There has been a lot of talk this year about changes in the number and types of franchised dealers operating in the United States and Canada, but there’s been precious little data to back up the talk. Until now.
Research developed by Don Musick (photo at left) and his company, Genesys Technology Solutions (GenesysTech), shows that the major OEMs lost dealers last year while the nontraditional manufacturers — basically Chinese and Taiwanese and other non-MIC suppliers — picked up ground. It’s like the frog dropped into a pot of water that gradually heats up to boiling, says Musick. The majors don’t recognize that the Chinese dealers are surrounding them with experienced retailers and are getting ready to eat their lunch.
This reporter has traveled to China and has seen the potential of Chinese factories. Most of them have a lot of problems as far as succeeding in this market. Still, Musick makes a pretty strong statement, one that’s worth considering when talking about the changing dealer network and what it might look like in 2010 and 2011.
Musick founded GenesysTech in 2004 and began collecting dealer information in the powersports and auto industries and a number of others. First he collects dealer data from each OEM; then he grinds the data through a series of proprietary computer consolidation processes to eliminate duplicate entries and to 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 used here compare data from first-quarter 2008 to first-quarter 2009, the most current data available from GenesysTech.
Musick uses two basic definitions that simplify any conversation about changes in franchised dealerships. A franchise point is a location that sells 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 most conversations 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.
Significant Trends, 2008-2009
There are many stories about the number of dealers that have gone out of business over the last year, but Musick’s research tells a different story. While the eight major OEMs — Arctic Cat, BRP, Harley-Davidson, Honda Kawasaki, Polaris, Suzuki and Yamaha — have lost dealers, the industry as a whole has not lost any franchise points. The difference is made up in new franchise points opened by nontraditional Asian and European manufacturers.
While the majors lost 651 “rooftops” by Musick’s analysis, the total number of franchise points during the first quarter 2008 to first quarter 2009 period remained just about the same, dropping from 25,795 franchise points in 2008 to 25,771 franchise points in 2009, a change of only 24 franchise points. That translates to almost 15,000 rooftops or brick-and-mortar stores. “What has happened is that Chinese and other nontraditional powersports companies have really had aggressive dealer development programs,” Musick says. As examples, he points to Kubota (up 11.8 percent), KYMCO (up 9.2 percent), Piaggio (up 35 percent), Lance Powersports (up 45.1 percent), CFMoto (up 1,153 percent), Genuine Scooter (up 37.8 percent), Aprilia (up 33.1 percent) and SYM (up 137.1 percent). Many of these, such as CFMoto, started from a small base in early 2008; but over the last year CFMoto added more than 150 dealers.
While the quality and longevity of many of these new dealers have yet to be determined, Musick points out that many of these Chinese dealers have been in business for three years or more. “We see the growth of a second-tier retail network developing that started out as nontraditional, inexperienced dealers that are growing up to be bona fide powersports dealers,” he says. “They have been around, and now they are becoming reputable dealer points. Pretender dealers of a few years ago are now becoming real dealers.” Musick points to the KYMCO network as one group of dealers that has grown in sophistication. This growing number of franchise points selling nontraditional products is an unrecognized problem by many established OEMs, says Musick. “They’re sort of wearing blinders,” he adds. “They don’t recognize these new dealers growing up all around their established dealerships.” The magnitude of this second-tier is best illustrated by research from Power Products Marketing, the Minneapolis research firm that estimated in 2008 non-MIC-reporting companies accounted for 250,000 in scooter unit sales vs. 76,000 units for the majors.
At the same time, many established dealers are turning to nontraditional brands to round out their product portfolios as these brands increase in product and service quality, says Musick. Harley-Davidson dealers are an especially attractive target for manufacturers of scooters, such as Genuine Scooter Co., and electric vehicles, he says. “As a Harley dealer in the current economy, you have to make up for that lost revenue somehow,” he adds. Musick’s research suggests that the number of single-line dealers is decreasing and the number of OEMs per dealer is increasing.
The average number of OEMs carried by a Honda dealer, for example, increased by nearly 14 percent from first-quarter 2008 to first-quarter 2009. And the number of exclusive Arctic Cat dealers dropped nearly 5 percent during that period. Exclusive Harley dealers dropped almost 4 percent at the same time.
The bottom line is that while the number of major-OEM franchise points during this period declined, the number of total franchise points industry-wide has remained about the same, in part because dealers carrying major franchise are continuing to add secondary brands as they continue to improve in quality.
For more information on GenesysTech, visit www.genesystech.com
This story originally appeared in the Dealernews February 2010 issue.