The Used Bike Trap

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IN PAST ARTICLES WE HAVE WARNED OF A PROBLEM associated with the recent 14-year period of unit sales growth (a long-term success we hadn't seen since the 1960s). That problem is the buildup of used motorcycles.

We can look back at history for insights. In 1986, the value of the Japanese yen increased 32 percent in just 12 months. This was hardly a small event. (Can you imagine the stock market dropping in price by that amount?) If there had been a correction in the money market within a relatively short time, all would have been OK; but there wasn't. The yen stayed at a relatively high value, and the dollar continued to weaken.

This happened just after Harley-Davidson petitioned the U.S. government for protection against the Japanese motorcycle companies for "dumping." The successful petition resulted in the government placing tariffs of at least 45 percent on all imported motorcycles with engines larger than 700cc.

The weakness of the dollar and the strength of foreign currencies caused a run on used bikes. People saw an opportunity to buy up used bikes and sell them in other countries through partners who were set up to handle the details of shipping and selling abroad.

Before this run on used bikes, there had been a huge buildup of used motorcycles in the United States, more than a million of which were Japanese sportbikes purchased before the Japanese yen jumped in price. So when the yen increased, so did the MSRPs of motorcycles, popular sportbikes in particular. Sales dropped like a ton of rocks.

Does any of this sound familiar? The U.S. dollar has been weakening for the past three years. The used bike population has been increasing for much longer. By 2003 the population of used streetbikes had increased to approximately 6.5 million units, about a third of which were cruisers. Half of those cruisers were of the Harley-Davidson brand.

Now the general economy is on the fringe of a recession, the population of used bikes is excessive, and too many retailers haven't got a clue as to how to merchandise used bikes, especially in a market like this. How many dealers use the off-season to recondition used bikes so they can be ready for sale in the spring? How many get financing for the purchase of popular used bikes that, with some work, would make for profitable sales? If these and other measures aren't taken, people who could be your customers will trade with each other instead.

And don't forget the auctioneers. They are busy handling the most popular used bikes, some of which are being shipped to other countries.

Some older dealers will find these times to be all too familiar. The bright side is that eventually the excess balance of used bikes will be sold, and the market, having survived the economic down-trend, will be ready for the new models that market research tells the OEMs to build.

In the meantime, learn how to deal with those used bikes. — 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 © 2008 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 • Craig Southey, COO of Cycle Barn MotorSports Group

* The DJB Index is the square root of the total of our sales forecasts for motorcycles, ATVs and scooters. This index allows readers to look at (and keep track of easily) one number that is a summary of our predictions.