyn Amstutz, NPA’s executive vice president of sales and marketing. “If you talk to the Harley guys, the medium and low price points move off their floor much quicker than the higher price points,” he said, noting the same occurrence is happening with metric dealers, although at a lower price point.
It’s all part of an industry segment that is continuing to show signs of being recession-proof. While the new unit market decreased more than 30 percent in the first quarter compared to a year ago, the preowned market for all powersports vehicles actually increased by 6 percent, according to R. L. Polk & Co., which analyzes state registration data.
The dealer interest in the wholesale market is certainly reflecting the segment’s resiliency.
Karen Braddy, general manager of specialty sales for Manheim auctions, notes the company has increased its motorcycle and powersports unit offerings by more than 20 percent and seen its number of sold units increase by twice that percentage over a recent six-month period. “Bottom line is we are offering more units than ever before and selling more units than ever before,” she said.
That includes dealer consignments. “When a dealer does bring a unit to auction, he is more likely to sell it than before,” she said.
That could be due to the fact that more dealers seem to be taking part in the wholesale market. Amstutz of NPA notes the company has seen its network of dealers increase by more than 200 per month over the past year.
Brandon Coyne of Imperial Valley Cycle Center in El Centro, Calif., is one of those dealers. On hand at the San Diego auction, Coyne notes Imperial Valley Cycle Center has traditionally relied heavily on off-road sales of new units but lately has moved heavily into the preowned market.
“Just recently with the downturn of the economy and the banks tightening up on lending of higher dollar amounts, we’ve ventured more than ever into the used bike area because of the affordability, the quality and they’re a lot more available now,” he said.
Coyne also says he has seen wholesale prices decrease compared to earlier this year. “The supply is there, the demand is there and the cost is down,” he said of the preowned market.
Amstutz of NPA concurred with the price decrease, noting the company has seen prices drop 5-7 percent year-to-date as financing has become harder to come by.
Could that decreased price per unit be a short-term trend? Possibly affecting that scenario is the number of repossessions available on the wholesale marketing — Braddy says repossessions are up 20-40 percent — and the cutbacks that are occurring in new unit manufacturing. Harley-Davidson said earlier this year that it planned on reducing shipments by at least 10 percent in 2009 and metric manufacturers’ exports to the United States have been cut back by double-digit percentages for most of this year.
“It’s a fairly long pipeline for us,” Amstutz said. “We’re seeing units that were retailed 12-14-18 months ago so volume is very consistent. But as the pipe continues to shrink and the volume continues to decrease with manufacturing cuts, you’ll see average selling price increase.”
Braddy also did not expect to see an immediate impact from the OEM production cutbacks, noting more than 70 percent of Manheim’s sales were from model years 2004-2007. “So a high percentage of what we sell at auction is 1-4 years old,” she said.
But there is the possibility of the current economic factors playing a role in wholesale inventory a year or two down the road.
“The combination of the lower production of new units from the manufacturers and the tightening credit standards that have been put in place by the lenders will mean we will see some slow down of repossessions in 2010-2011 just because there will be less financed,” Braddy said.
“As repossessions decrease in 2010-2011, we expect the dealer consignments will rebound back to more typical levels. Dealers need the used inventory and if it is not available through purchasing repossessed units at auction, they will turn to dealer units as another alternative.”