Dec. 27, 2010 – What the scar tissue of 2009 will look like

Jon-Erik Burleson, the president of KTM North America, once summed up the retail sales collapse of 2009 and its effect on the industry something like this: “We’ll someday look back at this year as a proud scar … I just hope it doesn’t show too much.”
Besides our proud scars we bear as 2009 survivors, I’ve wondered what other profound changes we’ll bear as a result of what has become a sad reality: The market is less than half the size it was just two years ago.
Now before you start rubbing your scar in agitation, let me add some depth, some clarity to that ominous statement. The idea that the industry has declined in half is a reflection of its new unit retail business as reported by the Motorcycle Industry Council. Aftermarket officials will be quick to jump up and note that some very important sectors — consumerables, for instance — have actually increased during that time. Likewise, there are vehicle segments of the industry (snowmobiles for one) that have not seen anywhere near that retail freefall.
However, let’s be honest here. New unit sales have been the lifeblood of the dealer business statement for a long time, and continue, on average, to make up half their revenue, if not more. Any discussion on the state of the industry would be amiss if it did not start on this topic.
With that in mind, let’s look at what has happened over the past year, understand if the pattern will continue in 2011 and really get a sense of what the scar of 2009 could eventually come to symbolize.
In my mind, it’s change.
Change has occurred in the dealer’s retail unit mix. Dealers, as pointed out in our Focus section this edition, are relying more than ever on used units to count for a higher number of their retailed units they sell per year. As this shift has occurred, dealers are starting to realize some of the benefits of being a player in the used market. You know, those qualities that the wholesale experts preached to us for years but that we never really truthfully took to heart: Increased profit margins, a potentially wider consumer base, a product that can’t be found down the street and thus harder to price-shop.
Overall, pretty attractive qualities.
Now take a peek ahead at 2011 and try to imagine a retail year that is significantly different than this one. It’s pretty hard to fathom, right? New unit sales that continue to be soft and used units becoming a larger and larger presence in the dealer retail mix seem a pretty safe bet for 2011.
So let’s imagine the end of 2011 then. Dealers will be more versed in the used market, be more adept in managing used inventory and in navigating the all-important buy process. They’ll be more comfortable. The used business, full of its own complexities, will become an easier field to play in simply because more of us will have experience in it.
But what does that lead to? How about an everlasting change in the dealer retail unit mix? How about that the retail unit mix at the dealership does not go back to what it was just a few years ago once the economy rebounds? How about that the increasing used market presence we’re seeing today doesn’t become just a momentary blip and byproduct of a new unit production decline?
Sound too extreme, you say?
Consider this: After the dealer population becomes fully ingrained in the used business and realizes the profitability that it adds to their business, why wouldn’t they commit more of their inventory and showroom floor space to that sector of the business?
Hold on, you say. You’re actually telling me somebody isn’t going to stock the newest, hottest bike so he can put a 5-year-old cruiser on the floor?
No, that’s certainly unlikely. But will they stock new units in the same depth they have previously when the used market offers those before-mentioned, attractive qualities? I wonder.
But, you say, what’s going to draw traffic to the store? The newest model or something with scratches on its frame?
Don’t discount the power of a few scratches. Know how many used bikes changed hands last year in the United States alone? More than five times the number of new units that were sold, according to information provided by R.L Polk.
I believe when that 2009 industry scar fully heals over — and you stop rubbing it! — we’ll see some definitive changes.
And, sorry Jon-Erik, but I think it’s going to show. It’ll be quite evident.

Important note

We’ve made a key change in one of our annual contests that both aftermarket and dealer service providing companies should take note of.
For the 12th consecutive year, Powersports Business is selecting 50 items new to the marketplace that are products or services it believes to be particularly worthy of highlighting. This contest, the annual Nifty 50 contest, is featured prominently in Powersports Business’ January and February editions.
The change this year is products and services will not have to be displayed at Indy’s Dealer Expo to be part of the contest, which was a requirement in past years. The only requirements products or services must meet to be Nifty 50 eligible are twofold: 1) They must be new or substantially improved from previous years; and 2) Be ready for delivery in calendar year 2011.
The reason for the change? We’re mindful that the challenging economic environment doesn’t allow all of the industry’s aftermarket and dealer service providers to attend Indy. So this is our way of leveling the playing field.
Get your Nifty 50 entry form by going to PowersportsBusiness.com, click on “Resources” and then you’ll see the Nifty 50 information from there.
Good luck!
Neil Pascale is editor-in-chief of Powersports Business. He can be reached at npascale@affinitygroup.com.