Buildup of Used Harleys and Other Factors Hurt Sales

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When the temperature dropped, my grandmother Katie Huckstep would look out of her Kansas farmhouse's thick, 6-foot-square window, point to true northeast, and say, "It's a nor'easter for sure."

Sure enough, when the wind turned cold and came from the northeast, the weather soon turned bad. That kind of short-term forecasting was more accurate than anything I have seen since — except for the DJB Composite Index. (Of course!)

For the past several issues, our Index has indicated that much of the powersports industry would soon turn south. Turn south it has. And it has kept on heading south, causing the index to drop from 1317 last month to 1297 this month — a fall of 20 index points. (If you can get used to it, the index box at the top left of this page is an easy way to keep track of how well the industry is doing.)

When sales do turn south, why do we always look at cruisers first? Mostly, I think, it is because that model type has been king of the road since the middle '90s. In addition, because Harley-Davidson has been under sales pressure in the U.S. market, its cruisers get the blame — and rightly so.

Why? Because the used cruiser market has built up to around 2 million units, possibly more, due to the success of Harley cruisers for at least the last 15 years.

Seldom do we see model types last so long that after 15 years they are such valuable merchandise. They may need to be upgraded or otherwise worked on, but because they have usually been well cared for, they are still saleable. That just cannot be said for most other model types.

So because of the traditional long-lasting qualities of the Harley cruisers, the market has developed a relatively large pile of desirable used motorcycles. During the past decade's sustained period of new-unit sales growth, the used cruiser market of the future was assured.

Yet, what happens if Harley cruisers begin to lose their value? Resale values could drop, and their values for trade-in stock could also be far less than they otherwise would have been. Could that be part of what is happening now?

There is nothing too serious about the correction the industry is experiencing, except there are elements out there that are standing in the way of an early recovery. Those include the huge used bike population, the importation of cheap Chinese motorcycles and ATVs that are not of quality construction, the declining home values, and the fear of a recession, which most economists believe is due.

We are all but certain now that overall industry motorcycle sales will wind up the year in a negative sales position. As Katie Huckstep would say, it's a nor'easter, for sure!DJB

Interpreting This Index

Index is based on the author's analysis of the MIC Retail Sales Report, SEC filings of quarterly and annual reports, and other information provided by publicly traded companies (such as Harley-Davidson and Polaris). Readers are cautioned that these estimates are subject to error, which can result from changes in seasonal patterns due to unexpected weather conditions and fluctuations in the economy. Interruptions in the supply of popular models can also affect these forecasts. Forecasts are not intended for investment purposes. Questions concerning this index should be addressed to the author, c/o Dealernews, or the author via e-mail at djb-llc@cox.net. Copyright © 2007 DJB Associates LLC, All Rights Reserved. Composite Index Advisory Board: Lindsay Brooke, Motorcycle Historian and Analyst • Tom Hicks, Owner/President, Southern California Motorcycles • John Matherson, Owner/President, Mission Motorsports • Paul R. Puma, GE Commercial Finance • Lenny Sims, Vice President, Operations, NADA Appraisal Guides