Motorcycle Economics: Future Interests

2020 will undoubtedly go down in history as the year that the world changed. Outside of global health impacts, here in the U.S., it felt like a motorcycle Renaissance. Many manufacturers had record sales, and dealer floors went from overstocked to barren overnight. I personally bought and sold four motorcycles since that time. After riding 365 days straight into 2018, 2020 was one of the best years I spent in the saddle; riding, racing, and adventuring. Unbeknownst to most of us, those days marked a distinct evolution in the motorcycle market.

Anyone that’s surfed for-sale ads recently is well aware of the fact that many used motorcycles are being listed at or above the manufacturer suggest retail price (MSRP). Many local motorcycle dealers are still struggling to keep various motorcycles in stock, propping up asking prices for high-demand bikes like the Tenere 700. All of us have already heard, if not experienced firsthand, the ongoing supply chain woes. However, there’s a new problem on the horizon, high interest rates.

An Era has Ended

In 2008 after a string of banking issues, massive mortgage defaults, and countless other financial details I don’t recall, the economy came to a grinding halt. To fix the economy, the Federal Reserve cut the interest rate to almost zero; then proceeded to keep it below one percent for a decade. When I started driving a car back in the ’90s, Fed interest rates were around 4-5%, but in recent memory, all of us have become conditioned to seeing 0-3% APR listed on car and motorcycle stickers. This stretch of cheap borrowing from ’08-’17 is virtually unprecedented in U.S. history, and I suspect we won’t see it again.

Compounding Problems

At the time of this writing, the fed funds rate is near 5%. While closer to 4% back in September, that translated to a 9% interest for a used car I was looking at. While supply chain challenges have limited the supply of highly desired motorcycles, the increased cost of borrowing may start to “solve” that problem, as more common motorcycles are starting to sit longer on dealer showrooms. This breakneck change in conditions has put both the customer and the retailer in a pretty awkward position. A new motorcycle is out of reach for many buyers considering inflation and interest rates. Meanwhile, dealers are sitting on more and more inventory, some of which includes paying interest on “floor plan” loans for unsold models.

Incentives back in vogue

Scoffing at the insane asking prices for dirt bikes on Marketplace, I looked over some of the manufacturer’s list prices. To my surprise, some manufacturers were already offering incentives for specific models on their websites. This was further confirmed while walking around a dealer last weekend; I saw Kawasaki offering a $1000 rebate on the new KLR, $2000 off their KX dirt bikes. Assuming it’s not happening already, I have a strong suspicion we’ll start to see shops offering discounted upgrades on trim levels, factory options, luggage, and so on to entice buyers and move aging inventory.

Getting used

The consequences in the pre-owned market will take time to resolve. At the moment, many people have (arguably) overpaid for the bikes they are currently selling. Worse, some of these sellers are still sitting on a loan for a bike they bought above MSRP. As many of us have seen, the whiplash of frozen supply and pent-up demand drove up prices, and within a year, interest rates have increased almost 5-fold; many sellers are currently left holding the bag.

Simultaneously, sellers that are still “even” don’t realize that new prices are essentially “coming down” through incentives. Understandably, these folks are trying to hold out for the price they want, but they don’t see the market shifting under their feet. The longer these sellers wait, the more used bike inventory grows; essentially adding more competitors to the market. If competing sellers decide they need to move a bike and cut prices, the stalemate may end.

With limited supply on certain models, I won’t be surprised to see some of these in-demand used bikes maintain lofty prices. However, off-road and dual-sport models are seriously starting to stack up. 2020 may have been the record year of off-road growth for all ages and segments, but unfortunately, the rising costs of food and housing have forced many Americans to jettison the expensive motorcycle hobby. I fear this reality will settle in for lots of sellers over the next year, and the consequences that follow.

Predicting the fallout

There’s no way to know for sure what the Fed will do in the coming year. It’s likely safe to say rates will increase marginally, pause, and then be reduced slowly over time. However, I stand firm that I don’t expect we’ll see 0% interest for any prolonged period going forward.

For the motorcycle market, this essentially means returning to what my parents would describe as “normal”. We’ve seen impressive price inflation since 2008, but with higher borrowing costs, we’re likely to see shifts in both pricing and offerings in a higher-interest world. As I mentioned, I expect we’ll see more concessions to clear inventory, but manufacturers don’t want to rock the boat too hard with recent customers. Buyers tend to get a little bent when they pay full retail on a bike, just to see it marked down a few months later. To thwart this, I think we’ll see certain model names disappear from line-ups in the coming future; likely to re-appear with revised features to justify the asking price. On the opposite end, companies are likely to slash features and offer new, low-spec models in pursuit of more affordability. To this point, Honda recently announced a new XR150L here in the U.S. In the era of TFT dash, adaptive cruise control, and electronic suspension, it will be interesting to see how these “high-end” features trickle down the model offerings when customers are paying 5% APR. If we’re lucky, we may even see the rebirth of the “trail bike”, considering many of them date back to the ’90s.

We’re presently on the front end of this trend. Interest is still rising and prices are still high virtually everywhere. If things play out the way I think, in the coming year I believe folks with cash may land some incredible deals. I fear dealers are going to struggle tremendously after the gear grinding shifts from 2019 to 2020, to 2023. I certainly wish we could skip the pain we’re all experiencing right now, but I expect we’ll see interesting things come out of the manufacturers in the next 5 or so years.

Am I wrong? Do you think we’ll make a “soft landing” and go back to business as usual or are higher interest rates here to stay? How do you think Manufacturers will respond?

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12 Responses to Motorcycle Economics: Future Interests

  1. Dan says:

    Higher interest rates are a non issue on a $13k new bike. Do the math and you’ll realize that the monthly payment doesn’t go from affordable to “I can’t do it”. Big money bikes, RVs and boats are a different story.

    Liked by 2 people

    • MotoADVR says:

      Agreed. The math shows it’s not nearly as consequential by itself. I apparently failed to correctly pair that factor with inflationary forces and reduced buying power.


      • Dan says:

        10k loan for 3 years at 3% vs 6% = $15 more per month at the higher rate. If enthusiasts have no job, then the rate (and incentives) are irrelevant

        Liked by 2 people

      • MotoADVR says:

        I agree completely that the monthly implication of doubling the interest rate on such a bike is a hilariously low hurdle. I foolishly forgot to lay out how doubling interest effect’s everything else; Car loans, credit cards, etc. Ultimately my point is that America went on a consumption binge for the last ten years, fueled by low interest. The latter has changed, and I think permanently. The question is, will people just keep paying it, or will it push motorcycle consumers from the market? How will manufacturers adapt?


  2. timothyburke says:

    I was talking to an “old guy” the other day who owned a dealership in the 1970’s until the high interest rates of the 1980’s put him out of business. Imagine that. Dealership paying high interest on inventory, and a market of buyers drying up because they can’t afford to pay those high rates. That’s when the USA lost many brands that took 20+ years to return to the market. I pray that level heads prevail and keep us from going back to that side of the pendulum.

    Liked by 2 people

    • MotoADVR says:

      That’s a great point Tim. I implied that risk, but didn’t expand upon it. For me it was the fact that the last ten years, everything was “affordable” because interest rates on cars, motorcycles, and credit cards was barely above inflation, so Americans consumed like crazy. If this level if interest sticks around, everything will change. Thanks again for reading!


    • rider marc says:

      The mom-n-pop single-brand bike shops helped to put themselves out of business as the multi-brand dealers were emerging. I was a tech in the early 80’s for Yamaha, Husqvarna, and Kawasaki shops. Buyers will ask a dealer for an OTD on a 750 Kawasaki and then go to the Suzuki dealer and ask for his OTD on a 750. Hard to complete with that. Multi-brand dealers can hold a price line better. Now, their challenge is parts and accessory sales competing with large stores on the internet. Also, those mom-n-pop shops had high interest loans for their stores and property that didn’t help with their existence.


  3. TheQ says:

    But maybe all of this has a positive side – maybe people stop consuming to pep up their otherwise boring lifes and start cherrising more what they´ve in their garage. Maybe they go and explore the world with the bike at hand rather than lusting every season after what clever makreting people tell them that they need to have? I see that the FED will work on the soft landing and that very slow to avoid a collaps. The biggest issue are private profiteers which bought a bike or two as an investment, now trying to sell them at / above MSRP. They´ll keep their bikes for a very long time (and I hope they´ll lose a considerable amount of money to learn a valuable lesson from it 🙂 ). Dealers won´t face big problems as makers start trying to sell their products directly to customers, getting rid of dealers as we know them from the past. In return the dealers already not earning much money from selling, can concentrate on the area where money is earned – service and repair. So the makers will have the selling problem and to face it, they´ll reduce the number of different models, use as much equal parts as possible and one plattform to make different motorcycles based on it to reduce the cost even further. We´ll also see a return to smaller, more affordable bikes – Royal Enfield and some chinese brands are the best example for that – making the riding of a motorcylce what it was some centuries ago – an affordable, cheap alternative to a car. All in all i think this can be a good development.

    Liked by 1 person

    • MotoADVR says:

      Solid points. The “flippers” in both housing and motorcycles are a bit annoying. When the getting is good I get it. Unfortunately it seems that there are enough suckers left that folks refuse to drop prices to anything reasonable. Good call about RE; I spoke with a buddy that’s a sales guy about one yesterday. Ironically, I also just finished an article about what’s about to happen to dealers yesterday. That’ll be out soon. Thanks for reading!


  4. Simon says:

    Your comments make perfect sense. Logical. The market in the UK is also all over the place at the moment, I understood when I visited several bike dealers last week. I saw the Triumph factory plus a dealer, a Honda dealer, three multi dealers plus 2 Yamaha dealers. AND I met the great Nick Sanders too!!!!

    Liked by 1 person

  5. Pingback: Motorcycle Economics: Brick and Mortar Compression | Moto Adventurer

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