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New Personal Watercraft Protection from EFG Diversifies Powersports Dealer Profits

School may be back in session but summer lingers for many parts of the country. In fact, autumn is a preferred time to be on the water for many, with fewer crowds and more pleasant temperatures to spend valuable time with family. Your customers are still clamoring to get on the water – but do you have the inventory to meet demand?

Personal watercraft sales have skyrocketed during the pandemic, and the trend shows no signs of slowing. According to 360MarketResearch, the market will register a 6.2 percent compound annual growth rate in terms of revenue, with a global market size of $2059.2 million by 2025. But powersports dealerships are struggling to stock inventory, sticker prices for units on the lot are rising, and supply chain challenges have impacted manufacturing timelines. Whether looking for new or used vehicles, the squeeze is real.

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Powersports Market

Mid-Year Economic Indicators

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.

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Compliance

Yes – Regulatory Compliance Matters

The powersports industry has been on a profitable roll for several quarters with the majority of dealers exceeding sales expectations. Low interest rates and a recovering economy bode well for strong revenue for the remainder of the year.

While revenues look strong, regulatory oversight is also building momentum. New leadership within the CFPB has signaled through their rulemaking agenda that automotive lending practices will garner increased scrutiny. New legislative bodies within state and local governments in many areas have followed suite to respond to discriminatory lending practices and perceived predatory consumer behavior.

Now, you may be thinking that you are insulated. After all, the CFPB has jurisdiction over lenders and Buy Here Pay Here Dealers, not you. It’s important to remember that under the Consumer Protection Act, state attorneys general can levy fines against retail auto and powersports dealers under the Federal Trade Commission. This means that your powersports dealership is just as likely to be hit with large fines as the auto dealership down the street. So, what can you do to protect your business?

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