Charles Strand of “Iron Horse Of Texas” sent me the following letter. In it, he explains his views on the state and the future of the “mass produced custom motorcycles” market. It’s long but worth reading it. As always, I welcome your comments.
“In the 5 years that I’ve been on the retail side of this very unsophisticated industry, I’ve seen an evolution that any good business person could have predicted many years ago. For 6 years prior to becoming a Dealer, I was on the manufacturing side of the industry as a founder and Board member of American IronHorse. Prior to 2004, when we opened Iron Horse Of Texas, the demand for Customs far exceeded the supply and bad industry attitudes were developed. Unfortunately, many of those big egos and bad attitudes still exist today. Attitudes from manufacturers that Dealers are lucky to get bikes and have someone willing to take their money. Attitudes from Dealers that customers could take it or leave it as supplies were limited and therefore justified a price $3000 to $10,000 over MSRP. Because of these attitudes, the door opened for more competition, everyone with a tattoo and an attitude wanted to get into the Bike Business… and did! Regardless of what anyone thinks, the “Bike Business” is still “Business” and without good inventory management, good customer service, good consumer financing… there won’t be a custom market.This last year in Sturgis, at the request of American IronHorse (AIH), and along with 5 other AIH Dealers, I oversaw a “Prior Year Model Close-Out Sale” at the Sturgis Rally where we sold over 100 motorcycles in 8 days. I’ve heard remarks from some of our “Industry Icons”, “Industry Idiots” would be more accurate, as to how we “prostituted the market” by selling new 2005 & 2006 models at $6000 to $8,000 off normal MSRP when 2008s were being released. This demonstrates the ignorance that dominates our industry. During the same time frame, you could buy a new 2007 Hummer (1 year prior model), Corvette or Cadillac for $10,000 to $12,000 off MSRP, 2006s at $15,000 Off! It is the common practice of smart Dealers and Manufacturers to clear out old inventory at discounts. We were selling bikes that were 2-3 year prior models at discounts less than car, boat and RV Dealers were selling 1 year prior models for. Only an imbecile would call this bad business!
Manufacturers have forgotten that the Dealer is their customer and have focused on the intoxicating attention they get direct from the consumer and the media. In past years you saw every back yard builder and Wanna-Be CEO getting their pictures in magazine ads, their girl friends and wives all became bike models and executive assistants and people who could barely spell their own names soared to celebrity status. The industry suffered a “popularity overdose”. Good business practices were thrown out the window. Almost everyone involved in this industry over borrowed, over leveraged, over estimated and under achieved. Now the entire industry is poised for one giant enema, a cleansing long overdue!
As one of the top Factory Custom Dealers in the U.S., I receive 3-5 emails a week from manufacturers who think the answer to slow sales is to strong arm Dealers into buying more of their bikes. Manufacturers who made millions during the “demand exceeds supply era” and now have no idea how to survive in today’s market. People who have clouded their mind to such a degree that they no longer realize that it doesn’t matter how many bikes a Dealer buys, it’s how many they sell that will determine the success or failure of the brand. Here’s my prediction; of the dozen or so companies that make up the main players of the Factory Custom Motorcycle market, 2-3 will survive. Most of them will be taken over and restructured by better business people with more common sense than ego. Eventually, manufacturers will realize that it’s not about them, it’s not about the bike… it’s about the Dealer… and even more so the Salesperson on the Dealership floor. The Dealer who is aggressive and smart enough to know how to market cost effectively and get people into his store and the Salesperson with the ambition, training and the right tools to “close the deal”…that’s where the market potential is, it has little or nothing to do with what brand we are selling. If it was only about the bike, or the market, or the manufacturer… you would see the most sales in the largest territories, plain and simple. Instead, each manufacture, if they will be honest, will admit that the places where they sell the most bikes are where they have the best Dealers. I’ve sat through dozens of so called Dealer Meetings where some “Marketing Expert” from the manufacturer, who likely has never stood on a Dealership floor and sold bikes, stands up and tells us what we are doing wrong or how to increase our sales. In almost every case, I’ve found this to be a good lesson on what not to do! The bottom line is that they have all lost their ability to listen and will soon be replaced with business people with better hearing. Every manufacturer in the Custom Industry is currently in financial trouble. If they don’t figure out what the real issue is, they will all be gone soon.
We sell 250-300 bikes a year from our Dealership in Fort Worth, Texas and turn a modest 400K-500K profit from it. Not like the big boy HD Dealers, but a decent living. We’ve been the top American IronHorse Dealer for the last 4 years. I have screamed, preached, begged and threatened to try and get one of these arrogant manufacturers to step up and realize that the key to this business, as with the boat, RV, exotic cars or any other “luxury purchase” business is good consumer financing, and they have all rolled their eyes and turned the other way. The fact is that they need us, the Dealers, a lot more than we need them. A good Dealer can sell anyone’s product. In 2007, we sold 267 motorcycles, a little over 8M in sales and had a little over 500K in net income as a sole proprietorship. We are in a “B” market, Fort Worth, Texas and have a competitive American IronHorse Dealer, who also believes he’s an “Industry icon”, 36 miles from us. For most of 2007, we had a reasonable source for C&D credit score buyers (550-640), Loud Financial. In October of 2007, Loud Financial bowed out of the Custom Finance market and we lost over 40% of our business and had to go back to sources like HSBC & GE Credit, who will only do A&B Credit deals, 640 scores and above. For the year 2007, 62% of the bikes we sold were to buyers with credit scores under a 640, 2% were cash deals and 36% were A&B tier buyers. Anyone should be able to read between the lines and realize that the key to survival in this industry, or any similar industry, is sub prime finance, without it there won’t be a Custom Motorcycle Industry much longer.
So to all of the manufacturers that continue to blame the Dealers for your decline in sales… wake up, get off your back sides and secure some reasonable finance sources so that your Dealers have a fighting chance. Victory does it, Harley does it… everyone that is “making it” does it. The car business, the RV business, the Boat business… and believe it or not, the motorcycle business… cannot possibly survive on A&B Credit Buyers alone. 3/4s of the U.S. population has a credit score below a 640… including most of you “Industry Icons & Custom Manufacturers”. As a manufacturer, you have a much greater ability to approach finance institutions than a Dealer does as you represent a much larger portfolio and a controlled source for liquidating repossessed units. Anyone in the “non-metric” finance segment will attest that it is good performing paper as bikers almost always prioritize around their bike. But it is significantly harder for a Dealer to approach a lender than it is for a Manufacturer representing a large group of Dealers. According to a top level Bank Of America source I recently met with on this issue; “The American made motorcycle financing is the best performing paper we have out of all other categories…”. It’s not a new concept, it’s what HD did with Eagle Mark that got them to where they are today. It’s what Victory does with “Polaris Acceptance” which is funded by GE. Do your jobs, support your Dealers… or you will soon say goodbye to the Custom Bike Business!
I don’t expect too many manufacturers or Icons in this industry to agree with this reality, but it won’t matter as most of you will likely not be around much longer anyway… I will!” Charles Strand, Iron Horse Of Texas, Sun Water Systems, Inc. Doss Holdings, Inc.