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INDUSTRY LAST QUARTERLY UPDATE
Motorcycle Dealers 12/29/2008
CONTENTS CATEGORY RELATED PROFILES
Industry Overview Retail; Transportation,
Quarterly Industry Update Energy, and Storage
Business Challenges • Automobile Dealers - Luxury
Trends and Opportunities SIC CODES • Automobile Dealerships
Call Preparation Questions 5571 • Automotive Repair Shops
Financial Information • Boat Dealers
Industry Forecast NAICS CODES
Website and Media Links 441221
Glossary of Acronyms
Motorcycle dealers include about 4,500 stores with combined annual revenue of $15 billion. No major
companies dominate; most dealers have a single retail outlet. Large dealers, like American
Powersports, are regional and consist of 20 or fewer stores. The industry is highly fragmented: the 50
largest companies represent just 10 percent of industry sales.
COMPETITIVE LANDSCAPE
Discretionary personal income and interest rates drive demand, since motorcycles are high-ticket
purchases and often financed. The profitability of individual companies depends on volume and sales
of higher-margin goods like heavyweight motorcycles. Large dealers have advantages in broad
inventory selections and negotiating power with manufacturers. Small dealers can compete effectively
by providing superior customer service or offering unique services, like bike customization. Annual
sales per employee average $300,000.
Major competitors include private market sellers, other recreational vehicle dealers, service center
chains, and independent service shops.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major products include new and used motorcycles, scooters, motorbikes, ATVs, and snowmobiles.
New motorcycles, scooters, and motorbikes account for 60 percent of sales; used products for 15
percent; ATVs, snowmobiles, and golf carts for 15 percent. Other products include boats, jet-skis, and
go-carts. Apparel, parts, and accessories are known as aftermarket products. Most products sold by
motorcycle dealers are known as power sports products. Many dealers offer repair, maintenance,
customization, installation, or insurance services.
Touring and cruiser motorcycles are designed for comfort and long distance rides. Custom
motorcycles emphasize style and owner-selected features. Performance or sport motorcycles are
designed for superior handling, acceleration, and racing. Dual motorcycles are designed for both on-
and off-road use. The strength of a motorcycle engine is measured in cubic centimeters (cc’s) and
ranges from 50cc to 2300cc. Heavyweight bikes have engines with 650cc or greater.
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New motorcycle dealers have dealer or franchise agreements with major manufacturers, which give
the dealer the exclusive right to sell new vehicles within a given territory. Depending on the
manufacturer, franchise agreements may require dealers to prepare vehicles for sale, achieve specific
customer satisfaction ratings, provide repair service, or follow pricing guidelines. While most dealers
represent an average of two franchises, 80 percent of Harley-Davidson dealers carry Harley products
exclusively. Used or non-franchised motorcycle dealers are generally smaller than new. Used dealers
derive the majority of revenue from parts, accessories, and apparel.
A typical dealership averages 25,000 square feet, and may include offices, showrooms, and service
facilities. Similar to retail superstores, large dealers may exceed 100,000 square feet and stock
hundreds of motorcycles. New dealers generate about $5 million and sell about 250 new and used
motorcycles annually, according to the Motorcycle Industry Council. Used dealers generate $500,000
annually and sell about 20 used motorcycles annually.
Most dealers carry multiple brands at various price points to appeal to the widest range of customers.
New dealers carry an average of 80 motorcycles, used dealers average 15. New dealers try to limit
sales of carryover products, or products in inventory after the release of new models. Limiting
carryover qualifies dealers for manufacturer rebates to help clear old inventory.
New dealers buy directly from major manufacturers or distributors. Honda, Harley-Davidson, Kawasaki,
Yamaha, Suzuki, and BMW dominate the motorcycle manufacturing industry. High-volume sales allow
large dealers to qualify for additional marketing funds and sales incentives. Used dealers buy from
individuals, distributors, and through the Internet.
Most new dealers use computerized Dealer Management Systems (DMS), like Proquest Sports or
MIC Software, to support administrative, financial, sales, service, and parts management functions.
Many DMS are capable of transmitting point-of-sale (POS) transactions directly to manufacturers or
distributors.
SALES & MARKETING
The typical motorcycle owner is a 40 to 50 year old, married, educated, relatively affluent man. An
increasing number of women are buying motorcycles.
Primary marketing vehicles include local TV, radio, print, and outdoor advertising. Manufacturers may
offer cooperative advertising programs that give dealers incremental funds for each bike sold the
previous year. In addition, dealers may act as hosts to motorcycle clubs, and sponsor rallies or group
rides. Dealers may offer manufacturer rebates, low-interest financing, or no money down to customers.
Most dealers have websites that offer store and product information. According to the Motorcycle
Industry Council (MIC), almost half of dealer websites allow customers to place orders; the most
common purchases are parts, accessories, and apparel. Internet orders account for about 5 percent
of sales for new dealers and 30 percent for used. Motorcycle manufacturers with retail websites may
pay dealers to fulfill orders at a local level.
The average price of an imported sport motorcycle is between $7,000 and $16,000; $6,500 to $28,000
for a Harley-Davidson, and $35,000 and $80,000 for a custom-built motorcycle. In 2003, the average
profit margin for a new or used motorcycle was $1,000, according to Powersports Business.
FINANCE & REGULATION
Cash flow is seasonal, especially in cold weather states, and peaks during spring and summer.
Inventory builds during fall and winter, making dealers highly dependent on floor plan financing,
either from manufacturers or commercial banks. Interest rates can vary greatly, depending on the
prime lending rate, type of product financed, and how long a product remains in inventory. Dealers
offer consumer financing primarily through manufacturer credit programs and commercial banks, and
are paid for originating loans.
Manufacturers periodically review dealer performance: consistently poor sales can jeopardize franchise
renewal.
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The EPA regulates emission standards for motorcycles, and states have different laws regulating
helmet use and child riders. Many states sponsor motorcycle safety classes, which may be held at
local colleges or dealers. Federal, state, and local laws govern managing and disposing of hazardous
chemicals used for service and repairs.
REGIONAL & INTERNATIONAL ISSUES
The top four states for dealers are California, Texas, Florida, and New York. Although motorcycle
riding appears to favor warm weather states, even Midwestern states have a significant share of
dealers.
Foreign manufacturers dominate the motorcycle industry. True imports (products manufactured outside
the US), primarily from Japan, represent over a quarter of the motorcycle market. Due to historical tariff
issues, many foreign manufacturers have US-based subsidiaries and assembly plants.
HUMAN RESOURCES
Few specialized skills are required to work in a motorcycle dealership, although most sales staff are
passionate about riding. The average wage is 10 percent lower than the wage of the average US
worker. Some dealers compensate sales staff using commissions. According to the Motorcycle
Industry Council, new motorcycle dealers have about 15 full-time employees; used motorcycle dealers
have about three.
The industry injury rate is significantly below the US average.
Sales Fall for Motorcycle Dealers - US sales of motorcycles and related products, including ATVs
and scooters, dropped 10.7 percent in the first nine months of 2008 compared to a year earlier,
according to webBikeWorld. The decline was due in part to a 25 percent drop in ATV sales, which have
seen similar decreases each quarter of 2008 when compared to 2007. Off-highway motorcycle sales
decreased about 29 percent, and street bikes fell 2 percent. The bright spots were sales of scooters,
which grew about 50 percent, and dual sport bikes for on- and off-road use, which rose about 29
percent.
Dealers Vie for Holiday Dollars - US motorcycle dealers and sellers of power-sports products such
as ATVs and personal watercraft report a variety of strategies for drawing customers to stores during
the holiday season amid a shaky economy. Almost half of dealers planned to offer special sales or
other discounts, and about 17 percent planned to increase their advertising budgets, according to a
survey by Powersports Business. Some 11 percent of dealers planned to hold additional special
events; only 6 percent had no special plans.
Motorcycle Imports Increase - US imports of motorcycles, bicycles, and parts, which represent a
significant share of sales for motorcycle dealers, rose 1.5 percent in the first nine months of 2008
compared to the same period in 2007. Japan is the top exporter of motorcycles to the US market, but
imports from Japan dropped 17 percent. Imports from developing countries saw significant gains;
imports from China grew about 25 percent; Taiwan, about 24 percent; and Thailand, about 29 percent.
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US consumer spending, a driver for motorcycle sales, rose 3.2 percent, primarily from nondurable
goods expenditures, in October 2008 compared to a year earlier.
The average US retail price for diesel and regular gas, which may influence consumers' transportation
preferences, dropped 26.8 percent and 44.7 percent respectively in the week ending December 15,
2008, compared to the same week a year ago.
CRITICAL ISSUES
Dependence on Disposable Personal Income - Most motorcycles are considered recreational or
luxury items,; as such, purchases depend highly on disposable personal income. During the 2001
recession, unit growth of motorcycles slowed significantly after growing for five consecutive years.
Tough economic times cause consumers to delay large purchases or buy less expensive models,
affecting dealer sales and profitability.
Interest Rates Affect Affordability, Dealer Profitability - Changes in interest rates affect dealers’
cost of financing inventory and consumers’ ability to buy motorcycles. Although most manufacturers
offer subsidized floor plan financing, rates can be volatile and depend on the product financed and how
long the product is in inventory. About one-fourth of motorcycle purchases are financed; high interest
rates can detrimentally affect sales.
OTHER BUSINESS CHALLENGES
Seasonal Sales - A large percentage of motorcycle sales are during spring and summer, especially in
cold weather states. Manufacturer shipments are relatively even throughout the year, requiring dealers
to build and finance inventory during fall and winter. Periodically, some manufacturers (especially high-
end) cut production due to weak demand nationally, further limiting a strong dealer’s ability to maximize
sales during the key selling season.
Dependence on Few Foreign Manufacturers - Foreign manufacturers dominate the motorcycle
industry; in fact, imports represent a quarter of the market. Five of the top six motorcycle
manufacturers are foreign companies, most having plants based in the US. Changes in foreign
economic conditions, US trade policies, and fluctuations in exchange rates can affect dealer
operations.
Complying with Franchise Agreements - Manufacturers have a great deal of control over dealers,
and can terminate relationships for a variety of causes. Dealers must maintain customer satisfaction
levels and have to seek manufacturer approval to acquire other dealers. Since only six companies
dominate the motorcycle manufacturing industry, strong relations are critical to maintaining franchises.
Consumer Safety Concerns - The main reason consumers don't buy motorcycles is due to safety
issues. According to the National Highway Traffic Safety Administration (NHTSA), between 1997 and
2004, motorcycle-related fatalities increased almost 90 percent, driven by a growing number of deaths
among riders over 40. In addition, an increasing number of fatalities involve heavyweight motorcycles.
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BUSINESS TRENDS
Demand Continues to Grow - Volume for the motorcycle industry grew every year between 1993 and
2005, but household penetration is still only 5 percent, according to the Motorcycle Industry Council.
Market growth is likely to continue since the population of adults 45 to 64, the demographic most likely
to buy a motorcycle, is projected to increase 30 percent between 2000 and 2010.
More Retail Locations - Consistent volume growth has led many dealers to open new showrooms.
Between 1997 and 2002, the number of retail outlets increased by 20 percent, driving employment
increases of 40 percent. In addition, strong dealers may expand by buying under-performing dealers,
which may be run by motorcycle enthusiasts with little business experience.
Strong Growth in Specialty Bike Segments - Market share of specialty motorcycles is growing at the
expense of more traditional bikes. Between 1990 and 2003, market share of cruising and sport
motorcycles grew from 20 to almost 50 percent, according to MIC. Older riders appreciate the comfort
of cruising motorcycles and younger riders value the performance of sport bikes.
Gas Prices Affect Recreational Use - Most motorcycles are recreational vehicles and high gas prices
affect the cost of touring and pleasure rides. While higher gas prices make motorcycles an economical
form of transportation, high prices also decrease the discretionary income used to buy motorcycles.
INDUSTRY OPPORTUNITIES
Used Motorcycle Sales - Although almost 60 percent of motorcycles in use in 2003 were bought
used, only 15 percent of used bikes were through dealers, according to the Motorcycle Industry
Council. Most customers buy used motorcycles from private parties. Used motorcycles allow dealers to
target customers new to biking and less affluent customers.
Female Riders - Women are a small but growing customer base for motorcycle dealers. Women make
up 10 percent of the motorcycle owners, a quarter of scooter owners, and 15 percent of all-terrain
vehicle (ATV) owners, according to MIC. Across all categories, female ownership increased between
1990 and 2003.
Aftermarket Sales - Providing services and stocking the right accessories allow dealers to capitalize
on aftermarket sales. Between 1998 and 2003, sales of apparel, accessories, modifying equipment,
repairs, and maintenance almost doubled to $7 billion, according to MIC. On average, a motorcycle
owner spends $600 annually, mostly on accessories and on modifying equipment.
Service and Repairs - Dealers represent only 20 percent of the maintenance and repair market;
owners, friends, or relatives perform the majority of work. Dealers stock authorized parts and many
manufacturers require them to attend service-training programs. The growing market for specialized
bikes may drive riders to dealers for more complicated services.
Custom Bikes - In addition to transportation, motorcycles also provide riders with a way to express
individuality. Owners may stylize bikes through custom paint jobs, special graphics, unique seats, or
new wheels. Dealers can customize or offer motorcycles that are factory-customized. American
Ironhorse dealers offer riders multiple paint, engine, and wheel options, plus a factory warranty.
Alternative Power Sports Vehicles - Motorcycle dealers can realize additional sales from other
power sports vehicles, like scooters, ATVs, and snowmobiles. Sales of scooters tripled between 1999
and 2004, and many dealers carry scooters. Like motorcycles, ATVs and snowmobiles deliver an
exciting riding experience, and have similar demographics. Many motorcycle manufacturers offer other
power sports vehicles, and dealers can own the franchise for the entire brand.
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COMPANY BENCHMARK INFORMATION
Motorcycle Dealers
(NAICS: 441221)
12 Month Rolling Data Period Last Update October 2008
Small Company Data Sales < $3,875,371
Table Data Format Median Values
US Private Company Data
Aggregate Small Company
Company Count in Analysis 213 53
Income Statement
Net Sales 100% 100%
Gross Profit 19.3% 18.2%
Operating Income 2.1% 3.0%
Net Profit After Tax 1.7% 2.0%
Balance Sheet
Cash 7.4% 5.5%
Accounts Receivable 2.4% 1.0%
Inventory 52.4% 52.4%
Total Current Assets 62.7% 59.7%
Total Fixed Assets 6.9% 4.0%
Other Non-Current Assets 30.4% 36.3%
Total Assets 100.0% 100.0%
Accounts Payable 6.7% 6.6%
Total Current Liabilities 19.0% 18.8%
Total Long-Term Liabilities 0.8% 2.1%
Net Worth 80.3% 79.1%
Financial Ratios
Quick Ratio 0.31 0.31
Current Ratio 1.38 1.34
Current Liabilities to Net Worth 211.0% 204.0%
Current Liabilities to Inventory 91.0% 89.0%
Total Liabilities to Net Worth 234.0% 227.0%
Fixed Assets to Net Worth 25.2% 16.6%
Collection Period 3.4 2.2
Inventory Turnover 4.1 4.0
Assets to Sales 34.0% 38.0%
Sales to Working Capital 11.2 9.0
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Sales to Working Capital 11.2 9.0
Accounts Payable to Sales 2.0% 1.5%
Return on Sales 2.0% 2.0%
Return on Assets 4.0% 5.0%
Return on Investment 18.0% 22.0%
Interest Coverage 6.2 7.9
VALUATION MULTIPLES
Motorcycle Dealers
Acquisition multiples below are calculated using at least 9 private, middle-market
industry transactions completed between 3/1995 and 4/2007. Last update:
November 2008.
Valuation Multiple MVIC/Net Sales MVIC/Gross Profit MVIC/EBIT MVIC/EBITDA
Median Value 0.2 0.9 3.9 4.6
MVIC (Market Value of Invested Capital) = Also known as the selling price, the
MVIC is the total consideration paid to the seller and includes any cash, notes and/or
securities that were used as a form of payment plus any interest-bearing liabilities
assumed by the buyer.
Net Sales = Annual Gross Sales, net of returns and discounts allowed, if any.
Gross Profit = Net Sales - Cost of Goods Sold
EBIT = Operating Profit
EBITDA = Operating Profit + Noncash Charges
The domestic demand for US motorcycles and bicycles is forecast to grow at an annual compounded
rate of 3.3 percent between 2008 and 2013.
Motorcycle Demand Growth Levels
First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry
Economic Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro"
approach to modeling the economy captures the links between industries and the aggregate
economy.
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RECENT NEWS
OTHER INDUSTRY SITES
Bureau of Transportation Statistics http://www.bts.gov/
Government statistics on transportation, fuel usage, and safety.
MCN http://www.motorcyclenews.com/
News site.
Motorcycle Industry Council (MIC) http://www.mic.org/
Annual retail outlet and owner surveys – excellent source for statistics.
National Motorcycle Dealers Association http://www.nationalmda.com/
Trade association.
Powersports Business http://www.powersportsbusiness.com/
Excellent source for industry news, statistics, trends.
Ride To Work http://www.ridetowork.org/
Motorcycle-related transportation statistics.
webBikeWorld http://www.webbikeworld.com/Motorcycle-news/
News.
ATV - all-terrain vehicles
CC - cubic centimeter
DMS - Dealer Management System
HOG - Harley Owners Group
MIC - Motorcycle Industry Council
MSF - Motorcycle Safety Foundation
NHTSA - National Highway Traffic Safety Administration
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