Now that 2020 has wrapped up, many OEMs are beating the drums about the significant year over year growth they saw last year. Don’t believe the hype.
While there was significant growth last year, a percentage of that growth was related to non-current inventory that dealers were able to retail. The pandemic created some unique market distortions. Dealers were not only able to clean out significant amounts of old-age inventory, they were also able to sell it at a profit. Looking back, I can find no time in the past where Powersports, Marine, and RV dealers benefited so greatly (or at all) from a global recession.
Since the recession of 2008/2009, manufacturers have effectively leveraged record low interest rates and “free” flooring programs to load up dealers with more and more inventory. In my 20 Group meetings, I often accuse dealers of having turned over their inventory management to the OEMs. The data for each industry backs that up. Looking at 2019 year-end new unit turn ratios, it’s clear that dealers have developed poor inventory management skills, if they have any at all.
New unit turn ratios by industry
- Powersports – December 2019 – Turn Ratio of 2.1 to 1
- RV – December 2019 – Turn Ratio of 2.0 to 1
- Marine – December 2019 – Turn Ratio of 1.8 to 1
These metrics are atrocious. With a flat seasonal trend, these stats show the average dealer had about 6 months of inventory in stock. 15 years ago, a dealer with turn ratios this low would have quickly gone out of business. Over the last decade, the only thing that has stopped dealers from filing for bankruptcy is extremely low interest rates.
Depending on the market cycle, inventory can represent either opportunity, or risk. Over the years, many OEMs have done a great job of removing the risk from their balance sheets, instead placing more and more of it on the dealers who represent their brands.
To accurately gauge the real growth of the industry in 2020, we should be looking at current year models sold during the calendar year, and comparing that to current units sold during 2019. Using this standard, true growth in 2020 would most likely end up in the low single digits.
Dealers continue to ask me my thoughts on when things will return to normal, my response is always the same, “why would anyone want it to”? Manufacturers are not having to subsidize free flooring, they aren’t paying rebates, bulk purchase discounts are not being offered, and travel and entertainment budgets are at all-time lows. Some manufacturers are having to hire new employees to count all the new money they are making. Why would anyone want things to return to normal?
The pandemic represented a one-time opportunity for dealers to reset, one that we might never again see. Take back control of your inventory. Develop an Inventory Management Plan. Set a new unit turn ratio of at least 3 turns and stick to it. Know what sells in your market. By brand and model, stock what’s hot, drop what’s not.
Don’t get hooked on “free” flooring, because it’s not free. Don’t fall back into that inventory trap.
#Powersports #Marine #RV #Inventory #TurnRatio #FreeFlooring