Oct. 5, 2009 – Assessing the state of the industry

By Karin Gelschus
Associate Editor
INDIANAPOLIS — Oftentimes, the current-day economic assessment looks more like a weather report than a financial analysis, noted one member of a unique panel created to view the state of the powersports industry.
“You look outside, and it’s raining,” said Brian Etter, CEO of the Motorsport Aftermarket Group (MAG). “You look on the horizon, it looks like more rain. The good news is there’s the occasional opening and blue sky. But then it rains some more.”
When the economic forecast could clear was one of a number of topics discussed during the “State of the Industry,” one of a number of panel discussions held during the Powersports Business Conference and Expo. The industry gathering held Aug. 30-Sept. 1 in Indianapolis that aimed at improving dealer profitability drew more than 350 members of the industry.
The “State of the Industry” panel featured an executive from four different sectors of the industry: a high-volume vehicle manufacturer (Suzuki National Sales Manager Rod Lopusnak), a smaller-volume vehicle manufacturer (KTM North America President Jon-Erik Burleson), a national distributor (Tucker Rocky President Steve Johnson) and a national aftermarket manufacturer (Etter of MAG, which is the parent company to at least seven different brands).
Besides commenting on the economy, the panel, moderated by Powersports Business Editor Neil Pascale, touched on a variety of topics during the more than hour-long discussion, including consumer spending habits, the realities of the lending market and the industry’s most under-served demographic.

Referring to the weather forecast analogy, Etter believes the first break in clouds the industry should be watching for is related to consumer confidence.
“Consumer confidence is different than spending,” he said. “We need to get consumers more confident than they are today. We need to get some improvement in the unemployment (rate), get people back to work. They need to feel more secure. I think we’re going to have to see some real solid trends in the beginning of the year for that to happen.”
One area that has already showed signs of life is the real estate market, Etter said. “That’s an area where we’re starting to see some breaks in the clouds.”
“The hard part for all of us in our industry,” said Lopusnak of American Suzuki Motor Corp., “is if there’s a problem, we’re fixers. The challenge is we didn’t break anything.”
But the challenge is definitely being felt across all retail sectors.
“The challenge is the business across the street from you is affected the same way. That’s what we haven’t seen before,” Lopusnak said. “You’re not only up against business partners or other dealers, you’re up against everyone.”
And consumer-spending habits appear to have changed.
“We lived in a fantasy for the past five years,” Johnson of Tucker Rocky said, noting the number of consumers who lived beyond their means.
Burleson of KTM North America says the industry is having to adjust to the new mentality.
“The past couple months proved that there’s a correction where you have to catch up, and there becomes a sustainable period,” he said, referring to consumers becoming less in debt. “There’s a catch-up period, which we’re in right now.”

Financing & spending
“Financing was so easy to get from the manufacturers,” Burleson said. “Dealers were profitable. We were addicted to the profit/growth the industry was having.
“I think Brian (Etter) hit it right on when he said there was money turning into cash when people were pulling out their credit lines and the equity in their homes. It definitely makes it easy to get in on a motorcycle or ATV. You know: Low payment but nothing down. Everybody was jumping in. Everybody got busted with bills increasing at a dramatic pace. It’s the same reason as to what happened with the housing market.”
While lending requirements have changed dramatically, panel members also noted spending habits that either have not changed or changed for the better. Johnson of Tucker Rocky mentioned parts and accessories necessary for the maintenance of a bike or ATV have remained solid sellers.
“I’m still optimistic about this industry. I really am,” he said. “There are a lot of people out there who still love motorcycles. The economy is going to turn around too. New bike sales will come back.
“Right now, take advantage of the economy we do have: Service and replacement parts and so on. I would be worried more, and I tell the people in my company this, if we had 100 percent of the market share because I have no place to go but down. I don’t think any of us have that much of the market share. It’s how we view that.”
Burleson also sees a positive byproduct of the economic downturn: Discounts and the rebate mentality is slowly going away.
“Nobody in this room can make a business out of giving product away,” he said. “I guarantee that. It’s become a time when the OE and aftermarket, we’re all going to have to start making business again. Slowly best business practices are going to come into play, price will get back and customers will understand why they have to spend more because of the dealership and the value of the product.”

Becoming profitable again
Since the irrational consumer spending days seemingly have ended, Etter says part of the industry is re-learning how to make money.
“All these areas of excess cash fueled the craziness and that won’t come back,” he said. “The aftermarket segment is one of the most encouraging signs I’ve seen in the past two years. You as dealers (at the Powersports Business Conference and Expo) are taking the initiative to try to re-school or learn how to run your business. I think we’re fooling ourselves if we think we’re going to get it back to the perfect storm that it was. All of our businesses, we’re going to have to learn how to be more profitable.”
One area the industry needs to evaluate closer is inventory, especially when dealers are trying to cut their overhead, Johnson says.
“We have to be careful though because if we get too lean on inventory, we’re going to chase our good customers to competitors,” he said. “You really need a good base of inventory, a good credit of inventory. It’s very natural for all of us to go through the process of reducing inventory, but we have to do it judiciously. There’s a balance out there that we’re facing.”
Lopusnak of Suzuki noted the absolute importance of right-sizing inventory levels.
“We need to focus on getting our inventories healthy so we can get in a sustainable area,” he said. “Then I think we can go to being in a positive situation.”
Another area the industry needs to stay focused on is new product, Etter noted.
“We’re making sure we’re not cutting back in areas like R&D because that’s what’s going to get people to spend money. We’re spending a lot of time in the R&D area and planning for next year,” he said. “That’s the common thread in our industry, the excitement, the passion from the consumer base. That’s different than a lot of other consumer products here in the U.S.
“You go back to the mid ’80s — the Japanese manufacturers to the cruiser segment to four-stroke motocross bikes, side-by-sides, the technology in the ATVs. That’s what helped all of us expand our businesses so much and create interest in different segments. That’s what our industry is great at — bringing new innovations and making our customer excited. I think we’ll see that happen again.”

Key buyers
Looking beyond the male rider, there are a few under-served demographics the panelists advised the industry pay closer attention to.
Starting the next generation early is crucial for the industry, notes Johnson. “It’s critical we find ways through events and other things to get kids riding,” he said. “I have three kids who all ride. I had them started when they were 4, 5 and 6 years old. They are the ones who will buy the sport bikes, scooters. They are going to be the ones who will stay in it for a lifetime. We need to figure out how we’re going to get kids involved in this sport.”
Another under-served segment is the female rider, says Burleson.
“There’s a lot of opportunity for that market,” he said. “It can be intimidating to walk into a dealership as a man if you’re a newbie to the motorcycle industry or if you’re new to the area. I can only imagine the intimidation of women to walk into a dealership to buy something. As far as sheer dollar growth, women are the biggest area.”
Lopusnak agreed, adding, “With business being so good the past 5-10 years, I think a lot of dealers didn’t really see the need to review their product lineup and match that to their demographics.”
Etter added it’s about making those riders feel comfortable in the industry.
“They have to have the opportunity to start,” he said. “Is it something that seems welcoming or does it seem like a race riding clique? Is it a Cheers where everyone knows your name?”

Leave a Reply

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