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Effects of motorcycle industry consolidation on the AMA

August 26th, 2007 · No Comments · Industry

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Recently I was on PitPass Radio, a weekly radio show that covers motorcycle racing. The hosts of the show – Scott Casbar, Tony Wenk, and Ed Kuhlenkamp – are really nice guys and do a great job. Their guest list is filled with industry leaders, racers, promoters, and interesting personalities from the world of two-wheeled competition.

I got on the show because I wrote a letter to them a few weeks earlier regarding a topic they had touched on and asking them to talk more about it. Their response was to have me on as part of the debate. The topic? Should the American Motorcyclist Association (AMA) be the only sanctioning body for motocross racing in the US? Phrased a little differently – is it bad for the sport of MX if other groups or organizations try to wrest control of MX racing from the hands of the AMA?

In my letter I raised the issue that when the AMA was formed there were literally dozens of motorcycle manufacturers. But today there are just a handful – mainly the Big Four Jap companies and Harley-Davidson. The point I wanted to make is that as the industry consolidates we cannot afford to assume that what is good for the industry – nee the manufacturers – is good for motorcyclists.

The response I got was that this just isn’t true, that the industry still has many vibrant players – e.g. Ducati, Victory, KTM, etc. – and that consolidation hasn’t had the effect I think it has. Sadly, I just can’t agree.

Ducati is indeed a very active competitor in the industry and kicking butt in the MotoGP scene. Victory is certainly making some waves in the cruiser market. And KTM is having great success in off-road racing. The trouble is that being competitive on the race track, or selling a few bikes in a niche market, in no way correlates to the amount of power these companies have in the industry.

For example, according to BusinessWeek Ducati has $600 million in market cap. By contrast, Honda Motor Company has $59.3 billion in market cap with more than $5 billion in net profit (Forbes). Honda, by itself, could buy the entirety of Ducati with profits from a single month. Do you seriously believe these two are in any way equal politically or at a bargaining table? I looked at this a little further, trying to validate my theory that the Big 4 and HD dominate. Here are the market cap values I found:

I couldn’t find market cap info on KTM, but their sales, at €500 million/year, are about 30% of Piaggio’s so I’d reckon them about the same size as Ducati. (Editor’s note: It’s also nearly impossible to find unit sales or gross sales dollars specific to motorcycles for the larger manufacturers as they do not like to break them out. If you have authoritative numbers for unit sales or dollars by brand I’d like to see them.)There are other bit players in the market – Husqvarna, TM Racing, etc. But none of them matter. This is what the market looks like:

motorcycle_mkt-cap_comp

The Big 4 Japanese have 70% of the capital dollars in the motorcycle industry. BMW and H-D combine for another 26%. Everyone else is pretty much a rounding error. At least by this measure these six companies (the Big 4 Japs, BMW, and H-D) utterly dominate the motorcycle market in every way that really matters (it’s all about the money.) If you want to argue against that I don’t think we can even have a rational debate.

But my main point is that these same companies also dominate the AMA in every way that matters – policy, decisions, rules, etc. – for the simple reason that they have all the money. Now if you want to argue against that please be prepared to answer the following questions:

1) Can ~5% of the financial power of the motorcycle industry exert any meaningful economic influence over the other 95%?

2) Can ~5% of the financial power in the motorcycle industry exert any significant bargaining power politically, economically, or socially?

3) When the AMA must decide whether or not to take an action that will benefit rider-members but will significantly anger the 6-member motorcycle oligopoly – who control $150 billion of capital and 80%-90% of the market –  will the rider-members prevail?

If you answer yes to any of those questions you live in a very different, and vastly more naive, world than I do. Like it or not it’s all about the money. The AMA cannot represent the riders and the motorcycle industry at the same time because we, the riders, are not equal to the industry. Our interests and needs are not going to align perfectly with the industry. And we are stupid if we think our paltry membership (250,000 members is about $10 million in dues) is going to get us equal footing in a conflict.

This doesn’t make the AMA “bad” or inept. The people at the AMA are good, well-intentioned, hard working folks who love motorcycling.  But the AMA has an inherent conflict of interest — no organization can evenly represent two such politically and financially unequal bodies.

In my opinion the AMA should, first and foremost, represent the American motorcycle rider in all his/her permutations and an organization that tries to simultaneously represent the industry, no matter how well intentioned or managed, will not be the quality representative we deserve.

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