The latest available data from ACEM shows Q1 new motorcycle registrations continuing to grow. After a strong first 60 days, the trend in most markets in March and April has seen the rate of growth decline or, in some cases, even entering negative territory by the end of April.
These days the ACEM data only reports the 'Big Five' markets - Italy, Spain, Germany, France, UK - but with those markets accounting for over 80 percent of the European total, it still gives us a bellwether with which to judge the market's direction of travel, even if the data since the end of 2019 has been unstable due, at first, to Euro 4/5 transition and then, of course, due the pandemic.
Consumer demand is a fickle mistress at the best of times, and these times are far from being "the best". What is remarkable about the 2022 market is just how robust the demand for PTWs has again been proving to be - so far!
There now have to be serious questions raised as to whether that growth can sustain. In 2020 the eventual response we saw to the pandemic proved to be counterintuitive. Initially, it was explained as being deferred demand, delayed buying, but as spring became summer it became clear that something else was at play too. There was widespread concern about the potential health risks of mass transit systems in the urban setting - and any deferred demand was quickly absorbed and overtaken by a genuine 'bump' for demand. One that, until recently, had proven to be (mostly) sustainable.
chip shortage to continue?
There had already been some signs of the new-found growth in demand settling back to pre-pandemic demand patterns in some of Europe's markets. Then, just as we finally put most of the effects of the pandemic in our rear view mirror, along come a war, a major cost of living and inflation problem with energy prices and market instability sending global economies into reverse, and an unprecedented supply chain drama that hits raw materials, logistics and our now all-encompassing dependency on semiconductors.
The widespread concerns about a general worldwide recession are definitely gathering credibility. The global and European institutions charged with economic management and forecasting are all fumbling with their worry beads, and consumer anxiety is all around us. If 24 hours is a long time in politics, then two or three months is a millennium in economics.
The conventional wisdom is that in times of economic uncertainty, purchases such as motorcycles are generally quick to see the negative effects. If real-world consumer incomes are falling behind rising prices and belt-tightening becomes the priority, then we would expect to see PTWs suffer at least as badly and any other 'discretionary' spend. The PTW market more than halved as a result of the Financial Crisis and subsequent recession.
With petrol prices climbing and awareness about motorcycling's environmentally favourable narrative continuing to gain traction, there are "reasons to be cheerful", reasons why we may be in for another uptick instead of a downturn.
However, a financial crisis is one thing, but a war? A global shortage of computer chips? Rampant inflation in everything from raw materials and logistics to interest rates and energy? With health concerns not yet fully behind us and inventory in short supply, early data pointing to possible downturn needs to be taken seriously.
If anything, a plateau in sales, maybe even a decline of low single digits, may actually be a good net growth result in the context of what could be headed our way. Real growth in terms of our share of available disposable income in a faster declining consumer spend environment might be the best we can hope for.
Even those who are suggesting that we are headed for global doom, gloom, hunger, poverty and conflict are not forecasting the kind of economic downturn in the developed world seen a decade ago. So far forecasters are suggesting that, if there is a widespread recession at all, it will be relatively shallow and of relatively short duration.
One of the biggest problems confronting the motorcycle industry is that it still has not been able to enjoy a sufficiently sustained, long-term period of stable and meaningful growth of the kind needed to replenish the capital reserves it burned through in its Financial Crisis existential struggle.
The absence of capital reserves goes a long way to explaining market consolidation, explaining why so many more Private Equity investors and other predators are being drawn into the PTW industry - there are bargains to be had. As a result, too much of the capital that industry profits generate is sucked of the industry, rather than reinvested.
There have been some exceptionally overpriced, ill-conceived and poor-value acquisitions and 'flips'. Most motorcycle and related businesses are relatively undervalued in their balance sheets and those that are publicly owned are trading at undervalued share prices - hence the aggressive share buyback programmes we are seeing from the likes of Piaggio.
Additionally, the multipliers being used to price M&A activity (especially in the EV and related sectors) defy all logic. There is a lot of the investment capital looking for alternates to the bond and stock markets. There is a 'lower bar' where the threshold for quality investments and returns are concerned - listen to Warren Buffet on the subject!
By way of an example, Harley's soon to be 'semi-independent' LiveWire electric 'subsidiary' is edging ever-closer to its SPAC-based Wall Street float with an offer prospectus that is based on 'Alice in Wonderland' forecasts for the number or EVs it intends to be selling in five years (100,000 units a year) and by the end of this decade (200,000 units a year).
With the semiconductor shortage still likely to slow us down (at least until the end of 2023) the eventual outcome of the present inflationary cycle is likely to resolve itself into stagflation, at best.
Russia's war on Democracy and decency will continue feeding uncertainty for a long time. It really will be a positive statement about the potential our industry has for a robust and healthy future if we are talking about net annual industry growth by the end of 2022.
