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May 24, 2010 – Tracking the industry’s recent destruction and regrowth

May 24, 2010
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Creative destruction.
Oxymoron? No, not really. And if you are not familiar with the concept, you had better keep reading.
Because we are in the middle of it. Powersports has been shaken, like everything else, with the changes in our customers, our product sources and our financing partners. Those of us who are left look around and can’t help but wonder about the events that have rocked our world.
But, could we pause, and talk about The Luddites for just a moment? Yeah. Nice group of hard-working English folks in the early 1800s that spun wool and wove cloth by hand for their neighbors. They had been doing this for hundreds of years, until some fool invented a weaving machine hooked up to waterpower that could weave a lot faster and produce even better quality goods. One of the weavers, a guy named Ned Ludd, found the solution though. He figured if they could just smash all those new-fangled weaving machines, they could save their livelihood, their jobs and their source of income.
The group became known as “The Luddites.” Ned was out there leading the charge, and smashed everything in sight.
Didn’t work. And to this day that name is used to describe any person who does not recognize and accept inevitable change.
Change happens. And we are in the middle of a big one. And the term that is getting tossed around more and more is “constructive destruction.” Old ways give way to new. Old jobs are destroyed, and new ones are created. Inefficient ways give way to new methods that save time and money. And since demand does not go away, out of destruction, we soon find construction.
Consider: Xerox, Polaroid, Monkey Ward, Woolworths, 8-tracks, CDs, newspapers, Chrysler and GM. All huge in their day. All market makers. All considered indestructible in their time.
And, all gone. Replaced by digital imagery, Wal-Marts, MP3s, Toyotas and iPads. Destruction of the old and construction of the new. It’s the law of nature, and it’s the law of economics. And you had better pay attention, or it will eat your lunch.
The consequences of the “destruction” process are always painful. Just ask the Luddites. It hurts to lose a job. It is hard to learn a new skill, and it is tough to tell your family that you are no longer needed out there. A friend of mine — vice president at a large company — was laid off. He continued to get up every morning, put on the suit and walk out that door. Two years he did that, before he ever told his family that he didn’t really have a job.
It’s hard. And I have been wondering just how hard it has really been for our industry. Here is what I found:
First, my work tracking powersports shops shows that roughly 10 percent of dealers have ceased operations in the past 18 months. If there are 6,000 dealers out there (and nobody seems to know for sure), there could be as many as 600 that have closed their doors, costing perhaps as many as 9,000 jobs.
And that is just the ones that have gone away. What about all of you that have changed course, cut costs and are still here? What has happened to your headcount in the past year?
I looked at salesman’s initials on more than 55 million parts counter tickets dating from 2007 to 2010. I then counted how many distinct salespersons there were in each month for each for the 700 dealerships in the study. I found that the count of counterpersons went up between 2007 and 2008. In 2009 it went down, and so far in 2010, it is way down.
The average number of counterpersons changed by less than one person, but I converted that to a percentage change and found that the drop from 5 in 2008 to 4.6 in 2010 is really a decrease of 8 percent in headcount. My study of sales and service show similar numbers, so in addition to losing 10 percent of entire dealerships, it looks like we have also lost about 8-10 percent of our employees in the remaining stores. The trend here is quite clear.
So the process of destruction moves on. And we wait to see what construction will bring. I can tell you right now what it will include. Those dealers who are all over CRM, the ones using parts locators, and the ones facebooking, tweeting and dumping ad dollars into their Web sites are leading the charge. Each of these tools leads to higher productivity. And just like wind and water against rock, higher productivity and better technology in any economic setting always win. Always.
So find the tools. Train your people. Evaluate your methods, and lead out. Nobody’s going to hold your hand through this. It’s going to be up to you to figure it all out. And in your travels, if you happen to meet a textile exec with the last name of Ludd, you may want to reach out, shake his hand and give him a pat on the back. He may not know it, but he has earned it. psb
Hal Ethington has been associated with the powersports industry for more than 30 years. Ethington is a senior analyst at ADP Lightspeed. He can be reached at Hal_ethington@adp.com.

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