How to Make a Million Dollars as a Motorcycle Dealer

You might have thought I was going to say: “Start with $2 million.” That’s actually the time-worn answer that some dealers will give you with a chuckle when discussing the financial reality of their chosen profession. Like any business, keeping score for the typical motorcycle dealership is largely a matter of numbers – revenue, costs, profits, number of bikes (sold, on the floor, etc), inventory (value, turns, etc.), service hours sold, technician efficiency, and many more metrics.

That being said, putting the motorcycle dealership under financial scrutiny and trying to define the path to success is not just a matter of profit & loss statements, balance sheets, and cash flow analyses. The day-to-day action steps that are taken to generate those numbers really speak to what this business is all about. In this, the first in a series of columns on the business of motorcycles, I’d like to lay the groundwork for future reviews of how the customer contact side of the business relates to the tough financial reality that every dealer faces…

 It’s Not Just About the Numbers

I’ve had more years in the saddle than I’ve had behind the counter, so my viewpoint regarding motorcycle dealerships is really flavored from the customer side of the equation. As a consequence, my dealer management activities always had the “voice of the customer” speaking to me loudly and clearly. The most successful dealers in the business have learned to hear that voice while paying careful attention to the money side of things. However, even the most effective dealerships must operate in the greater arena of market and economic reality. Let’s take a macro look at what has happened at the retail level for motorcycle dealerships in the United States over the past few years.

 The Big Picture

As identified in a recent Outdoor Industry Association study, the sale of motorcycles, gear, and accessories in the U.S. is about $10 billion per year. This dollar volume is divided among approximately 10,000 dealerships, independent shops, and a growing population of online sellers. Our coveted motorcycle business is just a tiny slice of the $16 trillion U.S. total economy.

As we crossed the bridge from the last century to more recent times, the retail motorcycle business enjoyed an unprecedented run of year-over-year growth. MIC (Motorcycle Industry Council) data shows that sales of motorcycles in the U.S. grew every year between 1992 and 2005, topping off at nearly 1,100,000 bikes sold in 2005 (includes on-road, dual sport, off road, and scooters). Sales in 2006 were a leading indicator of the troubles that were just around the corner. In 2006, sales dropped for the first time in more than a decade, slipping to just over 1,000,000 units. Then we got slammed by the recession of 2007-2008 which created serious downward momentum in motorcycle sales. Sales slid steadily and precipitously to about 460,000 units in 2012. A 58% reduction in sales volume over seven years spells big trouble in any industry. The effect was most keenly felt in the dealer community. Exact numbers are hard to come by, but industry experts feel that there were about 14,000 dealerships in the country in 2006. Since then, about 4,000 dealers have closed their doors. Even the mightiest of the mighty got hit hard. Harley-Davidson stated that 64 dealerships went dark between 2009 and 2010.

This included a lot of big “showcase” dealerships that represented many millions of dollars in revenue.

So far, 2013 U.S. sales numbers are only partially encouraging. Unit sales for the first 6 months of the year show a 5.2% decline in overall volume compared to the same period in 2012. There are some rays of sunshine in the gloom, however. Off-road unit sales are up by 5.4%. And, some manufacturers in the on-road segment are seeing renewed life. Sales of Harley-Davidson bikes are up 4.2% through the first 9 months of 2013, fueled by 20% growth in the third quarter alone. BMW is reporting 17.6% year over year growth through August. It’s the big Japanese brands that are dragging the on-road numbers down.

What’s It All Mean?

The data clearly shows that the industry is still undergoing a lot of distress with some real success stories mixed in. Dealer bike sales are still well below half their 2005 high point. Even though there are fewer dealers to handle the volume, there is still a tremendous amount of pressure on dealers to “move the metal.” By reviewing this industry-wide data, we have set the stage to increase the magnification of our motorcycle business evaluation tool. Now we can take a look at what your local dealer thinks about every day:  “What can I do to give my customers a great retail experience while maintaining a financially sound business?”

This review has been focused entirely on the sale of new motorcycles. There isn’t a dealer in business today that can exist by only rolling new units out the door. There are also used bikes to be considered. If we think of bike sales (new and used) as one bar on the sales chart, then we need to add two more. In our next column we’ll take a look at all three legs of the stool – bike sales, parts & accessory sales, and service revenue. Without these three legs standing tall, the dealership will wobble and possibly fall to the floor. Stay tuned.