4/4/201-Three vexing challenges, and three reasons for optimism

A memorable quote came to mind recently as I prepared a state of the industry presentation.
And, no, it wasn’t, “You can’t handle the truth!”
Instead it was something Charlie Hadayia Jr. related to me as he discussed trying to focus in on a couple key areas to kick-start Biker’s Choice, Tucker Rocky Distributing’s V-twin arm. In determining exactly how to remain focused on a couple of key objectives and not get sidetracked in other challenges, Hadayia said he received the following advice from Steve Johnson, Tucker Rocky’s president: “Don’t try to boil the ocean.”
In other words, don’t tackle too much, too quickly. With that sage guidance in mind, I put together a presentation on the state of the industry without trying to bite off too much, too quickly. So I concentrated on three vexing challenges the industry faces, and what I believe to be optimistic signs regarding those challenges. My view is the latter, the optimistic signs, tend to get lost in what has been a very challenged marketplace, thus I bring them to your attention. And yes, as an admission of guilt, I am one of those glass-half-full guys. Keep that in mind as you review these three critical industry areas, as well as my thoughts on them leading into the prime selling season.
Vexing challenge No.1:
Decline of unit sales

The facts … as we often collectively state them, are pretty bleak. New unit retail sales, as charted by the Motorcycle Industry Council (MIC), showed a decline of more than 17 percent in 2010 compared to the following year. More depressing, that together with a horrendous 2009 represents a drop of more than 500,000 units compared to 2008.
The glass is half full because … the MIC retail new unit sales numbers are not as reflective of total industry sales as they once were. This is certainly not a criticism of the MIC, which continues to provide a key industry benchmark as well as play a critical role at the federal level for the industry. It’s just that the MIC retail sales do not include the UTV segment, which we believe now to be the industry’s third-largest selling segment annually.
Plus, although new unit sales continue to be the most important factor in terms of dealer sales and profitability, the used market is becoming a larger and larger force. It is common now to find dealers who are selling one used bike for every one new, if not more.
So if we’re going to discuss the industry’s health in terms of unit sales — both new and used — we really should gauge the same store sales information provided to Powersports Business by ADP Lightspeed as the most complete gauge. That gauge showed unit sales, again new and used, off only 5 percent in 2010 vs. 2009, and January and February both have been up compared to the year-ago months.
Vexing challenge No. 2:
Dealer profitability

The facts … are, unfortunately, difficult to find with any real accuracy. Dealer closures are difficult to quantify, although a study published last year in Powersports Business showed 10 percent of dealers closed in 2009. Two OEMs, Polaris Industries and Harley-Davidson, stated publicly that they lost around 3 percent of their dealers. We do believe the industry’s overall dealer closure percentage is higher than 3 percent, probably closer to that 10 percent number. While dealer closures appear to be waning, they certainly aren’t done. Harley-Davidson announced it believes more closures will occur in 2011 and my recent visit with a dealer 20 group confirmed that dealers are still seeing competitors closing.
The glass is half full because … one key area of dealer profitability — amount of expenses paid on new unit floorplans — is largely in much better shape now than a year ago. Many OEMs are reporting dealer inventories in much, much better shape over the past winter and spring. That’s crucial, as many dealers’ cash flow simply couldn’t withstand the elevated floorplan costs.
Vexing challenge No. 3:
Used market

The facts … there remains a considerable hurdle to climb for dealers interested in becoming real market forces in used vehicles. That hurdle? Wholesale financing. A recent national dealer survey by Powersports Business found more than 80 percent of dealers are funding their used inventory out of their own pocket. The result: Their purchasing power is extremely limited.
The glass is half full because …. There are signs of this turning around. Sources both within the industry’s financial and wholesale communities have told me they expect some new programs to come out this summer that could be industry game-changers. We hope so, because without it, we’ll see too much of the current scenario where dealers remain on the used market sidelines. PSB
Neil Pascale is editor-in-chief of Powersports Business.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button