2008 Will Be A Tough Year

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ALLOW ME TO OFFER SOME COMMENTS on what this new year might bring, based on what I heard during a hectic travel schedule, and my regular discussions with dealers, manufacturers, distributors, security analysts, consultants and economists.

Mine isn't an optimistic forecast, but opportunities still abound. Winners have to work harder to find the bright spots and take advantage of them.

Here, then, are some things to consider for 2008:

SOFT UNIT SALES. The custom cruiser business will continue to suffer. Manufacturers will shift to accessories for cruisers and sportbikes, and look for business overseas. They'll try to take advantage of the weak dollar, which makes products manufactured in the U.S. attractive to buyers who deal in stronger currencies such as the euro, pound and yen. Snowmobile sales will depend on weather conditions in December, although the forecasts are encouraging as I write this in late November. Watercraft sales will continue to stagnate as the housing slump continues in the big PWC states of California and Florida.

There is some good news. Sales of recreational UTVs — the star here is Polaris' new RZR — will light the darkness for many dealers. Sales of Arctic's Prowler, the Yamaha Rhino and BRP's ATV lineup designed for enthusiasts should do well.

New types of products, such as BRP's Spyder, should provide additional revenue streams for dealers. Scooters may do well as consumers continue to "go green," and environmentally friendly three-wheel and four-wheel vehicles could provide additional revenue and bottom-line support for cagey dealers.

The smart dealers also will continue refurbishing used bikes and take nice profits on the sale of these units — something that good dealers have been doing for several years — as consumers clutch their checkbooks a bit tighter this year.

HOUSING PROBLEMS. We can't ignore the subprime mortgage mess. While the impact of the housing slump has been thoroughly discussed, what has gone largely unnoticed is that there could be another big round of home-mortgage defaults this year as adjustable rate hikes kick in.

PRICE INCREASES. Dealers are going to be in a tough position this year because OEMs and aftermarket manufacturers are going to have to pass on some — if not all — of the price increases from their suppliers. These cost increases will be driven by increases in the cost of petroleum reflected in higher costs for plastics and transportation. Costs of other commodities also will increase, driven by growing worldwide demand.

CONSOLIDATION. Look for increasing turnover of dealerships as dealer margins get pinched by price increases from manufacturers and slumping demand from consumers. You'll see sales of both successful dealerships and poorly run operations. Dealers who have made money over the years and are now looking at the sunny side of 60 are looking to get out as times toughen. And the marginal performers are going to be selling because they don't have any choice.

Dealer margins will be further eroded as OEMs and dealers dump noncurrent inventories at discount prices.

Buyers will tend to be existing dealer groups and individual dealers who want to add a second or third store. I don't see many outside investment groups purchasing dealerships because of the slumping unit sales this year.

A quick look at conservative reports on public companies published by securities analysts and declining stock prices of public companies such as Harley-Davidson, Arctic Cat and Polaris Industries show that Wall Street's investors' love affair with powersports is cooling.

You'll also see contraction in other segments of the industry as manufacturers face the same types of margin pressure as those working on dealers. The large distributors may even purchase some of their aftermarket customers, adding to their in-house brands and putting additional pressure on independent manufacturers.

DISTRIBUTORS. Look for changes at three of the leading national firms: LeMans Corp. Parts Unlimited/Drag Specialties, Tucker Rocky and Global Motorsport Group (Custom Chrome, Custom Chrome Europe and Motorcycle Stuff). A driving force will be the weak dollar, which will increase the cost of goods manufactured overseas for U.S. buyers. Distributors may increase their sales efforts in Europe. It looks as if LeMans' Fred Fox's play to establish a foothold in Germany could pay solid dividends.

Global Motorsport Group is looking for potential buyers, as we reported on the www.Dealernews.com Web site last November. It is unlikely that Parts Unlimited or Tucker Rocky could benefit from buying Global, so the company will look elsewhere for a buyer.

A FINAL NOTE. You'll also see increased Internet sales, possibly more dealer-direct sales as aftermarket manufacturers try to save on distribution costs, and more units from China and other parts of Asia. Even these units will cost more, however, because of the weak dollar and the strong commodity prices. Increased transportation costs and reduced manufacturing subsidies by the Chinese government could put pressure on U.S. distributors of these products. There may be new buyers for these units, though, as economic difficulties force consumers to turn away from the major manufacturers and look for lower prices in new units.

Joe Delmont can be reached at joe@powersportsupdate.com or 952-893-6876.