|Power in Numbers
State dealer associations, strong franchise laws are good business for powersport dealers
by Dennis Johnson, www.dealernews.com
Like any close relationship, the connection between many powersport dealers and their OEMs can be antagonistic. In fact, the decades-old give-and-take --- or take-and-take, depending on your point of view --- of the retail motorcyle world can be downright shaky at times.
Add to this mix a marketplace where challenges to a dealer's business come as fast as capitilism can throw them, and things can get volatile. Sure there are love stories out there, but in many cases the dealers and the OEMs have business interests that don't mesh.
The news in July (ed: 2006) that Kawasaki inked a deal with outdoor retailer Cabela's to sell ATVs and Mules at five of its locations raises the issue of franchise laws and state dealer associations. With one of the major Big Four Japanese OEMs following a trail blazed to the big boxes by Artic Cat and BRP, are the others close behind? In the future, will dealers be competing against Costco for consumer dollars? It doesn't take Nostradamus to prognosticate the outcome of that retail war.
What the Kawi/Cabela's news mostly confirms is that although powersports business is rooted squarely in fun, sport and recreation, it's a business nonetheless.
On All Fronts
The threats dealerships face don't come only from the OEMs. The explosion of the so-called New Asian market that is tweaking the traditional sales channel has product being sold through auto supply stores, roadside sales lots and Internet websites. Outdated franchise laws and well-intentioned consumer legislation also represent time bombs ticking in the powersports future.
Given this scenario many industry experts swear that there is safety to be found in strong dealer associations backing gutsy franchise laws. It's these two institutions that serve as the frontline of defense for dealers in dealing with OEMs and other issues, says Ed Lemco, the sales-guru-turned-association-champion.
"State dealer associations need to ramp up and be stronger than ever. Dealers have historically been very complacent. We are talking about nothing less than the future of the business as we know it," Lemco says. "Individuals dealers in every state need to take the lead."
Even America's Powersports' former chief, Clark Vitulli, stresses the importance of strong dealer associations and vigilance over existing franchise laws. "I really encourage dealers to get involved in their state association, know what the laws are and go to the meetings," Vitulli says. "You don't have to be anti-manufacturer, you just want to be fair."
Since selling Lemco Management Group last year (ed: 2005), Lemco has helped resurrect or, in some cases, create state dealer associations across the country. He launched the National Council of State Dealer Associations as a national resource for those to form associations in their individual states. Since its inception, the NCSDA has reactivated or formed groups in Georgia, Oklahoma, Nebraska and Nevada. Up next is Arizona.
In a recent speech before the Colorado dealers association, Lemco says he urged its members to enact or strengthen state franchise laws. "My message to Colorado dealers was that there was a real crisis confronting us and to not take no for an answer. Anything less than 100 percent support from dealers is not acceptable," he says. "Without franchise law, the dealer is subject to the whim of the OEM supplier."
Strong associations can lend a powerful, singular voice to protective legislation that covers the interests of all the dealers in the state. The groups serve as political might to lobby for needed laws - lobbying being something that's uncharted waters for most dealers.
Following in Its Tracks
In the infancy of the powersorts business, franchise laws were the domain of automobile dealers. As motorcycle dealers become more sophisticated and manufacturers more powerful, the laws were seen as a way to protect powersports retailers too. By allying themselves with various state car dealer associations, motorcycle dealers grafted their products onto the existing laws. In some states, ATVs and other OHVs were added to the laws.
Currently California, Florida, Iowa, Maine, Texas, Virginia and Washington are recognized as having strong franchise laws, although Virginia's suffered a blow in 2005 when a federal appeals court declared a portion of it unconstitutional. The decision followed a lawsuit filed by Yamaha against the state DMV and Jim's Motorcycle Inc. in Bristol, VA., over a new franchise notification requirement for OEMs. Dealers in the 20 or so states without associations are dependent on the state's auto dealer groups.
Pay the Pros
Given what's at stake, Lemco stresses that associations are essential enough to be professionally run. Not only do professional association managers double as lobbyists, they also work with lawyers and others in drafting protective legislation.
"We have a strong message that can be sold to the legislatures, but it does have to be sold, and there will be resistance from the OEM suppliers," Lemco says. "It takes money, and it takes a strong base of support from every community. Dealers are a visible force in their communities. The state associations need their money and their name."
One such example of this involves the Nevada Motorcycle Dealer Association, one of the youngest in the country. The dealer group was launched in March out of the need to pass registration requirements for ATVs and OHVs added to the Silver State's books.
Because of existing titling laws, many Nevada dealers lose sales to surrounding states because of buyers skirting Nevada's sales tax. Residents pay sales tax only after registering their OHVs, and given titles aren't required for OHVs, there is hardly an incentive to register them and, thus, pay the sales tax
While a new law requires off-road riders to have stickers showing they've paid the state sales tax, there are no fines for offenders and little enforcement, so it's basically a stern warning.
"I really see the greatest benefit of an association...for my dealers in Nevada right now is the legislative advocacy. These guys are so busy running their business I can barely get them to come to meetings," says Susan Fisher, the association's manager. "What I promise my guys is I will make it easy for them to get involved in the political process."
Fisher maintains a database linking each dealer's location with its corresponding local representative, giving dealers access to everything needed to keep in touch with the pols whose decisions affect their business. As an added bonus, the association has worked out a program for dealer member that offer them discounts on dining and entertainment.
Nevada isn't the only state where ATVs are of curent concern. Lemco, Vitulli and others say that almost all state franchise laws need to be updated to include four-wheelers and dirtbikes. The laws often protect dealers only in cases involving titled vehicles, and with some states not requiring off-road vehicles to be registered, they fall outside the scope of the law, Vitulli says.
It's this scenario, he says, that allow many retailers outside the traditional powersports sales channel --- read big-box stores --- to sell off-road machines. Vitulli offers a unique prospective to the issue given his background on both sides of the automobile industry, in the marine and RV business, and then with America's PowerSports. Under his leadership, the network expanded into states with some of the strongest franchise laws.
I see two sides of it. I know what you have to do to distribute products to your customers. On the other hand, being on the dealer's side too, it's frustrating," he says.
For a franchised dealer in a state where stores like Bass Pro, Gander Mountain or Cabella's are located, Vitulli says it's tough competing against their purchasing and marketing power, where the product that is your life and blood can be used as their loss leader.
For its part, Kawasaki states that it is expanding in Cabela's locations where its local sales were off. Company spokesman Russ Brenan tells Dealernews that Kawasaki will be selling its vehicles to Cabela's at the same price and terms it uses for all dealers. Cabela's was also required to have the proper service facilities.
In Virginia, where the state's franchise law took a hit, the state dealer association lobbied for and got passed tough legislation relating to ATV and dirtbike sales, says Charlie Finley, manager of the association.
The new laws require that newly purchased ATVs and dirtbikes be titled at the DMV, and that the owner show he has paid Virginia sales tax by offering a receipt as evidence. As an added bonus, the state DMV administratively decided that big-box stores wanting to sell ATVs and dirtbikes with engines larger than 500cc need to be licensed through the state as dealers.
"This levels the playing field because the Pep Boys and the Wal-Marts have to have the service and parts that a dealership has...either that or stop selling [ATVs]," Finley adds.
Vigilance is Good Business
For every state like California, where strong associations and franchise laws protect dealers, there's a state like Virginia where one court case hacks chuncks out of its legal support for dealers. This is often the case as it's difficult to kill a law that's on the books, it can be slowly bled to the point of anemia.
Although the powersports business grows steadily more sophisticated, it may never be as high-priced and high-pressure as the automotive side. However, there are several similarities, says Robert Bass, a lawyer with Myers & Fuller. The law firm deals exclusively with automobile and powersports dealerships. Bass is also the legal counsel for Lemco's national dealer group.
Bass says he's already seeing the motorcycle OEMs growing more aggressive in dealing with their dealerships, using Honda's Powerhouse dealer program as an example. He says he's hearing from dealers who are getting heat from the OEM about exclusivity, and is seeing retrictions on multiple-store ownership.
With increasing worries over the New Asian imports, threats from OEMs, the changes in the sales channel, and legislation that is not in their favor, dealers need all the clout they can get.
I tell dealers that the dealership is the primary family asset," Bass says. "You need to protect that with the same vigilance that you would your family."