We’ve left the mid-way point for 2021 in the dust and many powersports dealership owners and managers are beginning the planning process for 2022. Now is the perfect time for a quick review of the mid-year economic indicators. While the previous quarters delivered exceptional sales, there is no crystal ball that shows this level of growth will continue. Just as Sir Isaac Newton proved that all things that go up – will come down – the powersports market is still susceptible to market and economic conditions. Let’s take a look at some of this data and resulting prognostications.
Inventory and price markups
The Q2 2021 Powersports Business/BMO Capital Markets Dealer Survey showed that overall powersports inventory levels were too low for 91 percent of all responding dealers. ATVs, side-by-side units and personal watercraft appeared to be the largest pain points. Unfortunately, it appears that a return to pre-pandemic inventory levels will not occur in the near term. Supply chain issues, parts and chip manufacturing, and persistent COVID outbreaks continue to impact OEM production. For example, Renesas, one of the largest chip suppliers to the automotive and powersports industry was hit by a massive plant fire in March and does not expect to be back to full capacity until later this year. Add unit manufacturing to that and we are looking at the first quarter of 2022 before we see a significant uptick in units being delivered to dealerships.
Tight inventory for new units has prompted increased interested in used powersports units. Previously considered a courtesy option for customers purchasing new, today’s dealerships are making the majority of their money through used inventory sales. This has resulted in growth in used powersports auction houses, and higher than average price markups. As unit prices go up, dealers are leaving a significant amount of money on the table by not leaving enough room for F&I product sales. They are also pricing many of the near and subprime consumers out of the market with LTVs that are too high for lenders to approve for consumers with lower credit scores, thereby shrinking their pool of potential customers.
Speaking of consumers, during the pandemic shutdown, many consumers ramped up their savings, holding tight to income and stimulus funds. According to the U.S. Bureau of Economic Analysis, the personal savings rate in March 2021 was 26.9 percent of disposable income. In June 2021, that rate dropped to 9.4 percent. Easing COVID restrictions, improved consumer sentiment, and growing employment numbers has spurred consumers to begin spending the $1.6 trillion dollars they saved in 2020 on services versus durable goods.
However, as we’ve seen within the powersports industry, inflation could dampen the consumer spending frenzy. According to Deloitte’s baseline economic forecast, core consumer price inflation could remain at 2 percent or higher over the foreseeable future. . With the current unemployment rate at 5.9 percent, continued labor market issues are impacting both consumers and employers. Spikes in virus outbreaks are also slowing consumer willingness to return to many front-line jobs, meanwhile businesses are struggling to fill open positions.
Given these economic indicators, what decisions should a dealer principal make when planning for 2022?
- Maximize profit at every turn – while it’s tempting to maximize profit on the front-end of the deal, it is bad business to inflate prices to the point where no profit can be made on the back end. Work with your sales and finance teams to encourage a healthy balance between both sides of the deal. This will ensure that every penny that can be made, will be made.
- Keep your lenders close – Customers who have a gap in employment or higher debt due to medical costs can still be great customers if you have the right lender to seal the deal. Interest rates are still low and lenders with strong reserves are looking for the right opportunity.
- Shore up your training – the industry is changing fast, and your team needs ongoing training to keep up with those changes, especially in the areas of online sales and compliance. Consider equipping your team with ongoing training options that include both in-classroom and online training to fit within their schedule and your staffing needs. This will help keep your team members ahead of the curve without disrupting your sales numbers.