The Powersports Industry’s Six-Month Report – August 14, 2006

New unit sale numbers reported from the Motorcycle Industry Council (MIC) are largely up — some dramatically — even as some economic factors threaten to derail a prosperous 2006.
Rising interest rates and high oil prices continue to lighten customers’ checkbooks and raise dealers’ apprehensions. They also have seemingly had a hand in the softening of the custom V-twin cruiser market and some other high-end vehicle sales.
But even those bad tidings are hard to concentrate on when new unit sales are largely up year-over-year. Consider:
• Overall, MIC new unit sales have increased nearly 4 percent, rising to 946,323 at the end of June;
• New scooter sales have jumped tremendously, up nearly 20 percent to 29,900;
• New dual motorcycle sales have increased even more, up 36.5 percent to 20,742;
• and, on-highway motorcycle sales are up almost 10 percent to 410,421.
“New unit sales certainly drive aftermarket sales,” said Greg Blackwell, vice president of sales for LeMans Corp., which owns Parts Unlimited and Drag Specialties.
That’s certainly been the case this year as Blackwell reports healthy aftermarket sales, especially on the metric side. “We’ve been meeting our expectations, in some cases even exceeding them,” Blackwell said. “We see the business as growing.”
Business has not been growing in all powersports segments, however. Consider:
• ATV new unit sales are down nearly 2 percent for 2006 after a slow June when monthly sales were down more than 7 percent;
• New sales of off-highway motorcycle sales also are on the decline — falling nearly 4 percent compared to last year;
• and some V-twin custom cruiser companies are reporting a slowdown.
Despite slowed growth in the ATV segment, Polaris’ Mark Blackwell, vice president of Victory Motorcycles and international operations, still sees some positive signs.
“Although the market is at a little bit of a decline, it’s very important to keep in mind that we are at historical high levels,” he said. “We think the true, total market is still growing.”
What is hurting the industry is rising interest rates, which could inch up again this month for a record 18th straight time. Elevated interest rates have dramatically increased dealers’ expenses, increasing their flooring costs by sometimes double or triple what they were just a year ago.
“Everybody is trying to reduce inventory by a quarter,” said Robert Hintz, general manager of The Engelhart Center, Madison, Wis., “just to get back to where they were at last year in flooring costs. At the same time, Honda, Yamaha, Suzuki are pushing for us to take more product.
“I want to have the product here, so (consumers) can take it with them that day, but I’m also getting killed on my flooring costs.”
Rising flooring costs are almost certainly causing some of the apprehension and conservative orders that Blackwell has heard about from his sales reps.
“I just hope they (dealer) don’t talk themselves out of business because as (MIC) numbers show, more people are buying motorcycles than last year,” Blackwell said. “That’s a great sign.”
And there are other positive signs. A study of dealership finances by ADP/Lightspeed for Powersports Business showed overall dealer sales were up 15 percent in May and 6 percent in June.
Plus, the consumers’ interest level only seems to be swelling. Blackwell said a recent powersports event held in the middle of Iowa, not exactly the mecca of motorcycles, drew 11,000 people from as far away as Texas and Wisconsin.
On the down side, Blackwell said “there doesn’t seem to be as much custom building going on right now. I have also heard that some of the builders are down business-wise.”
But he added that “on the V-twin side of things, our aftermarket business has very good” and is up over last year.
Nick Messer, president of Big Dog Motorcycles, also said his sales are up over last year, but not as much as he would like to be.
“I think the industry has slowed down a little bit,” Messer said of the custom cruiser market. “I don’t know if the lack of growth is because there’s a lot more smaller manufacturers out there deluding the market or if it’s the fact the Harley Davidson market is now at a point where the supply has met demand and the price is coming down. I think it’s a little bit of everything, but I think that’s a big part of it.
“It is more challenging,” Messer said. “The customer is getting much more particular about what he’s looking for. And there’s a lot more selections.”
But at least halfway through the year, most economic signs point to that customer as being not only a careful shopper, but also a buyer.
“As for the outlook, we watch consumer confidence carefully,” said Polaris’ Mark Blackwell. “We had interest rate hikes, gas prices at all-time high, but employment is good and people seem to have disposable income to buy recreational products.
“However, if gas prices and interest rates remain high, it means people have less money to spend. In the short term, the gas prices appear to be bringing people into dealerships. In the longer term, I think we have to be a little bit cautious.”