Motorcycle sales sputter amid sub-prime jitters

by James Bryant, August 23rd, 2007, 7:00 am

As housing foreclosures continue at a steady clip, the implosion of the sub-prime lending market is sending ripples into some surprising corners of the economy. The jitters are being felt in the automotive retail market as money for all kinds of loans dries up like Texas floodwaters in the August heat. New car dealers initiated a record number of sub-prime auto loans in 2006 to the tune of $50 billion. If the Fed’s actions to stop the madness don’t hold fast, the damage could spread to some industries thought to be largely immune to such issues.

One such area is the US motorcycle market, traditionally dominated by Harley-Davidson and Japanese giants like Honda and Yamaha. The big toys for big boys market is populated by middle- to upper-middle-class consumers with the discretionary income to afford easy entry into the two-wheeled weekend warrior lifestyle. But second quarter numbers put out by Harley suggest there may be big trouble in Biker Land.

After a long period of mid-life-crisis-fueled sales and earnings, Harley had good second-quarter earnings, but experienced a 5% drop in US retail sales which offset a 15% increase in worldwide sales. The result was a net 1% drop in overall sales.

Harley’s not alone. The California-based Motorcycle Industry Council reports that US motorcycle sales are down for the first time in more than 10 years. Compared to the first half of 2006, motorcycle sales are down 7%.

There are a lot of theories floating around to explain the drop. Some suggest the rise in gas prices are making consumers cautious — a curious explanation as $3 gas was cited in 2006 as a cause of increased motorcycle sales. Others say sub-prime concerns in the housing and auto sectors are making loans less available. Others blame a summer of freaky weather.

Despite the concerns in the motorcycle market, it’s safe to say the jitters in the economy will be all but forgotten as the mustachioed motorcyclists head out for a Labor Day of easy riding and hard partying.