Drips of Red Ink Have Given Way to Buckets

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THERE'S JUST NO WAY TO HIDE FROM IT, OR TO PRETEND IT doesn't exist. Not since the '80s have I seen red ink flowing like this. And behind the lost sales are relatively large amounts of used motorcycles and ATVs. The pipeline inventory of new units committed to dealers — and, for that matter, to OEMs — is so damn large and building. One wonders where it will end.

Everything is happening so quickly. In fact, many of you may be tempted to think that before you know it, this nightmare will be over. Don't take it to the bank!

What has caused this quick increase in red ink? It's been coming. Excuse the bragging, but those of you who read this column regularly knew it was due. In a past article we said that when the used-bike population gets to a certain point, it is more than likely to cause a distinctive slowing of new-unit sales. The rise in used-bike populations causes a downward pressure on the resale values of both new and used bikes. But the downward pressure mostly relates to used bikes, causing lots of action in the auction houses.

In addition, there are plenty of Internet-only retailers that are always ready to find you a bike of your choice. A friend of my son was jumping for joy when he was able to buy his favorite KTM dirtbike in about 15 minutes on the Internet. Everyone in this game wins — except traditional dealers, that is.

But there can't be many nontraditional sales taking place because these Internet businesses obtain most of their units from dealers with excess inventory. When these dealers run out of inventory, then what? They buy more from their suppliers, of course. In the meantime, however, the number of used motorcycles keeps on growing, and the downward pressure on prices keeps on increasing.

Another thing, no small thing for sure, is the downward pressure on privately owned housing starts. I have used this index to provide warnings of oncoming economic and employment dislocations. Again, I have warned of this negative index periodically for most of the past year.

ADVICE FOR DEALERS

Be sure to keep your new-unit commitments in line with potential for sales. OEMs know what's happening, and they will try to help you sell your excess inventory. Of course, they will also try to sell to you everything they have in their warehouses — or on the way from Germany, England, Italy, Japan or even China.

Keep in mind that big-time inflation is just around the corner. Do you remember the Reagan years when we lived with 22 percent interest rates? Not only is that possible, it is even likely!

A senior executive of a major OEM invited me to its dealer convention a few years ago. The manufacturer had been riding high. He said to me, "My biggest fear is that too many people are buying into our franchise seeking that big pot of gold. But my concern is that if things go bad sometime, I just wonder what they will do — how will they get on?"

Maybe that time is here. — DJB

Editor's note: U.S. economic conditions are affecting the powersports industry, as they are affecting many other industries. When you see a serious sales decline forecasted for a brand, remember the glut of used bikes that are bringing down prices of both new and used. Wholesale numbers are also climbing as import distributors are forced to take on inventory commitments. Our forecasts are made with the best of efforts and techniques, but given these economic pressures, we must advise the greatest care in evaluating these forecasts. — DJB