Deflation and powersports

All of my adult life I’ve been reading and writing and talking about inflation. We just always assumed that things would cost more next year than they did last year. It didn’t matter what — cars, houses or motorcycles. If you spread out the payment long enough you could make out by making the last payment with cheaper dollars than the first payment. Inflation would see to that.
So, the big problem for government folks, meaning the Federal Reserve, always was keeping inflation under control. And businesses had to figure it into their calculations — maybe not so much for next year, but certainly in their rolling five year plans.
But now the Fed is worried about deflation. Last month, Fed Chief Alan Greenspan said the possibility of deflation is “minor,” but added it’s large enough to deserve “scrutiny.” Coming from the cautious Greenspan, that raised flags in some parts of the investment community.
Deflation as bad as inflation
The downward spiral of deflation can be as dangerous as the upward spin of inflation. In fact, the Great Depression was caused by deflation — a decline in prices led to a reduction in earnings and excess plant capacity, which, in turn, led to lower wages and layoffs. Lower consumer spending helped push the cycle downward again.
Obviously, high levels of deflation and debt do not mix, either on the corporate side or the personal side. If your income dips but your debt payments stay fixed, the squeeze can be very unpleasant.
So, what does all the macro/big picture stuff mean for powersports business? Right down here where it counts, at the cash register?
Perhaps not too much. Perhaps only enough that it bears watching. But now might be the time to take a good look at your operations.
If your customers are squeezed at home because of high debt levels and their income drops or they don’t get the raise — or raises in two-income families — that they were expecting, it could affect you.
They might not be able to make payments on the machine they bought from you. Or they may have to postpone the purchase of a new machine, or even new accessories.
If you look at the big economic picture, things look okay. For the 12 months ended in April, the Consumer Price Index (CPI), a common measure of consumer prices, increased 2.2%.
But if you look at powersports indicators, they’re bound to make you a bit cautious.
Machine sales this year are uninspiring. According to the latest retail sales figures through May compiled by the Motorcycle Industry Council (MIC), unit sales of motorcycles and ATVs are off 1.5% for the five-month period.
ATVs are off 2.4% and the big highway motorcycle segment is down 3.8%.
Also interesting is the pricing activity of OEMs. Look at the aggressive promotions. When did you last see Harley-Davidson offering deals like the one it has on its V-Rod?
Kurt Finley is a dealer-principal in Colorado who provides occasional reports from the dealer trenches for this publication. In May, Kurt wrote about “the realities of a slower growth environment.” He talked with dealers across the country and found the situation mixed, often driven by the local employment situation more so than the overall economy.
Fortunately, he found that dealers are actively dealing with the situation by tightening money controls, evaluating expenses, and selling aggressively against price-oriented competitors.
In a related study by Hal Ethington on Page 32, he found that over the three-year period from March 2000 through March 2003, revenues from machines and service were flattening, but there was growth in parts and accessories.
A suggestion: Read what Kurt and Hal are saying, take a look at your operation, and make the necessary changes.