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OPINION – The Harley bubble has not burst, but it has changed

February 12, 2007
Filed under Columns

For the past 15 years or so the most common question in the industry, or to the industry from those outside it, has been “when is the Harley bubble going to burst?”
The world has taken note of the success. How could anyone not notice the big, new high-profile dealerships, and the sheer number of mainstream people with one parked in their driveway? To everyone it has seemed like a boom that has to end. My answer to the question of when the bubble is going to burst has always been, and still is: I don’t know. I do know that while the bubble has not burst, the market has clearly entered a new phase. Demand is stronger than ever, and the opportunity for Harley dealers continues to be exceptionally good for those ready for what’s next.
There is a huge amount of product in the pipeline and this April when the free flooring runs out, Harley dealers are going to learn what it is like to have a huge flooring bill. For dealers who have control of their showroom and the ability to address customer issues one person at a time, 2007 will provide record profits.
The harsh reality is that in 2007 you will have to sell more than you did in 2006 to make the same. The good news is that the product is available to do so. SUA (allocation) is no longer a limiting factor. Find the buyers and the bikes will be there.
There also are far more Harleys in use than ever, and these used bikes create a major opportunity for dealers. The softening value of used has created a true “entry level” Harley. More people can now afford to ride one. The F&I opportunity is just as good for these used bikes, and when factored in makes the margin better than new. Given that many dealers will be hard pressed moving their SUA, they are likely to default this opportunity to the dealer who can “spin both plates.” Having more used in stock will enable a dealer to expand market; not having them will default the opportunity to someone else.
The bubble has only burst for the dealers who did nothing but ride it. The good folks who were not able to cash in when the market allowed a premium price will be pressed to effectively deal with negotiating prices in a market that finds the buyer in a stronger position. The only bubble that has burst is the low hanging fruit. There used to be more easy sales than motorcycles. Today we can sell a lot more bikes by working the prospects previously ignored. These buyers need to be sold and are not price shoppers.
However, we do need to be geared to effectively deal with the buyers who are price shoppers. It is not the end of the world, if you are selling them for a living you should be better at selling than your customers are at buying. That unfortunately is not the case in most dealerships, where the customers have learned to drive the process because they had to. It all comes down to forgetting about what was and focusing on what’s next.
In my December column, I wrote about the business still providing room for the passionate enthusiast. The problem is that when you grow into a 50,000-square-feet building and 80-plus employees generating $20 million per year in total revenue, you are way beyond being a mom and pop operation. A significant percentage of Harley dealers in the United States grew and made expansion decisions based on market conditions that no longer exist.
For 18 years any business philosophy you embraced worked, as it was built around a demand that exceeded supply. Selling the current SUA requires more than a nice building and a passion for motorcycles. The SUA used to be a guarantee of how many new bikes you would sell. The market in 2007 will clearly establish the market for a product is not the same as a demand for the product.
The very best Harley dealers in the country are taking a very hard look at the adjustments they need to make to accommodate the change in the marketplace. I am personally working closely with several dealers who, while they have a very strong sales and F&I process in place and have been very profitable, are still very concerned. They recognize that surrounding dealers without any real form of controlled sales procedures will have a lot of inventory to dispose of. The need is to refine what has been proven to work so that we can better deal with the price shopper to capture more business from the “lookers” than in the past. The good news is that some real answers and new thinking have emerged.
Everything said here is not new to metric dealers, who have had to deal with this market scenario for a long time. The timing is really right for those good metric operators to take advantage of those hard lessons learned and cash in on the skills they have developed. If you have been sharp and clever enough to make a good living in a metric store, the “problems” facing Harley dealers will not present a major challenge to you. Harley dealers who have not learned the lessons of metric market would do well to do so. Or, if you do not feel able or willing to do so, consider selling your dealership to an operator whose experience has prepared him for what’s next.
The alternative is to consider selling your business to yourself. Take a hard look at just what changes a buyer would make to your operation. Are you able to make those changes yourself? In April, I am moderating a conference on buying and selling Harley-Davidson dealerships. We will talk at length about evaluating Harley dealerships and identifying “headroom.”
The whole message is very upbeat as clearly the bubble has not burst and the investment opportunity in Harley-Davidson dealership is a good one. Making the changes that are required or selling are the only real options, riding the bubble is not.
SEE YOU AT INDY
I will be spending most of my time at the Ehlert Powersports Business booth 1613. I look forward to seeing many old friends and making new ones. Friend or foe please stop by and say hello. psb
Ed Lemco has been involved with the powersports industry for more than 30 years. Lemco, the former owner of Lemco Management Group, is the founder and executive director of the National Council of Motorcycle Dealer Associations. Lemco currently operates a call center for dealers in St Croix.

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