November 30, 2009: Ducati reacts to downturn with margin change

By Neil Pascale
Recognizing the quantum shift in this year’s motorcycle retail business, Ducati North America (DNA) is making a change of equal proportions in its dealer incentive program for 2010.
DNA CEO Michael Lock said the company’s program that has rewarded dealers for taking steps to improve the profitability of their business will at least for the short term be replaced with a plan that aims to immediately help with cash flow. That’s obviously a key issue as motorcycle retail sales were down dramatically during this year’s key selling season.
So for 2010, Ducati will be increasing the profit margin dealerships receive for new bike sales, Lock said, noting that increase on average will be an additional 3 percent more than last year.
Lock believes the new profit margin on DNA motorcycles will put the European brand either at or near the top vs. their competitors.
In the recent past years, DNA has used part of that front-end profit margin to subsidize different dealership profitability programs, like 20 groups, a mystery shopping-type program and dealership infrastructure efforts, like showroom improvements.
“What we’ve done is switch resources into 2010 from a lot of those value-added projects into something much simpler and much more immediately gratifying to dealers,” Lock said. “Short term we’ve realized that dealers aren’t really listening to those (value-added programs) this year. They’re anxious about things closer to home. They’re interested in staying in business.”
That’s not to say Lock and company do not see continued benefits from those value-added programs. “We made real improvements,” he said of the programs. “The fact that we topped the customer satisfaction index in the industry is testament to the fact that that program worked.”
Lock was referring to the Pied Piper Prospect Satisfaction Index, a national study that annually examines the effectiveness of the industry’s retail sales force by brand. For the first time this year, Ducati fared best, eclipsing Harley-Davidson as the top-scoring brand.
“All of those things that we have done are the right things to do long term,” Lock said of the programs, noting DNA will possibly revisit each of those efforts in the future.
“I think we’ll revisit it once the business normalizes,” Lock said. “In the short term what dealers need is cash flow. I think (the increased profit margin) will be a big boost to dealers next year.”
Besides increasing front-end profit margin, DNA also is putting more resources in 2010 in its consumer financing programs, Lock said.
“We have a great partnership with Freedomroad Financial now,” Lock said of the exclusive consumer financing arrangement that Ducati has had for the past year with the national financing company based out of Illinois.
Lock said Ducati will put additional funding into consumer financing programs — one of the rare tools DNA has found that has successfully attracted new bike buyers.
“A great lender partner is a strategic advantage,” he said. “We’ve recognized it as such and we will continue to feed that.”
Lock and Ducati do not expect to see another year of sharp on-road motorcycle declines in 2010, but believe sale volumes will probably mirror what occurred this year.
“We’ve not pulled back on the new product development program even after the last 12 months watching the market collapsed,” Lock said. “We’ve stuck to our guns in developing bikes we say we would.”

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