In Part One of this ScooterFile series, we look at recent history. Specifically, the impact of 2008’s gas spike on the industry. Coming installments look at the difficulties the industry faces today as demand for scooters peaks, and advice for gas-conscious, prospective scooter buyers.
Despite a brief drop in gas prices last week, the cost of gasoline is once again on the rise, continuing a trend that started almost two months ago.
High gas prices are often viewed as good for the scooter industry. Miles-per-gallon is a mainstay of scooter marketing, which beyond the message of fun and freedom, strives to establish scooters as fuel-efficient alternatives to cars for daily transportation. High petrol prices fueled a stateside scooter sales explosion in 2008. Ever since, dealers and OEMs have kept an eye on the cost of fuel, knowing that an increase could stimulate sales and help boost an otherwise sluggish industry out of its multi-year sales slump. However, rising gas prices may not be the panacea some in the industry might hope for. That huge bump in sales may not come. Yet even if it does, a sudden, unsustainable spikes in demand can actually hurt dealers and OEMs alike — a lesson many learned the hard way in 2008.
The last time gas prices climbed so rapidly was in 2008, where they peaked at $4.11/gal. These high prices received most of the credit for that year’s booming scooter sales. The boom was enabled by another economic factor as well: easy credit. Financing was easy to obtain and interest rates were relatively low. It was a fundamentally different economic climate from what we know today. Unemployment was under 6% most of the year. The bursting of the housing bubble was only a speculative risk and the millions of foreclosures that would come in the subsequent years seemed inconceivable. However, the American economy was already technically in recession when gas prices started climbing in late 2007, though the public couldn’t feel it yet. Prices continued to surge through spring of 2008, and some consumers turned to high-MPG scooters as a means of saving money. The scooter industry saw a 66% sales increase in the first half of 2008 compared to the year prior. By summer, some manufacturers were reporting sales increases as high as 150% over 2007.
The media took notice and “scooters save gas!” stories filled newspapers and local news reports across the country. Such stories have already started popping up again in response to current prices. Unfortunately, this is the only reference point the mainstream media in America seems to have to scooters and scooter owners. With the weather around the country returning to rideable, we predict more and more such fluff pieces in the local news in the coming weeks and months.
The scooter industry — networks of manufacturers, distributors and dealers — was unprepared for early 2008’s unprecedented rise in demand. Supply shortages were widespread by mid-year, leaving some shops with empty showroom floors and would-be customers queueing up on waiting lists. Patient buyers waited months for showroom stock to be replenished, while most scooter manufacturers rushed to keep up with demand. Production and imports were ratcheted up and dealer networks ambitiously expanded. However, because of the time required to manufacture and import scooters, it took several months for new stock to arrive at dealers. That time offset would prove nearly disastrous for the industry. Just as the industry ramped up into high gear in late summer of 2008, gas prices plummeted. Between July and October, gas fell from a record high of $4.11/gal. to just $1.99/gal. By end of year, gas hit a five-year low of $1.61.
Scooter sales were stalling by then as well. Some would-be buyers who couldn’t obtain scooters in the summer due to the supply shortage were further deterred by cheap gasoline and cooler weather. Others were suffering from rising unemployment rates, difficulties in obtaining financing, and falling consumer confidence due to the recessionary malaise. The earlier media frenzy over scooters became a shaggy dog story as pre-taped reports persisted even while sales were shrinking. The scooter market then contracted as suddenly as it had grown.
Though most of the privately-owned scooter companies don’t report their sales figures, there are many indications that the downturn was severe. The American division of Piaggio (selling the Piaggio, Vespa, Aprilia and Moto Guzzi brands in the US) saw an almost 77% drop in sales to dealers in the first half of 2009. The US warehouses of many OEMs sat full of unsold 2009 models for more than a year until they could finally be cleared out — most at prices well below MSRP. With new scooter margins thin to begin with, it’s nearly impossible to turn a profit on a “birthday bike.” Add to that a tidal wave of cheap, low-quality scooters that flooded the US market that year from fly-by-night, mainland Chinese importers — scooters with no dealer network, poor quality and worse parts support that sold for a fraction of what good quality equipment would run you. Unknowing buyers couldn’t fathom paying $1,800-$6,000 for a quality machine when Pep Boys had “scooters” for $800.
OEMs weren’t the only ones to feel the pain. Hundreds of scooter and powersports dealers — many of which opened due to the huge increase in demand — closed their doors due to low revenues and credit difficulties. Most dealers pay “floor planning” costs — essentially interest on unsold stock in their shops so that they don’t have to purchase their inventory up front. This essential credit service became harder and harder to get toward the end of 2008. Without it, many dealers had difficulties financing purchases of new stock. Shrinking dealer networks only exacerbated OEMs’ woes. Scooters reclaimed from shuttered dealers flooded the market, along with repossessed scooters from customers who had financed their purchases but were no longer keeping up payments. This further depressed sales and resale value alike.
In the end, 2008’s scooter boom was actually a bubble. As with real estate and other pre-recessionary excesses, some benefitted at the time, but the consequences were severe and widespread. In Part Two of our series, we’ll look at the current economic climate facing the scooter industry as gas prices rise and demand inevitably increases. Is the bubble back? Stay tuned.