Dealerships down, but franchises alive and kicking

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It seems like a simple question: What was the net change in the number of U.S. dealers carrying powersports equipment in 2010?

Unfortunately, like most things in business, the answer isn’t so simple.

What we’re looking for here is this: How many outlets carry powersports products that compete with the ones you are selling -- not the same ones, perhaps, but competing ones? How many competitors do you have and how many places sell competing products to your customers?

Obviously, this includes retailers of major powersports OEM franchises as well as big-box retailers of new Asia products, and OEMs from other industries that also selling powersports products such as UTVs. So, you’re selling UTVs, it’s likely that several more competitors entered your market last year or at least a market close to you.

Now, if you want a simple answer that roughly describes the change in major OEM dealers, here it is: The number of total dealers selling new powersports machines in the U.S. dropped by about 5 percent in 2010.

But, obviously, there’s more to the changing picture of the U.S. dealer network than that one simple number because the total number of franchise outlets actually increased by almost 30 percent, according to one analyst. (That 5% figure tracks closely, by the way, with the number reported by the Motorcycle Industry Council.)

The two estimates— 5 percent and 27 percent — come from Don Musick, founder and CEO of Genesys Technology Solutions, a Michigan research firm that tracks changes in dealer franchises. Musick has more than 25 years experience with major manufacturers in the powersports and automotive industries specializing in business solutions for retail distribution networks. Musick launched Genesys in 2004 and began collecting dealer information in powersports, auto and a number of other industries.

There’s nothing magical about how Musick comes up with his numbers; it’s just a lot of hard work and computer analysis. First, he collects dealer lists from OEMs, and then he grinds the data through a series of proprietary computer runs to eliminate duplicate entries and prepare the data for analysis.

He starts the process in January and has an updated database ready for his clients by the end of March. He revisits the data in the fourth quarter, updating the list of OEMs and amending the output. The numbers we’re using here compare data from Q4 2009 to Q4 2010.

Musick uses two definitions that simplify any conversation about changes in franchised dealerships. A franchise point is a location that sells at least one franchise’s products. A brick-and-mortar dealership is identified by Musick as a “rooftop.” So, if a dealer holds a Kawasaki franchise, that’s one franchise point and one rooftop. If he adds a Suzuki franchise, that’s two franchise points but still only one rooftop.

This is an important distinction often missed in discussions about changes in dealer networks. If two dealers drop a specific franchise, that’s important to the OEM and obviously reduces the number of dealers selling its products. But as far as the industry is concerned, the total number of dealers in operation has not changed at all, an important distinction to keep in mind as we go through Musick’s research.

Tracking Changes Currently, Musick tracks 121 OEMs/distributors who sell powersports equipment in the U.S. In order to track changes in dealer activity, we defined our powersports universe as the 21 OEMs who had more than 100 dealers and who were selling powersports equipment every year from 2006 through 2010.

The 21 dealers are Aprilia, Arctic Cat, BMW, BRP, Ducati, Genuine Scooters, Harley-Davidson, Honda, Hyosung, John Deere, Kawasaki, KTM. KYMCO, Moto Guzzi, Piaggio, Polaris, Schwinn, Suzuki, Triumph, Vespa, and Yamaha. These 21 OEMs operated 9,129 dealership stores (rooftops) in 2006, 9,008 in 2007, 8,987 in 2008, 8,508 in 2009 and 8,233 in 2010. The total number of dealership facilities in this group declined by 3.3 percent from 2009 to 2010 and 8.6 percent between 2006 and 2010.

While the total number of these dealerships declined by 775 over the last five years, the total number of franchises dropped by only 652, indicating that OEMs often simply shifted their franchise to an existing dealer when one of their dealers went out of business. It’s also notable that of the dealers representing these 21 OEMs, the number of 21 OEM franchises per store increased only modestly, from 1.65 to 1.75 from 2006 to 2010.

On the other hand, for these same dealers, their total franchises per store (including all OEMs, not just the 21 above) increased from 1.90 to 2.24, indicating that dealers have been progressively taking on more non-mainstream OEMs.

Total Franchises Increases. It’s interesting to note, however, that the total number of franchises for all OEMs Musick tracks increased from 20,599 (55 OEMs) in 2006, 27,320 (100 OEMs) in 2009, to 34,809 last year (121 OEMs), a gain of 7,489, or 27 percent, in 2010.

Perhaps the most interesting trend that Musick identified was the growth in the number of retail outlets for UTVs. Last year, Case-International Harvester, New Holland, and Husqvarna Group among others began offering UTVs through their dealerships. This is significant due to the large number of retail outlets represented by each of these OEMs (note that not all Husqvarna Group dealers sell UTVs although any of their nearly 3,000 retailers can order UTV product).

More than 75 percent of the 21,219 rooftops followed by Musick carried UTVs last year, by far the largest product category in the powersports industry. By comparison, only 36 percent carried motorcycles, 50 percent carried ATVs, and 38 percent offered scooters. A mere 10 percent handled PWC and only about 7 percent carried snowmobiles.

The percentage of dealers involved in UTVs is very high for a couple of reasons. “OEMs such as John Deere, Kubota, Case-New Holland and Bob Cat don’t make powersports equipment other than UTVs,” notes Musick, “so that skews things somewhat.”

John Deere’s dealer count is pretty high, nearly 1,900 dealers, and most of those stores carry Deere UTVs.

If you’re looking for another perspective on recent dealer count changes, try this: The Motorcycle Industry Council in its 2010 Retail Outlet Audit counted 5,134 outlets that sell new vehicles produced by major OEMs that are reporting members of the MIC. These are Arctic Cat, BMW, BRP, Ducati, Harley-Davidson, Honda, Kawasaki, KTM, Piaggio, Polaris, Suzuki, Triumph and Yamaha.

The MIC does not count as a franchised dealer any operation that does not sell one of these brands. It doesn’t count as a franchised dealer those dealers that sell KYMCO, for example. The MIC reported 5,428 outlets for new vehicles in 2009 and 7,545 retail outlets in 2006. The MIC collects its data from OEMs and magazine subscription lists, so year-to-year comparisons often are not valid, it notes.

So, what’s the bottom line? While the number of dealerships operated by the major OEMs continues to decline, the total universe of retailers of powersports equipment in the U.S. seems to be increasing.. The number of competitors for your customers is increasing, not decreasing, as some claim.

Mr. Dealer, you now have more competition for your customer than you did one year ago from such places as Tractor Supply, Pep Boys, Home Depot, Best Buy and regional chains such as Rural King, Farm & Fleet, Farm & Home Supply and Western Auto. You may wish to factor this competitive situation into your business plans for this year.