Jul. 21, 2008 – Price impact of a weak dollar
July 21, 2008
Filed under Features
As the dollar struggles to hold its value amid soaring oil prices and a tumultuous U.S. economy, some in the powersports industry are asking what impact it will have on the profits of foreign companies exporting products into the United States.
The biggest concern from dealers is the potential for price increases on new units, while distributors wonder if the profit loss will have to be absorbed by them.
Keeping profit margins intact
Of the overseas manufacturers interviewed by Powersports Business, none have any immediate plans to raise prices on vehicles because of the falling value of the dollar. Although they do admit the dollar’s weak status is hurting profit margins, they believe it’s a short-term problem that will correct itself. Distributors interviewed, however, say they’re starting to see prices start to creep upward.
“Based on historical data, we believe the current weakness of the dollar to be temporary. It is our opinion that the trend will reverse in the next 12 -18 months, at least partially,” said Paolo Timoni, president and CEO, Piaggio Group Americas. “On this basis, despite the reality that the dollar’s weakness is currently squeezing our profit margins, we decided not to increase the retail price of our products.”
Bill Peirce, president of Cobra Powersports, says he’s seen price increases from companies such as TGB because of the weakening dollar.
“Even with the Taiwanese manufacturers I deal with, any dip in the dollar’s value leads to price increases,” he said. “And unfortunately we have to pass those costs onto our dealers, which takes money away from them in the end. On vehicles like scooters they can easily make that profit up, but with other parts of the market right now it’s a struggle.”
Despite assurances from manufacturers, many dealers have expressed concern over price increases, saying profit margins are thin as it is. Raising prices might scare off already wary customers.
“I certainly have no reason to not believe these companies when they say prices will remain steady, but that doesn’t mean they can’t change their minds tomorrow,” said Steven Fray, owner of Tri-City Honda/Kawasaki/Suzuki in Ft. Worth, Texas. “My sales have been down nearly 30 percent this year, even with everyone seemingly moving toward two-wheeled vehicles, and a price increase on new units would hurt a lot.”
Bradley Ramis, general manager of Handy Powersports outside of Boston, says if scooter sales continue to sell like they have been in April, May and June, a price increase wouldn’t phase most customers.
“They already know how much money they are saving on gas costs by purchasing one of these vehicles, so if the price bumped up I honestly don’t think it would have that much of an effect,” he said. “Where there is so much demand for a product, to the point for us that we can barely keep them stocked in the dealership, price isn’t really a concern. Although I would hope if they did increase prices, it would only be temporary until the dollar rebounds.”
Absorbing the cost
If prices do go up in the near future, who will ultimately absorb the cost? For motorcycles and four-wheeled vehicles, it’s a question with few answers.
“The money will have to come out of someone’s pocket, and my biggest fear is that it will trickle down to me,” said Jeffrey Carson, owner of Carson Yamaha/Suzuki outside of Reno. “Somebody is going to lose money when the dollar suffers, and to be frank I know it won’t be the manufacturers, and most likely not the distributors either,” he said.
“During good times price increases can be passed off to consumers without much of a problem, but with the way the economy is and more customers using the Internet to price shop and spend their money sparingly, either you absorb the cost as a dealer or you don’t sell a bike. It’s as simple as that.”
Piaggio’s Timoni says the dollar’s drop will even itself out, especially if the U.S. Federal Reserve Board raises interest rates like it has in recent months.
“There are many factors that went into the drop of the dollar in the past year, and we believe by the end of 2009 there will be a strengthening of the dollar where talk of price increases won’t be on anyone’s radar,” he said.