HEY, HARLEY – LEAVE DUCATI ALONE …
Well, just as we were hoping that the motorcycle parts and accessory market’ s softening of the past 12 months( in the United States especially) might be going to stabilize or even reverse itself a tad this year, it looks like underlying economic trends and indicators are starting to blink amber, rather than the green lights we’ d been assuming would be the case in 2017. Many people in the industry have made much about how the primary indicators such as the growth in the number of jobs, relatively low unemployment rates and record numbers of people with jobs has not been creating fiscal“ trickle down” to discretionary spending, and it is beginning to look increasingly like they have been right to be concerned. Throughout the recovery from the 2008 to 2012 banking crisis and the deep, deep recession it triggered, there has been concern about the quality and pay levels of the jobs being created. Leaving aside issues of whether economies should be using prior metrics as the basis for a forward looking analysis of the kind of work that needs to be made available( it isn’ t change that is the enemy, it is failing to change that what destroys lives, communities and economies), the actual levels of discretionary disposable income being generated by the kind of 21st century jobs growth seen so far simply hasn’ t yet translated into being the driver of economic activity that it should have been. On both sides of the Atlantic we are seeing levels of unsecured consumer debt climb back to alarming levels. The total consumer debt balance for the first quarter this year in the United States hit $ 12.73 trillion – that is higher than the $ 12.68 trillion recorded in the United States for the third quarter of 2008 – and we all know how that movie ended! In June, in the UK, the Bank of England also started to caution against rising levels of unsecured consumer spending, and in the usual uber-risk averse consumer markets of continental Europe, in Germany especially( a country where debt is regarded as being closer to mortal sin than civic duty), consumer debt is also on the rise and will almost exceed the Eurozone’ s June 2010 consumer debt record level within the next 12 months. While retail spending is still( mostly) growing, for the time being, which is a good thing, if it isn’ t being paid for by real wage level growth, growth above the rate of inflation, then it becomes a very bad thing indeed – it becomes something being driven by people’ s attempts to keep up with the increasing cost of living in the face of declining real world declines in incomes. With growth forecasts being marked down, that is what is starting to happen
“ beware the movie’ s sequel” now. The economic orthodoxy is that a modest level of inflation is a good thing, a necessary side effect of growth, and something that is easily countered by increasing interest rates. However, that orthodoxy is predicated on the assumption that the corporations who generate the jobs, the growth, the wealth and the government tax incomes needed to pay for welfare, education, health, infrastructure, defence and, yes, meeting the rising costs of public and private debt – unsecured and otherwise- are able to do so. That in turn is dependent on their ability to access affordable capital – either through the banks, the stock markets or private investment. The problems start when that flow of capital starts to come under pressure, and those problems have the habit of getting worse real fast if institutions that do the lending are exposed to excessive levels of risk( unsecured consumer debt for example), a slowing of growth, rising interest rates and a return of inflation. I am afraid to say that this would appear to be exactly the kind of toxic cocktail we could be headed towards again. Some 10 or 11 years ago I wrote and published a two-page Comment article headed“ We are drowning in a sea of debt,” in which I warned against the excessive heat that had built up in the motorcycle aftermarket and the dangers arising from how it was being funded. I keep meaning to ferret around in our back issue archive to find that article, so I could place when in the timeline of disaster it was that I had called it – some time in 2007 or early 2008 I think. Now I am not saying that we are“ in that place” again, certainly not yet. I am not saying that the laws of inevitable consequences that govern the gravity field that affects debt are an inevitable outcome of where we are right now – not yet anyway. However, debt is the enemy of performance, and what I think the present mixed signals do behove us all to do in our businesses is to remain risk averse, remain realistic, continue enjoying what we do and investing in our brands and our product lines( the two key elements to determining downturn outcomes), but to do so with the minimum possible exposure to risk, and that means the minimum possible levels of debt. Which brings me to the point this week – I have one simple message for Harley- Davidson and that is: DON’ T DO IT! As it happens, I think the rumors( accelerated recently by business news provider
Continues on page 6 4 AMERICAN MOTORCYCLE DEALER- JULY 2017 www. AMDchampionship. com