Deal With It : Motorcycle Dealer Crisis

It used to be that when you wanted to buy a new motorcycle, you did so at a dealer near your home that offered multiple brands in the same store. Those dealers are disappearing, the result of manufacturers demanding retail exclusivity, and intense competition from internet commerce. It’s a trend that has made it very challenging for consumers to actually see or try out new motorcycles and accessories before buying. Has it hurt the business, or is it business as usual in the 21^st century?

In the motorcycle sales boom of the 1970s, every town had a motorcycle shop. These mom and pop affairs were the place where you ordered new bikes, parts for old ones, and got repairs done. These dealers were the only place to find motorcycle accessories, helmets and apparel, and if you were lucky, sound advice. In a world before globalization and the internet, the local shop was the source, often the only source, of motorcycle information and products.

For manufacturers, the independent dealer was a convenient and efficient distribution channel for their products, as well as a conduit for corporate propaganda and customer feedback. For dealers, the privately run, multi-brand shop offered the stability and glamour of associating with giant multinationals while operating their own business with a degree of independence. For consumers, the dealer was an easy access point to global products and services, through a local lens.

It was a business model that suited the times, but today that model is broken. The last few years have seen small dealers closing, large motorcycle retail conglomerates fail, and even the demise of some factory sponsored dealer initiatives. Is the dealer model of motorcycle distribution dead? If it is, then what will replace it?

The Ruins of a Walled City

The cracks in the dealer distribution model were visible a long time ago, with fundamental conflicts evident to most industry observers. The compact between manufacturer, dealer and consumer that has existed for over a century, in which the dealer acts as a middle man, was only acceptable because there was no other way to connect products to buyers. But even as consumers accepted the dealer middle man and his middle man profit, it was viewed as a necissary evil. After all the salesman is, perhaps, one of the most reviled professionals in society.

A private, local motorcycle dealer is a small business owner whose basic survival depends on consistent sales. If a brand being sold goes weak, then they need an alternative, stronger brand to lean on, all the while propping up the annual bottom line with repair services, spare parts and accessory sales. That is why so many dealerships carried multiple, competing lines of products from different brands.  It was a way of mitigating risk.

However, therein laid the first of many contradictions. If a salesperson is pushing a particular make and model in the store over a rival make and model of roughly equal specification, is it because they are convinced it is the better choice for the customer or because the store wants to be rid of it? The multi-dealer is representing both brands, so which brand is getting better representation?

Of course, as a private business the store will act in the best interests of itself, but if it’s the only bike shop in town as is so often the case in smaller communities, that means that one brand will come to dominate the region, a prospect that has short term benefits for the winning brand but long term net negative effects on the local motorcycle population. Often only a handful of dealers cover an entire province or state, forcing consumers to either chose from the few brands at arms length or travel great distances in order to get something else.

In consumer marketing, less choice equals a less robust marketplace, and that inevitably leads to reduced overall market size and shrinking sales. Today’c consumer can see everything, every motorcycle and accessory in existence, right on the phone in their pocket. When they discover that they cannot get what they want in their area, they may turn to what is available, but they may just as easily decide it is not worth it.

For a manufacturer, this is totally unacceptable.  They cannot leave potential sales on the table for lack of distribution, so sign up as many dealers as possible to cover as much territory as possible.  But they can never be sure of the quality of that representation, and always run the risk of having their hard won brand message diluted by the whims of a distant, independent small dealer who places their need ahead of the manufacturer.   At the same time cannot expect a small business to take on their product line only, given the great risk that represents to the dealer.

One Touch Purchase

With today’s smartphone shopping culture, where one can make outrageously complex arrangements such as ordering an international travel itinerary with a few swipes of a finger, it seems anachronous that motorcycle shopping is still largely limited to physically trekking to a bike shop on the edge of town. For a product as exciting and tactile as a motorcycle, it is a huge disservice.

Some manufactures have tried direct sale on the internet, but it is an uphill struggle. People fall in love with bikes when they see them up close, see how they look in motion with another rider, and admire their intricate balance of raw mechanical function with sensual, biomimetic forms. This is why internet shopping for a new motorcycle also fails to deliver. Unless you have seen and sat on the bike in question, squinting at a 1000 pixel representation of one on a 11” tablet isn’t going to cut it.

Zero Motorcycles, one of the very first electric bike brands, invented a system that attempted to address this problem. The company initially sold all of it’s products through the company website, while flaunting them to the public via a network of “reps”. These were individuals who didn’t really own a shop, but rather had two or three Zero bikes in stock, perhaps in a store front but typically in their homes, which they showed to prospective customers at privately arranged meetings or at motorcycle events. The reps were spared the huge costs of financing a large inventory and renting sales space, while earning a commission direct from Zero for each customer that followed through with a sale.

The plan didn’t work, largely because it was hard to figure out if a Zero bought directly in the company website was influenced by a rep or was just a straight click-through customer. Zero dropped the rep idea and signed on traditional dealers not long after.

CSC, a US importer of rebranded Zongshen motorcycles that received a lot of positive attention last year, only sells direct from its’ website. The company openly claims that this has been a major force behind their sales growth, expansion into new territories and helped keep prices low. Service and repairs are handled by drop shipping parts to any local motorcycle dealer consumers choose for warentee items, which CSC says has worked well so far.

Are consumers accepting this distribution system, and trusting it to keep them happy after purchase? CSC says so, besides which the CEO regularly states on forums and on CSC website “If you find the idea of buying a motorcycle on the internet uncomfortable, then CSC is not for you.”

It’s All In The Family

There are of course, other ways to connect new motorcycles to buyers. BMW, Suzuki and Honda have all sold motorcycles through their car dealerships all around the world. In the case of BMW, the presence of $75,000 luxury sports cars parked next to the staid full dress touring rigs added prestige, while a flashy Honda CBR Repsol replica could remind a dad buying the family Odyssey that life was still exciting. In all cases sharing dealership space reduced costs and in theory provided consumers with a level of after-sales care much higher than typically found in mutli-dealer motorcycle shops.

The truth, however, is less clear. Honda’s experimental Powerhouse dealer concept, in which super-sized retailers peddled everything from cars to lawn equipment met with a tepid response from motorcycle consumers. They felt, truthfully or not, that the motorcycles were being sold by car people, a claim Honda denies. But several powerhouse dealers in Canada closed, while some steadfast motorcycle dealers, many of which had been with Honda successfully for decades, lost not only their franchise but also many loyal customers.

The profit margins on mainstream motorcycle sales are not huge, especially when compared with margins on luxury cars. It is not difficult to imagine that the manager of a car and motorcycle dealership will place their business emphasis on four wheels sales, assigning resources to the tasks that will maximize new car inventory turnover.

Additionally, the culture of motorcyclists is fundamentally different to car culture. Nearly every biker drives or rides in a car, because cars, even expensive ones, are commodities. But motorcycles are fringe products in North America, and bikers are viewed with a combination of amusement and suspicion. The parts counter staff at BMW auto retailer are used to dealing with the broad spectrum of the car buying public, but are they ready to deal with a beardy cafe-racer type who not only wants to order head gaskets for his 1974 R65, but wants to talk about it in relation to the limited edition R90 too?

You Will Be Assimilated 

The multi-dealer may be on the wane, but the franchise dealership is still strong. No one does this better than Harley-Davidson. In nearly all regions of North America, Harley’s can only be purchased from large, centrally planned big box dealers that look more like acorporate embassy than a motorcycle shop.

Everything is curated right down to the smallest detail, from the colour and lighting inside to the number and type of motorcycles and accessories on display. Observed from the street or from anywhere inside the store, the Harley-Davidson dealership experience is slick and immersive.

The concept with this type of dealership is to hammer the customer (or potential customer) over the head with the brand values in the hopes that it sticks and leaves an indelible mark. To be the most effective, the brand message has to be completely consistent, something that cannot be left to the individual dealer owner. The result is the McDonalds of motorcycling: no matter where in the world you go, where you see the Golden Arches (or in our case, the Bar and Shield) you are guarenteed to find the same familiar feelings and enter a sanctuary for the brand faithful.

Canada’s own Bombarider Recreational Products (BRP) is pretty good at this too. If you go hankering for a Can-Am Spyder, then you will likely find yourself inside a BRP exclusive zone, surrounded by not other motorcycles but Can-Am ATVs, Evinrude outboard engines, and Skidoo snowmobiles. The colours, literature and apparel surrounding you will be saturated with imagery of impossibly good looking, active 20-somethings using multiple BRP products in the same weekend. It is alluring.

The negative side of these brand temples is that they cost about as much as their religious counterparts to build and run. To get a Harley-Davidson franchise requires significant, seven figure investment and that is not including bank guarentees of upwards of a million dollars for financing inventory. All those shinny new motorcycles on display are depreciating assets purchased first by the dealership, which they then have to sell on to customers. Every month they sit on the showroom floor the dealer is paying interest to the manufacturer, while watching their already tight dealer profit margin shrink.

Of course, the same is true for any dealership, including the mom and pop multi-dealer, but the smaller independents are not contractually required to absorb giant amounts of inventory every year, including models they know they simply cannot sell in their area. A Harley-Davidson dealer once said, off the record, that having Buell and V-Rod models in his shop made the difference between being profitable and unprofitable in lean periods.

Order Here, Collect At The Window

A future scenario for motorcycle distribution that someone is likely to try is the Apple model, where you can go to a wholly-owned and operated brand store, perhaps in a shopping center or mall, to see and demo a bike before going home to order it online. The motorcycle would arrive at your home or business with a representative that would spend a half hour demonstrating features and making final the transaction. If it sounds fantastical, or inapplicable to something as complex as a road vehicle, just look at Tesla. The young Californian car maker does precisely this, selling all of its nearly 60,000 luxury cars a year online. Tesla stores are really just demo centers, where one can see, touch and even test drive cars, but there is no lot and no inventory on site. Instead, Tesla makes the car to measure and sends it to the customer on a dedicated delivery service.

It may seem an unlikely scenario for, say, a $4000 scooter, but if recent business history has shown us anything it is that one should never underestimate the ability for the market to find efficiency. If Amazon can profitably deliver my motorcycle gloves to my dead-end, dirt road in rural Nova Scotia, from China, for free, in two days, then surely Honda and BMW can figure out how to send a van with a customer service rep here too.

Disrupted Distribution

The days when you could walk into your neighbourhood bike shop and chat with the owner about last Sunday’s race are not over, but they are less likely to happen going forward. The giant companies that manufacture 95% of all new motorcycles spend close to a third of their budgets on R&D and marketing, so that the brand message is clear and directly accessible to their target audience. Given that fact, what are the odds that they will continue to trust the final delivery of that multi billion dollar message to the hands of an independent motorcycle enthusiast in your community?

Whatever comes down the pipe, buying and maintaining a motorcycle is easier than ever before. We should not look at the future of motorcycle product distribution with aprehension but with muted hope. The online forum is the new bike shop, where one gets up to the minute advice. Ebay and Amazon are where you can find those previously impossible to get replacement parts. And finally, the manufacturer itself is where you will likely end up buying your next new motorcycle, if not now, then in the very near future.

It may seem cold, and many may rail against the loss of the local dealership. But it would be a historic first time that anyone has wept for the lack of a middle man. _________________________________________________________________________________________________________________ About the author  Michael Uhlarik is an international award-winning motorcycle designer with over 16 years of experience creating bikes for Yamaha, Aprilia, Piaggio, Derbi and many others.  He is a veteran motorcycle industry analyst and part-time industrial design lecturer.  He is based in Nova Scotia.