Electric Scooter Briefing November 29

Special Reports

Dry Spell - 2010’s Poor Motorcycle Harvest

Western markets are in a state of redefinition.  With economic pressures, lack of credit, and the massive sales collapse in the premium sector since Q4 2008, an industry stuggles to rehabilitate, with subsequent lack of new product.  MMW examines the fallout the crisis has had on R&D, new products, and the future of premium motorcycles for 2011.

Dry County

In Western markets, motorcycling is a enthusiast driven sport, where even the vast number of practical commuters take their cues and pay homage to the recreational bikers who pay significant premiums to enjoy performance, status and image.  The profits gleaned from sales of premium motorcycles, motorcycle accessories, and related products in a handful of European markets and the US generate such high margins as to render all others of seemingly secondary importance.  While a small urban dealer in a volume market such as Indonesia or Brazil may need to shift a dozen vehicles a month to be considered cash rich, a similar dealer in Britain, Italy, or California may only need to sell three.  Additionally, the typical new motorcycle purchase in rich markets also includes the sale of apparel and accessories worth upwards of 30% the total price of the motorcycle (in developing countries helmets or other dedicated gear do not have the same status or legal requirements).  With mark-up on such items often in the 40-80% range, the Western dealer could expect to make a handsome profit on a relatively small investment of sales time.  

With this profit structure, and in the climate of pre-recession times when easy credit and status-driven purchases flooded the market with eager consumers, dealers expanded facilities and inventory, often beyond reason.  In North America, a worrying trend was the steady decline of the low volume, multi-brand dealers that had been a sustainable model of distribution since the motorcycle market crash of the early 1980’s.  Several of the biggest OEMs, such as Harley Davidson, Honda and Yamaha began insisting on single brand franchises with hefty minimum investment and an inventory buy-in that eliminated many of these smaller dealers in favour of “big box” style super showrooms.  Other brands, like Ducati began to create boutique dealerships in high profile urban areas to boost their image to the high income city dwellers they wanted to attract.  While these strategies undoubtedly increased brand presence and consolidated messy overlap in some territories, they drastically increased the fixed overheads and the break-even point to keep them profitable.  

The very sudden disappearance of regular new customers and existing ones making periodic upgrades put an immediate strain on a dealer network stretched out on credit and on a business model dependent on a reliable stream of revenue, just like most consumers themselves.  Within the first 6 months of 2009, it became clear that stock of unsold new motorcycles was unmanageable and all OEMs dramatically cut production and shipments of new motorcycles, notably Suzuki USA which declined to import any new motorcycles for the 2010 model year.  Many traditional, small mutli-brand dealers made do by peddling lesser known, low cost Asian imports and accessories while many of the independent super showrooms began to collapse.  

Stunted Growth

The international trade show circuit and new product launches in 2008 and 2009 were severely curtailed in this environment.  Press releases in the winter of 2008 from Kawasaki and Honda revealed the extent to which cuts had to be made.  Not only were the entire racing programs scrapped, but so too was support for most existing contract teams.  Neither they nor any other Japanese OEM attended the EICMA motorcycle show in 2009, and the tiny number of new models launched by the majors were trickled into the public consciousness via discreet press events, a far cry from the extravagant product launches of a few years ago, when OEMs would wine and dine members of the media for days in exotic locations as far afield and the Canary Islands, South Africa or Australia.

The public that feeds the industry in developed world markets is, as stated, the affluent enthusiast.  Now on the cusp of financial recovery, the market is opening up slightly, revealing not only a fraction of that former staple consumer, but also a newer, cost  conscious and needs-focused one.  As MMW has reported in the past, the intersection of a reinvented economy, the arrival of electric start ups with tantalizing new products, and a hungry consumer base after a two year dry spell, creates a scenario that should point to a bumper year for exciting new models.  Unfortunately, the severe cuts by OEMs at the start of the recession - particularly Yamaha, which had to buffer the worst year in their history with a staggering losses of over $45 million - also meant an almost complete halt to new product development.

Knee-High by July

As with agriculture, in industrial development you reap what you sow.  The average new motorcycle program for a major OEM takes 36 months, for a clean sheet design.  This means that for the 2011 model year, any new models we will see in this autumn’s harvest at the EICMA will have to have been started in late 2007, 2009 at the earliest for derivative models.  Given what we know about the state of investment during that period, and the lack of teasers, leaks or hints coming from major OEM press releases as of mid summer, it is safe to assume that this will be a poor year for new motorcycles.

Of course, this pattern has not been the case for the smaller Legacy brands, most notably BMW and Ducati.  Both have surprised and delighted the premium buying public in recent years with significant new model launches, such as the class leading BMW S1000RR superbike and Ducati’s reinvention of the all-road Multistrada.  Both showcase world-first technological innovations, like traction control and active suspension, as well as a feature not normally connected with European Legacy brands : attractive pricing.  The response from both press and public to these and other European novelties has been overwhelming, highlighting the vacuum left when the Japanese stopped punching out new products at their usual fast pace.  It has also served to shift public expectations and momentum towards these medium-sized companies for the first time since the 1970’s.  Globally, as MMW reported in Q1, Japanese brands still dominate sales, but if the consumer base in the US and western Europe is focused by a so-called hard core of enthusiasts, then the Japanese brands have lost their position of perceived authority.  Only new and genuinely exciting motorcycles will tip the market’s favour back towards them, but those new products are not likely to be seen anytime soon.

Navel Gazing         

Two significant new products launched by leading manufacturers in the past 12 months have presented a window into the last of the good times R&D.  In 2009, Honda finally presented the long awaited and long hyped VFR, promising to deliver a technological tour-de-force in the Honda tradition.  Now uprated to 1200cc, and with a novel dual clutch electronically controlled transmission, it was meant to crush the opposition with its ease of use, comfort and radical new styling direction.  Similarly, Yamaha unveiled the Super Ténéré, a new take on their classic Ténéré sub-brand that invented the modern all-road adventure motorcycle genre in the early 1980’s.  Like the Honda, Yamaha filled the spec sheet with impressive numbers, performance and hype that purported to boast of its impressive capabilities, and ground-up new design.

Both of these products are the result of many years of R&D and planning, but it is immediately clear that they also represent obsolete industrial thinking.  An over-dependency on focus groups, past market performance and a myopic view of specification that exaggerates the importance of features has bloated these and many other Japanese flagship models into overweight, overpriced and over-designed white elephants.  Both these examples and other recent models have met with wide criticism, notably concerning disappointing performance, the traditional Japanese strong point.  

Of course, currency fluctuations and the suddenly high dollar-yen exchange rate inflated prices for Japanese-manufactured motorcycles, but this is a only part of the problem.  Both Honda and Yamaha in the proceeding good years failed to capture a brand status that could absorb premium pricing in the upper market sectors.    Where there is no genuine competition, like for example, against Honda’s Goldwing, they can charge generously.  Elsewhere, prices being near equal, customers will generally favour Legacy brands.

False Harvest

As we head into the fall international trade show season, first with CIMA Motor (China International Motorcycle Trade Exhibition) in October, then Intermot and finally EICMA, the entire industry is bracing itself for another year of collective disappointment.  Already editors of magazines in the US, Canada, Italy and the UK, have made it clear that expectations are low.  The new austerity seen in everything from political policy making to individual spending, has all but eliminated the once lavish new product launches and splashy press introductions.    Trickle-in press releases, grass-roots social media campaigns and blogged video “leaks” are the new direct route to the public.  They are effective, but don’t yield the same “wow” or immediately measurable response OEMs have depended on for years.

Clearly, examples like the VFR and Ténéré show that the key drivers of new motorcycle model success are no longer add-on specification.  But neither is today’s motorcycle market concerned only with pricing.  Each new purchase demands more consideration, so any successful model must embody not only rational advantages such as cost of ownership and usefulness, but appeal to the raw emotional needs intrinsic in riding any motorcycle.  Simply offering a technologically solid product at an attractive price is not enough in the post-recession Western world.  and the competition will for their attention will be fierce.  The brand that discovers the right message, and finds a gentle balance between tangible versus intangible needs will reap a bountiful market for the next generation of consumers to come.

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