Tuesday, May 10, 2011

How the market has changed in less than a year

It's funny because I predicted a lot of what we've seen in the last two years. Back in 2008 I told an audience that the market was "unsustainable" at the current rate of brands, importers, and sales.

Someone just wrote me telling me the scooter boom is over because gas prices are going down back to $3. I told him he was wrong, check again. Yes, gas prices dropped on Friday of last week about 10%, but look again we are back at $101 a barrel as of today. That means gas will stay in the $4 range this year.

These swings have made forecasting a nightmare in the Scooter Industry. Underbuying, overbuying, buybacks.... some of the best known brands have been affected not by the sales, but by the buybacks. A small scooter distributor having to buy back 1,000 units in a year can drive even the most profitable business broke and that's exactly what happened to some of the best known names in the US Scooter business.

Since 2008 over 30 vehicle distributors have closed, 350 plus shops that MRP would sell to. This months the trades are reporting some thing industry insiders have known for a long time. Some companies have been operating based on borrowed time and others need the full support of the manufacturer to grow in this market.

STR sold its shares to Kymco in Taiwan to make Kymco USA a wholly owned subsidiary ( I reported this in April ), Genuine Scooters has new owners, and several well known brands like SYM are still trying to figure out what to do with the market.

Unless you are a wholly owned subsidiary like Piaggio Group ( Vespa ) or now Kymco its highly unlikely you can survive the twists and turns of the new Powersports Industry in bike distribution. Investors can put millions into ZERO motorcycles, Vectrix, and any number of new brands but GE and buybacks can easily eat them alive no matter how good the brand or tech. Small scooter distributors mainly mid-range or high end brands are not sustainable with these market fluctuations.

I've seen it all happen before. It will happen again. This will be a good summer, but investors expect very high returns when they buy into a company and if you can't deliver you can bet they will be upset.

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