Powersports Industry Can't Avoid Economic Crunch

Publish Date: 
Nov 13, 2007
By Mary Green Slepicka

TUSTIN, Calif. - Hold onto your handlebars; we're in for a bumpy ride, at least for the foreseeable future.

A noted economist predicts that the housing market will remain weak through 2009, interest rates will remain high and an economic recession is more than possible — it's likely, at least in some states.

Somber news to the 200-odd members of the Motorcycle Industry Council who gathered in Tustin, Calif., last week for the MIC's annual Communications Symposium. Despite pep talks from futurists, marketers and researchers on the need to increase your online business and how to reach new customers, the economic news left a pall in the room that never quite dispersed.

Economist Esmael Adibi of Chapman University, Orange, Calif., started off his annual presentation to the MIC membership with six words: "Things don't look good, guys; sorry." The country is facing a perfect storm of indicators that could plunge the economy into recession: the declining housing market, impending inflation, and the fall of the dollar against foreign currencies among them.

The slump in the housing market and the crisis in the home mortgage sector have impacted the overall economy more than university researchers anticipated, he said. Rubbing salt in the wound, Adibi claimed that the Federal Reserve's hesitancy to raise interest rates in the last couple of years has only added to the nation's economic woes.

"It kept the interest rate too low for too long," said Adibi. As a result, more people got into mortgages and equity loans they ultimately would not be able to afford. "Easy money stimulated [housing] demand, and the speculators took advantage of it."

Why should you care? Because consumers have far less disposable income than in years past, which means they no longer can afford to purchase new motorcycles, ATVs and other recreational vehicles. Adibi estimates that in many cases, over half of one's household income is now going toward paying the monthly mortgage bill. Add in fuel costs, groceries and utilities, and there's not much left for other purchases.

The outlook is particularly bleak for the East and West Coasts — most notably, California and Florida, states that benefited the most during the housing boom, and now are suffering the hardest in the housing market. Roughly 11 percent of home loans in California are subprime; this increases to as much as 13 percent of home loans in Florida. California and Florida are two of the largest consumer markets for powersports vehicle sales (see Don Brown's year-end forecasts by state in Dealernews).

Prepare for some "correction" in powersports vehicle sales in 2008 with only a "weak" recovery beginning in 2009, said Adibi.