The industry is coming off a hard 2023 — now’s the time to cut costs and be more strategic with your marketing dollars
Anyone who has followed my writing the past 30-plus years knows how I will always search for a bit of good news no matter the situation. And while there is hope in coming years, every direction I look tells a story of a stagnant, at best, market for the near and mid-term. As the research was piling up, I even took a look at an allied industry, that being the Recreational Vehicle (RV) business, and found some similar trends and shared factors.
There are a variety of economic factors and due to the huge swings, I started in the 2020 economic year — and yes, I realize we had a pandemic. But for the Powersport Industry (PI) and RV business, it wasn’t a bad time as people and families turned a new focus toward outdoor activities. As a result, they purchased their first PI or RV units.
So we’ll dig into the news from a variety of sources, including government agencies, Experian, dozens of corporate reports, industry publications and more.
Interest Rates
• Personal loan rate, as of Feb 2024: 12.5%
• Car loan rates: new, 7.2%; and used, 12%
• Mortgage: 7.2%, 30 years
Rates remain high and it’s been that way for a while now. And, while the Fed thought they could start to lower the rates early this year, inflation remains stubbornly high. Who knows when the rates come down. But in any event, it seems the earliest would be later this year. And likely next year for the consumer rates.
Disposable Income
This is a factor of gross wage less taxes, etc … Tons of data here, but we’ll leave it at pretty well flat.
Gross Domestic Product
Just this past week the GDP was adjusted down to 1.3% for Q1 2024. That is two quarters of down GDP in a row (Q4 2023 was down). According to the Oxford Dictionary, “A recession is defined as a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”
So, it does not take a lot of imagination to realize we are standing on the front end of a recession per the data and definition. While this could help the easing of interest rates down the road a bit, inflation continues to run high.
Inflation
As of this article, the average price for gasoline is $3.58 a gallon. That’s up from $2.65 for the same time in 2020. Or, up 35%. Diesel is a real killer, though. It was $2.98, rising to $3.85 for the same period, or +29%. In just a few years the cost of filling a truck’s tanks (150 each tank) went up $261. And even worse are many food and medical expenses. And as one person shared with me, he won’t even go to the mall given the prices of everything.
Consumer
Personal savings are in the tank: 9% of credit cards and 8% of auto loans are delinquent. According to Experian, credit card debt went up to $17.1 trillion dollars. And given the variable credit rates tied to that debt, interest payments are going up.
Looking at the Experian data by generation, we find the following:
| Average Debt by Generation | |||
| Q3 2021 | Q3 2023 | Diff | |
| Gen Z | $2,282.00 | $3,262.00 | $980.00 |
| Millennials | $4,576.00 | $6,521.00 | $1,945.00 |
| Gen X | $7,070.00 | $9,123.00 | $2,053.00 |
| Boomers | $5,804.00 | $6,642.00 | $838.00 |
| Silent (Elderly) | $3,177.00 | $3,412.00 | $235.00 |
The consumer is in no shape to help us out. A quick look at RVs as comparison, we can sum it up in one sentence: In 2023 the market had its worst year in a decade. The first months of this year are not peachy either.
So what about Powersports? I use the term PI to identify the following markets: OEM, including personal watercraft, personal boats (non-commercial) all-terrain vehicles, snowmobiles, motorcycles; and IAM-related parts and accessories.
It is no secret that, like RV, the past year has been no friend of the PI market. Lots of market reports suggest that it was up and going higher right on through the decade. Didn’t work out last year, but here’s hoping for the future!
In the PI OEM, manufacturers are pulling back. BRP, Inc. (Bombardier, Can AM, Rotax, Ski Doo, Lynx, Sea Doo, Alumacraft and others) had a Q1 2024 sales drop 20%. Looking at their full fiscal year, 2024 revenues fell 12.5% and net income down 48.5%. Expectations are down for the 2025 fiscal year. BRP is consolidating manufacturing and reducing expenses where possible. And that’s also true for Polaris and the rest.
Just pulling out a motorcycle OEM, a favorite bike of mine, Harley Davidson, was +1% in sales for full year 2023, with a loss of 14% in operating numbers, which was an overall loss. In the IAM, sales are not a huge plus. Normally, when the OEM is falling, parts and service is up a bit to keep the older machines running. Especially true for on-road gear. But in talking with dealers, and as mentioned in PowerSports Business magazine, parts and service are down for all but a handful of dealers. And that’s important since the independent repair facilities are getting hard to find. So if dealers are down, the industry is down.
Also interesting — Outdoor Foundation Sports Marketing ranked outdoor activities following an in-depth survey in 2021, and I suspect the following holds close to true today: Running is “enjoyed” by 64.5 million people, Hiking, 58.7, Fishing, 52.4, All forms of bicycling, 51.4 million, followed by Car, Backyard and RV camping, 45.9 million people. Now you know what to talk about at your next party!
Anyway, here is the list as I see it at this point:
Service and Parts
Headwinds
- Disposable income down in real terms
- Inflation and price increases of parts and service
- Rising costs of tech labor
- Rising cost of gas
- Credit is tapped out, debt of the consumer
- High interest rates
- Depending on a fixed definition, on the front end of a recession
Tailwinds (always looking for the bright side)
- Fix existing equipment in lieu of buying new sooner than OEM
- Customization of existing equipment
- Bring in more women — men are 85%+ of the customer base today
Who Knows?
- Electrification
- Weather for seasonal sports
- Government, federal, state and local actions
- DIY/online growth if any
- And the big elephant in the room, elections
That’s the lot. And no doubt I missed a couple, and no doubt some would take issue with me on a couple of these. The bottom line is that the industry is coming off of a hard 2023. And, given the first quarter and all indications, 2024 isn’t looking so sweet either.
Now is the time to seriously get to work on cutting costs and being more strategic with your marketing dollars. Whether you are making money or not. My father and grandfather always taught me that smart business people are able to weather the storms. It is those who play fat, dumb and happy when times are good that the roof falls in on when the storms appear.
And when, or if, there are a few spare moments, you could always go have a coffee with an RV dealer. Likely they’ll know your pain. Finally, pray and look forward to the future. These times can’t last forever.
At a young age, industry veteran Tom Langer started detailing cars for his family’s dealerships, which then led to work in the jobber and warehouse business, along with a machine shop and auto body shop. He held a variety of positions with an auto parts manufacturer for 10 years, and remained in the industry working with shops, warehouses and manufacturers in research and more.
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