More Potential Powersports Supply Chain Issues
Car and powersports dealerships are experiencing an inventory shortage that would have been unimaginable 2 years ago. It is more complicated than just unit shortage with parts and accessories both backordered and many with no firm ship date. This cuts into the bottom line in different ways. Basic front end margin on unit sales is only one source of revenue. Typically, we at least match and often exceed the initial unit sale with what are called ‘backend’ profits. Those include parts and accessories followed by the service department profits from installation. They also include the profits from the finance department who provide additional products like extended warranties, GAP protection and others.
I spent a substantial amount of time living in Beijing from 2009 to 2015 and I have many friends and business contacts there. I was there in 2020 when COVID broke out in Wuhan and returned to the United States only a few days before air routes were closed. That information was one of the reasons our dealerships were able to quickly prepare for the initial lockdown in March of 2020.
The last few weeks have been a constant flow of news and concerns from people about the severity of the COVID outbreak in China. Initially the lockdowns in Shenzhen and Jilin were alarming, but they pale in comparison to the Shanghai lockdown. Shanghai is an international hub, the largest container port in both China and the world and one of only four large-port Megacities. What concerns me is not the 2-week current lockdown, but what it might portend for the rest of 2022 if China is unable to control the spread of the virus. Most people in the US do not understand that China does not have an mRNA vaccine. With ¼ of the world’s population, uncontrolled spread will have a devastating impact.
The purpose of this article is to highlight some of the potential outcomes this situation may have on supply chain constraints in the powersports industry. Our Chicago dealership ranks as one of the top 5 Indian motorcycle dealerships in the US, and it is also one of the top 5 Can-Am dealerships (by volume). We have seen manufacturer cuts to our stocking orders several times and that was before the end of the first quarter in MY22. Preorders were a sales practice we have adapted to and promoted successfully. The Florida dealerships, while smaller, continue to lead the pace in the Southwest DMA for preorders. Our “$100 Order Any Motorcycle” campaign was very successful, and we have copied it to include Polaris Slingshots.
Early in the year Polaris let us know that we would not see a return to normal until the end of 2022. Even so, the situation has not improved and in some ways has worsened, especially with Can-Am. Still we have maintained the outlook that we just have to get through this year and then things will return to normal. But what if that is not the case? How can we prepare?
If China cannot successfully implement a zero-COVID policy without a vaccine, then the spread could cause supply chain problems worse than what we have seen so far. Even if an outbreak were able to be brought under control in 6 – 9 months, that length of time would certainly impact production and subsequent shipment well into 2023. If you are a dealership owner, I would ask you the same question I asked our owners – “If our major product lines were only able to deliver 25 – 50% of the units we receive, same period, 2023 vs 2022…. How do we survive?”
You must ask yourself, “What can I sell that doesn’t require inventory?”
For us that is paper and service. By that I mean extended warranties, tire and wheel protections, and insurance. We added insurance products to our portfolio late in 2021 and it has quickly become an important channel to add revenue.
Service will also become more important both to our bottom line and to our customer base. People are already hanging on to their existing machines because of the high price and wait times on new units. That means more maintenance, more hours, more breakdowns. We are already expanding our service department into a new building, adding bays, and hiring service writers, techs and parts experts.
Marketing this will require new strategies and new campaigns. The demographics are different than seeking out people to buy units. Many dealers (including us) minimize these offerings on our websites and in our promotions because our channel to drive people to this area is through unit sales. The time to start talking about this is now. The time to fill the void is now, before everyone moves into the market space to compete for territory. Now, when there is still enough time to craft strong concepts and experiment to learn what works and what doesn’t. To paraphrase Jeremy Iron’s character in Margin Call – “it’s a hell of a lot easier to just be first”.