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The Mysterious Nature of the Motorcycle Industry

Posted by Tom Lombardo | Mon, Apr 20, 2015 @ 02:00 PM

Heavyweight motorcycles constitute over 60% of the U.S. motorcycle market, and while barely-street-legal bikes fascinate us (the new Kawasaki can go 200 mph, the new Ducati has pistons four and a half inches across, and the new BMW has four strokes in-line, for starters) motorcycle dealers ready to expand their operations have a lot to gain by looking at how that heavyweight market operates.

And if we want business lessons from a motorcycle, right now it’s got to be the Indian, because in so many ways it reflects the American motorcycle industry itself.

Indian Attitude

Launched at Sturgis the summer before last, production models hit the ground full speed. No one can praise Polaris enough for the way they’ve pulled this off. Their engineers spent considerable time riding the originals so they could create a bike with a truly authentic feel, and by all accounts, they succeeded, even while incorporating all the latest technology as well.

Polaris’ motorcycle division, which includes Victory Bikes, surged a remarkable 94% in the fourth quarter of 2013, and then promptly increased nearly 60% over the course of 2014 to about $385 million, or 8% of the conglomerate’s total take. During the Sturgis release Polaris’s stock sold for about $113. Today it’s about $141 – a 25% increase in less than two years.

And they got Mike Wolfe from the hit TV show “American Pickers,” who has been searching for vintage Indians on screen for years, to be their spokesperson. “When I get one of these,” he told Fox Business, “I’m going to be as proud as the guy who bought one in 1948.”

That long-term commitment reflects motorcycle dealerships nationwide. More than four out of five of them are family-owned, with over half run by a sole proprietor. Most have ten or so full-time employees with at least one full-time tech.

And they’re built to last. At most, the top employees are on salary and share in the business’ profits.

In other words, independent families and driven entrepreneurs engineer the buy-in of equally independent fellow travelers to build stable businesses where everyone involved feels a sense of ownership.

And collectively they own more than the business. The iconoclastic Indian brand has become, in every real sense, the property of motorcycle lovers everywhere. Even those who don’t deal them and would probably never own one still want the brand and the bikes to be cared for – which is what’s given rise to the widespread praise for Polaris.

That loyalty runs deep in the motorcycle dealership industry, and in 2014 about half saw their unit sales and their revenue increase over the previous year, which might indicate that for successful dealerships, customers become their customers, sort of bought into the enterprise the same way as their top employees.

Indian Assertiveness

So then: how come out of every two dealerships, one stagnated?

Sort of reminds you of the heavyweight market in general, because when Harley-Davidson saw the Indian roaring out of the past, they geared up for the challenge. Harley-Davidson sells two thirds of their bikes in the U.S. and knew that the Indian rebirth, done exceedingly well this time, would create stiff competition.

Motorcycle Layaway Plan

So right around Indian’s Sturgis introduction, they launched their biggest new product release in two decades: the Project Rushmore bikes. For every Indian there’s a Harley at the same price point expressly designed to make it as difficult as possible for a consumer to make up his mind.

It worked, but only up to a point. Harley’s shipments slowed while Indian expanded its dealerships to about 130 and sold around 15,000 bikes – that’s $300 million in business. According to a UBS analysis, 80% of the Indians went to previous Harley customers, which we would probably expect. Polaris shares surged 20% while Harley’s dropped about a point.

Good thing heavyweights make up 60% of the market. There’s room for a scuffle, and without a doubt, Indian and Harley will keep each other on their toes. Polaris, for one thing, has a 2018 goal of a billion in motorcycle sales, which would include the Victories but would require a lot of big-ticket Indian sales too.

Indian Skill

It may be a while before the Indian makes serious inroads into Harley’s space, because despite all this success they managed to chisel only a point off of Harley’s market share. They’re at that very starting point of that customer loyalty phenomenon that’s so integral to the motorcycle dealership industry.

But if they continue to execute as well as they have out of the gate it may be a foregone conclusion that America now has two fully-functioning, truly iconic heavyweight brands.

It’s no wonder that, according to the Motorcycle & Powersports News study, motorcycle dealers’ top concerns are profitability and competition.

We’ll get to profitability in a moment; the competition question may be far more interesting. Why would a Harley-Davidson owner switch to an Indian? The only answer is that there’s no “answer.” Both brands have a mystique. Both products are excellent. The customer who would admire one would admire the other.

Whatever causes him to choose might be forever locked up in his own personality at the particular time he wrote the check.Motorcycle Dealer Brands

This may explain why more than half of dealerships sell more than one brand, with one in five selling four or more. If you’re going to present your customer with a wonderfully impossible choice, ideally you’ve got the sale either way. In fact, practically all dealerships doing over half a million in revenue are in the new bike market.

And there’s little doubt that they pursue their profitability just as passionately as they advocate for their favorite brands. Profit comes from payment, and you see checks every day. There’s little doubt that a significant portion of those Indian sales involved accepting a check. The only problem with checks is the risk of having one returned. The moment that happens, it can suck out all the profit from the sale, undoing all your hard work. Even if you eventually collect the money you still lose time and energy. And, usually, you lose the money too.

While you’re building your business, do it as skillfully as Indian has. Make sure the revenue from every check you accept is guaranteed. Find out how here.

 

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Topics: Auto Dealerships

Written by Tom Lombardo