Category Archives: Business

Economics 101 – The Mess We’re In

Politicians have modified capitalism to suit their largest contributing supporters, thereby enhancing their future elections. This is often referred to as Crony Capitalism 1.

Here are some basics which people are either ill-informed, or refuse to understand because their beliefs override facts.

  • Poor people don’t employ other poor people.
  • People that possess money, or obtain credit, leverage their ideas and talent at great risk, often employ other people.
  • This can enhance the wealth of those business leaders who combine & leverage the labor and skills of others in creative ways.
  • Creditors and investors provide capital to the business, and benefit by the financial gain of the company.
  • Those whose primary object is to decide what’s fair in compensation, for the labor and skill of employees, do so by taking more from those who create and sustain that employment.
  • Eventually, the balance is tilted under government control, such that they and their closest friends & allies, receive the greatest benefits through confiscating the profits from the investors and the company.
  • They (politicians) redistribute profits to appease the employees, and describe that as fair. Creditors & investors withdraw their support.
  • Those who have placed themselves at the greatest risk and have used their imagination to begin or enhance the business, now find their financial rewards diminished.
  • These dwindling profits, and the lack of investors, push the owners into foreclosure and bankruptcy and they join the throng of those who have already staked out their claim for government assistance.
  • In the end, everyone’s standard of living has diminished except the politicians and their cronies.
  • The poor become more poor because business has been destroyed by those who gained their office through a promise of fairness.
  • Larger business, through the support of their friends in government, buy the distressed assets at reduced prices and become more wealthy.

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  1. Crony Capitalism An economy that is nominally free-market, but allows for preferential regulation and other favorable government intervention based on personal relationships. In such a system, the false appearance of “pure” capitalism is publicly maintained to preserve the exclusive influence of well-connected individuals.

Another Motorcycle Brand is History

It came as a somewhat unexpected (probably only to me – more informed people knew it was coming), that Polaris manufacturing, makers of Victory & Indian Motorcycles, decided to drop the Victory line and stick only with Indian Motorcycles.

victory-models-end

End of the Line for Victory Motorcycles


Victory Motorcycle Announcement
1/9/2017 12:00:00 AM
Polaris Industries Inc. (NYSE: PII) will immediately begin winding down its Victory Motorcycles brand and related operations. Polaris will assist dealers in liquidating existing inventories while continuing to supply parts for a period of 10 years, along with providing service and warranty coverage to Victory dealers and owners. Today’s announcement does not affect any other Polaris business units.


The history of Victory Motorcycles® doesn’t stretch back over the past hundred years. We are young, full of drive, with our eyes on the horizon. That passion has raged since 1998, when a small group of riders, designers, and gear heads came together in Minnesota, and decided to engineer power and performance back into American V-Twins. Our first bike roared to life on July 4th, 1998. This was more than a patriotic gesture. It was a flag in the ground that marked the rebirth of the American V-Twin, and we’ve been claiming more roads ever since. From numerous awards to leading innovations, we have given new life to American muscle with industry changing cruisers, baggers, and touring bikes.

Well that’s what they said. Now, here’s my two cents.

victory_motorcycle_promo_pix_b

Victory Motorcycles 2015

Eighteen years or so, is a long period of time if you’re talking about digital tech. When it comes to any kind of transportation, motorcycle, cars or trucks, it’s nothing. It’s a blink of an eye, and no one in a few years will likely remember much about the company unless they turned out some very innovative products. I’m not so sure I can recall anything about Victory Motorcycles that was all that remarkable. Believe me, I’m not taking anything away from them. They probably built a few models that will stand the test of time, and I’m sure if I rode one, I would’ve enjoyed it. Here’s the thing, I didn’t, because I saw nothing that really intrigued me over what is already available in the market.

I fully appreciate the problem they had, before they even started. The cost of doing business in this highly competitive and regulated industry is daunting. Before you can even begin to manufacture, there are thousands of federal and state regulations you must meet and that’s not even counting the labor and distribution regs.

The market demand for motorcycles in the U.S. is not anywhere close to the amount of automobiles sold. According to Bureau of Transportation Statistics, “Motorcycle registrations in the United States have grown each of the past 10 years, from 3,826,373 in 1997 to 6,678,958 in 2006—a 75 percent increase overall.” Sales of new bikes hasn’t achieved huge increases. There are many people, like myself that simply buy a used bike from someone wanting to trade or exiting the market.

Here’s a sampling from Revzilla of motorcycle sales.

motorcycle-sales-ending-in-2014-stats

The problems they faced by entering a market with an increasingly older rider demographic, with a product facing established, successful competitors, Harley Davidson, Honda, Yamaha, Triumph, Suzuki, etc. were huge. They needed something where a segment wasn’t being served. To say, we’re the alternative to Harley-Davidson because we are an American manufacturer that also builds large cruiser & tourer motorcycles, just wasn’t enough.

As a matter of practicality, when you look at two of the biggest motorcycle manufacturers, Honda & Harley, you have to ask yourself, what makes them so successful? I might not be an expert in this area, but I can sure take a good guess. Harley-Davidson in 1980, like the 1950’s and 60’s British bikes was taking a dive. In the late 1970’s and throughout most of the 1980’s, BSA, Triumph & Norton were gone. By the 1980s the Harley-Davidson Motor Company had come within red-ink inches of the edge of the cliff which many other manufacturers had plummeted over. In 1981, they managed to combine a group of investors and through an LBO bought the legendary motorcycle company. Recovery came rather quickly with these committed people at the helm, and through their persuading President Reagan to impose tariffs on larger displacement imports.

Harley-Davidson knew they had a brand that could engender loyalty. In a way they leveraged the 1% biker image as a marketing ploy to those who had large enough disposable income that wanted to be weekend “hell-raisers”. The doctors, dentists, pilots, and many other successful business men wanted to show they were still “rebels without a cause.” They sold on “sex appeal”. Even the historical Triumph Motorcycle brand was resurrected by a successful British real estate mogul.

Meanwhile Honda, the always market savvy and almost always reliable manufacturer of small bikes, continued their onslaught from the 1970’s with ever larger and more sophisticated bikes, but never forgot the younger more economy minded motorcyclist. They understood the ageing demographic too, by developing and continually upgrading the Honda Goldwing. The closest thing to a Bentley or Cadillac on two wheels, but with handling and power of some sport bikes. Honda also found the off-road segment was a market worthy of pursuing. The biggest market for Honda is Asia, with small displacement & Moped size bikes.

Polaris came into the market with the Victory and later, doubled down with the purchase of the Indian brand of motorcycles. Indian was the historical rival of Harley-Davidson and some say, the most beautiful of the earlier 30’s art-deco inspired styling. It didn’t really pay much attention to what was currently trending as it slowly grew from the bigger rivals.

Harley-Davidson has social and consumer branding down to a science. They sell a lot of other merchandise and they get free advertising. Almost everywhere you look you will see a clothing item or sticker with the name of the company. I don’t know if they aren’t a more recognizable brand than Coca-Cola.

Honda sells machines to every conceivable market segment with a reputation of reliability. I’ve been a Honda motorcycle owner and fan of the product since the late 1990’s. I’ve never had a breakdown. If you do the normal maintenance, (which isn’t much), you can expect that when you turn on the key, you’re in for a pleasant experience of getting to your destination.

So who or what is Victory, other than a name? I saw a couple of their models that I liked, but I know the older riders tend to like the Harley. It’s also gotten very reliable and they’ve come out with some new models to address the younger and less willing to spend mega-dollars on two wheels, consumer. The big luxury tourers offered by Victory seemed to use a merger of the Jetsons meet the Croats idea of design.

victory-motorcycle-2017-lineup

Victory went after the same market segment as Harley-Davidson. That’s primarily, the over 50 male crowd. They didn’t offer models that would appeal to a younger segment, like sport bikes or financially frugal riders. For the most part, they ignored marketing to women. How then could they see a path to success? Build a better mouse trap? As I said, Honda is incredibly reliable and Harley isn’t too far behind. Increase displacement? Harley-Davidson has been doing that. In recent years, Harley-Davidson has steadily increased displacement since 1999 – 88 cu in (1,450 cc), 96 cu in (1,584 cc), 103 cu in (1,690 cc), 110 cu. in. (1,801 cc). Honda Motorcycles did produce a larger V-Twin (1800cc) from 2001 thru 2008 in Marysville Ohio. They have backed off the larger displacement bikes, concentrating on a different market segment.

Sales statistics for 2105 (U.S. only)
——————————–
Harley-Davidson  – 1
Honda Motorcycle Group – 2
Victory was 10th in the list. Still, they reported this rosy forecast in 2016

harley-davidson_motorcycle_sales_stats

Where does Polaris Industries fit into the motorcycle industry going forward? They claim they will focus more on their Indian brand. This is supposedly a stronger brand for them. The high-end Victory Motorcycles were in the mid $20K and Indian is right about there as well.

Motorcycle Annual Sales Numbers for 2015

Manufacturer North America sales Worldwide sales
Honda Motors 286,000 10.73 million
Harley-Davidson 189,082* 264,627
Yamaha 89,000 5.22 million
Kawasaki 51,000 524,000**
Suzuki 35,000 est. 1.11 million (est.)
BMW n/a 136,963
Ducati 12,132 54,800

Personally, I think they’re done and will entirely leave the two-wheel market in a few years. I don’t think you have to be a marketing guru to realize the almost insurmountable position they’re in. Another air/oil cooled V-twin motorcycle, no matter how old the original brand is, or how beautiful the bike looks isn’t likely to spur an increasing demand or expanded market share. Triumph Motorcycles offers that rich tradition at generally a lower cost of entry.

indian_motorcycles_lineup_2017

Photo courtesy – American Iron

Younger people are more likely to purchase a car which meets their sport and-or fuel economy requirements in transportation. Polaris has many other recreation oriented products which provide them revenue. I think this announcement has damaged their credibility.

A False Economy of Minimums

stack of money

Value of money

I saw another post on raising the minimum wage, and thought, I could either ignore it or take the time to explain what it means in a larger sense. (see the background article thru this link)

I think it’s necessary for each of us take a moment, if this topic is of interest, and understand some common ground.

Generally speaking, there are some things which we may find in agreement.

1 – Minimum wage isn’t a comfortable wage. It means living without a lot of things we’ve come to expect, such as a comfortable, safe place to live, decent food, heat, lights, transportation. A person can eek out a living, maybe better if shared with other family members or reliable wage earning roommates, but it’s still a constant challenge to live on a minimum wage.

2 – Minimum wage shouldn’t be something permanent. It’s usually considered a starting point for entry-level jobs requiring a minimum of skill. For some, it means just showing up and doing the minimum to keep the job. That’s the problem though, if a worker does only the minimum so they don’t get fired, but doesn’t take on added tasks which enhance their abilities / skills, they may end up staying at that level for most of their working life. A government may change it, but it’s always a poor income.

Ancient Egyptian literature - Horus

Money = trade substitute

Basic concepts of money

Money is merely a modern form of trade. In the past people would trade commodities which they valued against something the needed or wanted. The simple examples; you trapped fur-bearing animals for a living, you would trade their pelts for something you thought was valuable, like wheat, sugar or tobacco. Now don’t get lost on the morality of trapping animals, it’s merely a discussion point.

As societies developed, the need to find a useful substitute for trade spawned the need for coins and later currency. Instead of trading sacks of flour, animals, or pelts, people began to equate a specified amount of currency for each item. If you didn’t make, grow, or trap something, but provided a service / labor, currency became an easier way of setting a value for that time.

Here’s where people, who desire things to be altered to their way of thinking, misunderstand the concept of a minimum wage. Minimum wage is just as arbitrary of a concept as the value of a large polished diamond. We can say, a diamond shouldn’t cost that much, and a minimum wage should be a lot more. In the end, setting a price through a government law, doesn’t really alter it. Diamonds will still cost a lot, and minimum skills will earn a minimum wage. It’s a perceived value of each commodity.

If you raise the minimum wage through federal law, everything will start to adjust based on the perceived value. Review the history of the minimum wage from 1955 – 2015.

Let’s look at these items in 1950
The average family income: $3,300
The average car cost: $1,510
The median home price: $7,354
A standard American car could be purchased within a range of $1,339 to $2,262 depending on the model.

1950
Home price / income = 2.2
Car cost / income = .45

Fast forward to 2014
The average family income: $51,017
The average car cost: $31,252
The median home price: $188,900

2014
Home price / income = 3.7
Car cost / income = .61

Without trying to accommodate all the tuition ranges for an elite college, lets take a look at the University of Pennsylvania for undergraduate programs comparing 1950 to 2013-2014

In 1950, the annual tuition was ~ $600
In 2014 it was > $40,000 per year.

1950 Tuition / income = .18
2014 Tuition / income = .79

This upward trend was due to people demanding more for the same things. I’ve read many articles describing how much better the minimum wage was in 1950 or ‘60 vs. its earning power today, but all of these editorialized explanations fail to understand consumer fundamentals, we want more income & lower prices for goods & services. Inflation has increased the cost but our arbitrary demands haven’t changed economic realities. We pushed for cheaper goods at our local retailer, which was answered with offshore manufacturing. We want higher minimum wage, but the market adjusts, and everything costs more, while fewer people are in the work force.

An attorney may charge $350 to $1000 per hour. You or I didn’t set that price, however people are paying it. A server at a fast food restaurant may get minimum wage, but we we don’t want to pay $10 to $12 for an order of fries. Things will adjust based on how much we’re willing to pay, but in the end, it’s not that we’re really getting more, it’s all adjustable prices associated with commodities or services.

No matter what people pay for minimum wage, all other prices adjust, too. Inflationary costs rise disproportionately, as a result the low wage earner is back to the same problem, inadequate income for the cost of living. Worse still, retirees are really hurt because their fixed incomes and savings don’t adjust, and they become even more impoverished with rising prices.

What’s the solution? The solution for many is the same formula that I and millions of other discovered decades ago, minimum wage isn’t enough. You must learn skills that place you in a higher income bracket. Even many college graduates learned the hard way, a bachelor’s degree in history, art, or social science, may cost about the same as engineering or business, but the income ranges are quite different.

gold bullion

Our value is in what we do

The best choice, and the one that provides greater value to any person who wants to earn more, don’t wait on the government to provide a better standard of living. The marketplace will automatically change prices with a rise in minimums. Choose your options which provide a higher income. This is something you can control, not the government.