Nov. 2, 2009 – California: 30% dealer loss not out of the question

By Glenn Hansen
Contributing writer
The president of the California Motorcycle Dealers Association tried to measure what impact the huge 2009 downturn of the on-road motorcycle market would have on the state’s dealer network.
California, the largest on-road motorcycle market in the United States in 2008, suffered more than a 65 percent decrease in on-road motorcycle sales in the recent selling season compared to the year-ago period, according to data provided to Powersports Business by R.L. Polk. That decrease amounted to more than 27,000 lost motorcycle sales in the seven-month period.
“My best estimate is by next year at this time California will have 30 percent fewer dealers than two years ago,” said Ray Nowakowski, the president of the California Motorcycle Dealers Association (CMDA). “And that’s not necessarily a bad thing. The best dealers will survive and will improve customer service to attract more customers,” said Nowakowski. “It’s also better for the remaining dealers, of course, as long as the manufacturers don’t try to stuff new dealers into the open spaces.”
Nowakowski counted 18 dealers in Northern California alone — that’s a line from Fresno north to the Oregon border — that have closed since May. He knows several more in Central and Southern California have closed or are on the verge of closing, though Northern California has encountered a higher number of dealer closures than the southern two-thirds of the state.
A metric manufacturer’s study of its dealer closures in California, provided anonymously to Powersports Business, show more than one third of those closures have occurred in the Bay Area.
The retail sales decrease of on-road units, however, have extended far beyond the state’s central coast, however. R.L. Polk’s data — comparing January through July of 2009 vs. 2008 — shows Fresno County, an inland area in the middle of the state, San Bernardino County, east of Los Angeles, and Santa Clara County, in Central California, as areas that have been the hardest hit. The retail sales decline in those three counties alone accounts for more than 4,000 units, or more than what was sold in all of Nevada or Idaho in 2008.
As president of Golden Gate Cycles in San Francisco, Nowakowski knows the current pressures on maintaining a successful dealership in the state.
“I’ve been here since 1981,” he said, “and the costs of running a business in the state are higher today than back then. There is much more regulation in human resources, for example, and from taxes and the government in general that makes it more costly to operate.”
A report published in the California Real Estate Journal (www.carealestatejournal.com) said, “California is anything but a (business) leader among the states. It ranked 49th in the Small Business Survival Index, which combined assessments of various tax rates along with other measurements of business friendliness.”
When motorcycle sales were booming, businesses were less inclined to worry about these added costs of doing business. Today, Nowakowski says, these additional pressures can be the final straw in forcing a small business to close.

California’s Struggles
Among Forbes’ “Best States for Doing Business” list, California ranked No. 40 for 2008, down from a not-so-good No. 34 in 2007. The Forbes rankings are influenced by six main categories of data for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. The magazine says that business costs, which include labor, energy and taxes, are weighted the most heavily. A recent Wall Street Journal article states “the worst growth killer may well be California’s tax system. California’s 8.8 percent business tax rate is the highest in the West, and its steeply “progressive” personal income tax is second highest in the nation, according to the Wall Street Journal.
“Dealer closures near us are one thing that’s helping us survive,” said Nowakowski.
His experience, however, is not duplicated in the Southern California town of Simi Valley.
“You would think that having a few dealer closures near us would improve our floor traffic and business,” said Chuck Stockdale, “but that’s just not the case.” Stockdale manages Simi Valley Cycles, which carries Suzuki, Yamaha and Triumph brands as well Sea-Doo watercraft and Beta’s line of dual-sport motorcycles. “Thank God for our line of Triumph motorcycles,” said Stockdale, “right now they’re the only products that are increasing in sales volume.”
Today, Stockdale says floor traffic has been heavily curtailed because consumers believe they can’t get financing, or they’re simply afraid to spend for fear that they could lose their job.
Unemployment in the county surrounding Simi Valley Cycles has risen to more than
11 percent. California’s unemployment rate overall is currently hovering around 12 percent, which is among the worst unemployment rates in the nation.
California does have the advantage of rider-friendly weather year-round, though many street motorcycle riders in the Golden State will reduce their riding activity in the winter. But when the weather cools in October and the rain begins to fall, it’s dirt bike and ATV season, especially in Southern and Central California.
“We certainly hope we’ll have a good dirt-bike season,” said Stockdale. “The additional floor traffic and service volume would really help until the warmer weather come springtime.”