Powersports outlook up despite macroeconomic pressures

Powersports industry leaders are confident in the market's future in the second half of the year despite interest rates driving up prices and consumer demand beginning to wane. The powersports industry continues to navigate a tricky macroeconomic environment, prompting OEMs to offer deals to drive sales. Polaris , for one, increased incentives by more than 34% during the first half of 2023 compared with yearend 2022 in order to combat rising prices, according to the company’s July 25 10-Q filing with the Securities and Exchange Commission . Foreign OEMs like Honda and Suzuki also introduced financing incentives during the second quarter through their dealership partners, although the companies did not break out their incentive spending. Incentive increases come as consumers tighten their wallets and their downtime declines post-pandemic — and amid rising interest rates. Demand for powersports products has softened, National Powersports Auctions (NPA) Chief Executive Jim Woodruff told Auto Finance News. “The economy is certainly impacting things,” Woodruff said. “Time and money were the two factors that drove sales during the pandemic, and those are shifting.” The dip in consumer demand comes as powersports prices are normalizing but remain higher compared with pre-pandemic levels, Black Book ’s motorcycle and powersports senior analyst Scott Yarbrough told AFN . “Overall, the market is constantly re-evaluating its flooring level and pricings back to something similar to what we saw pre-2020,” Yarbrough said. “Prices are still significantly elevated from historical norms; a 3- or 4-year-old unit is running at least 20% more than the equivalent unit would have been pre-COVID.” With prices elevated on older units, powersports values continue to trend downward as the supply chain improves and normal inventory levels return, Yarbrough said. Most powersports segments have seen a consistent 2% to 3% drop in prices month over month for the past few months, he said. June to July change in value by segment [caption id="attachment_58332176" align="aligncenter" width="1024"] Courtesy of Black Book [/caption] Shifting consumer demand Powersports values began to decline in mid-2022 when U.S. inflation neared its peak. The rise in the inflation rate, followed by the rise in interest rates, began a shift in the powersports market in summer 2022 that is still affecting consumer demand. When the inflation rate peaked at 9.1% in the middle of 2022 , the powersports industry found ways to maintain and improve sales performance as consumer demand remained steadfast, despite declining powersports values at the time , Octane Lending ’s co-Founder and Chief Revenue Officer Mark Davidson told AFN . “What's supported the powersports industry through all that was ... you had a low cost of capital, so financing was available and probably driving that result,” Davidson said. “It was also the mismatch between consumer demand and low inventory , so the sales remained strong and the market was growing through those times.” Today, consumer demand and inventory trends indicate the market is moving closer to pre-pandemic performance and away from the circumstances of last summer. Meanwhile, consumer shifts toward newer vehicles contributed to a decline in dealer appetite for used vehicles during the summer 2023, NPA’s Woodruff said. “Early indications are that dealer appetite is picking up a bit. They're still very selective in the type of inventory they want, but we saw a decline in dealer appetite over the summer, and we'll see some pickup in dealer demand this fall,” Woodruff said. “As dealers are selective in terms of the quality of the products that they're getting, and certain models are popping in their area, there'll be a shift toward price point, particularly if there's any feelings about softening economic conditions.” As the industry shifts toward lower price point vehicles, pricing and value will continue to decline to meet consumer demand, Woodruff said. Used retail sales dip Cash purchases have also picked up as consumers face high prices and rates, with some dealers seeing a 60%-cash to 40%-financing split . Inventory constraints caused by supply chain issues led to used retail sales highs in 2022, but supply chain improvements continue to drive down used retail, Octane’s Davidson said. “When we look at the market this year, it's a little down on retail,” he said. “Used retail is down more than new retail is, but that's not unexpected because used retail was hitting all-time highs in 2021 and the beginning of 2022.” New retail sales rose for some OEMs. Polaris North American ’s new retail sales were up 14% year over year, landing at $1.9 billion in Q2, while Harley-Davidson 's North American new retail sales were 35,060 units in Q2, up 1% YoY, according to the companies’ earnings reports. The wholesale used-vehicle market is also showing resilience despite concerns about a recession earlier this year , NPA’s Woodruff said. “The wholesale channel for used vehicles is holding up well and the indicators are that vehicle sales are holding fairly well,” he said. “It's not in the red zone, or even in the yellow zone at this point in time, in terms of the state of the industry.” Still, the interest rate environment can create “sticker shock” for consumers, Woodruff said. “I don't even know if it's monthly payments as much as it is [that] people's expectations for low interest rates have been so entrenched over the last decade that when somebody hears 8%, it doesn't matter if it's only another $25 a month,” he said. “Historically, 8% is a pretty normal rate, but I think there's some sticker shock that people will wait through, and that’s something we've heard from dealers.” Soft landing ahead? [caption id="attachment_58332280" align="aligncenter" width="1024"] © Can Stock Photo / Jag_cz [/caption] The powersports industry will likely need to wait until February or March 2024 to learn whether the market has reached its new normal, but a softer landing for pricing is expected, Black Book’s Yarbrough said. “I'm expecting the market to continue down and … decline through December or January,” he said. “I don't think we're headed off a cliff, which I know a lot of people have been worried about before.” One pain point in the coming months will be the return of student loan payments, which could affect lenders and consumers, Octane’s Davidson said. “That's going to be few hundred dollars every month in disposable income that's going to paying back loans,” he said. “We're going to be keeping a close eye on that — along with every other lender.” The slowing rate of price declines gives reason for optimism as the market normalizes and seasonality returns, NPA’s Woodruff said. “Last year was the first step in post-COVID price corrections, and it was some of the biggest and fastest price declines we've seen in probably a decade or more,” he said. “This year, there’s still larger-than-normal declines, but not as big and as fast as what we saw last year, so I think we'll have a soft landing as we go into the end of the fall and then we'll see more normal seasonal pricing next year.” Powersports Finance Summit, a premier event for companies involved in recreational vehicle financing, returns October 30-31 at the Bellagio Las Vegas and features a fireside chat with Yamaha Financial Services CEO Craig Hewitt. To learn more about the 2023 event and register, visit <a class="fui-Link ___1eya986 f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh fhgqx19 f1olyrje f1p93eir f1nev41a f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" title="https://autofinance.live/psfs/" href="https://autofinance.live/psfs/" target="_blank" rel="noreferrer noopener" aria-label="Link autofinance.live/psfs/"> autofinance.live/psfs/ .

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