In the quarter century period between 1946 and 1970, a phenomenon took place in the west which would come to shape the next 75 years. In the years following the end of the second world war, significantly more children (up to 50% more) were born. These ‘baby boomer’ children, as they grew up and entered the maximum consumption age group of 25–54 years old, drove their respective national economies forward on an unprecedented scale, and were largely responsible for the boom in economy, housing, and markets evident since the 1980s.
The ‘Crazy Years’
The late eighties and early nineties were years of excess; excessive consumption, excessive power, excessive expense accounts. Work was easy and boozy lunches were the order of the day. As the economy was on the up, and the (credit) money flowed liked water, you could be a monkey in a suit and still make you and your company lots of money (many did).
But the ‘golden age of consumerism’ is now coming to an end as the baby boomers who caused this great boom in economy are reaching retirement age and instead of spending, they have started saving for their retirements, which, thanks to advances in diet and healthcare, could be another 30+ years, or over half their working lives.
While they may have saved a modest pension, stopping work and expecting to live off accumulated savings doesn’t yield the annual return experienced as a working person. For example, a pension worth £1m, will bring an annual income of £33k per year over the next 30 years. Not bad, but we don’t all work on the board at HSBC and Barclays. A more modest but still significant £250k pension pot yields just £8,333.33 a year over 30 years. How would you like to live on less than £10k a year? You’d better have paid off your mortgage.
Supply & Demand
Demographics is rarely considered in economic forecasting, but if you break it down to its most basic elements; economics is about supply and demand. Not supply or demand, both of them. Demographics should really be the primary means of assessing likely economic spending habits, but for some reason it is overlooked by most mainstream economists. It certainly hasn’t made an appearance in any explanations of economic downturn that I’ve read recently.
When young, adults have limited income and therefore limited spending power, but as they mature, gain experience and skills, they become more valuable in their offerings to the world and start to earn and spend money as they have children, buy houses, cars etc.
Adults enter their maximum earning and spending years between the ages of 25 and 54. The flow of cash arising from this natural demand is good for the economy; houses, cars, white goods, DIY products, bicycles, iPads, new kitchens, even luxury toys like motorcycles are all bought. The baby boomers provided enormous demand, but they were also the same people working in the economy creating the supply.
Having such a large quantity of people no longer consuming affects the economy in a significant way. The oldest UK baby boomers born in 1946 reached the age of 55 in 2001, around the time of the dotcom crash. The median baby boomers born in 1958 reached the age of 55 in 2013, after which the world reached a tipping point in consumption and economic growth. For the foreseeable future, based upon the economic measurements we are accustomed to using to judge the economy, we will not return to such prodigious growth for many years.
Japan’s Baby Boomers
Japan’s economy and the spending habits of its baby boomers preceded those of the West. Japan’s baby boomers were mostly born between 1940 and 1952, and were in their greatest consumption years (aged 25–54) between 1977 and 1994. This unprecedented demand, and the easy credit supplied by the banking sector to fuel it, created the enormous economic boom seen in Japanese markets in the late 1980’s, and the bust shortly afterward, as those same Japanese boomers entered the 55+ bracket and personal consumption tailed off, and spenders became savers.
Central bank money printing ‘Stimulus’ programmes employed in Japan and elsewhere have attempted to fill the hole left by natural demand, but have failed to stimulate the economy to its former glory. Creating false demand by getting a smaller number of people to borrow and spend, whether it is equity release from re-mortgaging a house, credit card spending, buying goods on finance, or even taxing the working public and spending it on their behalf doesn’t work, as the cash must be repaid eventually, with interest, and the cost of excessive credit weighs down an economy.
Even with this disastrous policy clearly demonstrated in Japan, governments of the UK and USA seem to think that for them at least, things will be different. They won’t. On our present track we are headed for another lost decade of growth caused by too much debt, and a reluctance to let capitalism work as intended. We can have booms but we must allow the busts to clear out the dead wood, or we face stagnating economies full of technically insolvent institutions, on government life support.
The Japanese economy has effectively been in a state of stagnation for the last 20 years as government stimulus programmes have done little more than increase the national debt (Japanese debt to GDP was standing at 227% in 2014).
With government baby boomer liabilities such as elderly care and pensions at an all time record level, and an ageing and largely unproductive population, there are not enough active people paying taxes to fund the baby boomers’ retirement fund, and so government is having to borrow to make up the difference. Economics lesson nearly over.
The Golden Days of Motorcycling
The nineties and even more the early noughties were glory days for Japanese motorcycle manufacturers and retailers in the UK. Multi-franchise dealerships like George White Superbikes and Carnell sprang up everywhere with a tantalising range of new models to choose from, the bulk of which came out of Japan. Money (debt) was cheap and a lot of it flowed into luxury goods such as motorcycles and cars.
Moreover, UK boomers were coming into their maximum earning and consuming age range. Motorcycles were cheap, and the wave of born again bikers, who had toyed with motorcycles in their youth, now had the means to buy the latest, greatest sportsbikes in large numbers. And buy them they did.
Since the Japanese economic bust in 1989, the Japanese economy had been on the wane. Despite this, markets of the US and Europe were still booming on their later born babies, and so demand existed in foreign markets; the traditional purchasers of high quality Japanese consumer products. And so Japanese motorcycle manufacturers remained afloat despite less than healthy domestic economics.
Due to manufacturing improvements, productivity increases and a growing market base, the cost of Japanese motorcycles fell progressively, year on year, until the global financial crisis hit in 2008/9, where there was a sudden price hike. The Yen rose relative to the British pound and put the cost of a Japanese manufactured motorcycle up from around £9,000 to around £12,000, almost overnight (a 30% increase).
Japan was badly affected by the crisis of 2008 as it relied principally on the economies of the US and Western Europe to buy its high end consumer goods (over 90% of Japan’s exports consisted of highly income-elastic industrial supplies, capital goods, and consumer durables; ‘income-elastic’ meaning that when people are broke, they don’t buy them).
Additionally, as credit was the main way people bought expensive consumer goods like motorcycles, when the banking sector seized up, so did the flow of credit and businesses everywhere became insolvent, as their own debt levels and cashflow problems saw them default if their debts.
The boom in motorcycle sales enjoyed in the noughties has not returned, and a fall in sales as well as a decline in the financial position of the Japanese motorcycle manufacturers has meant a fall in capital investment in the Japanese motorcycle industry. Where once we saw regular three yearly updates to Japanese bikes, some of the bikes currently on sale are not much changed in 8 years (2008 Fireblade, 2009 GSX-R1000)
In the face of falling sales volumes, manufacturers cannot justify the high costs in R&D to bring out new products every three years. Six years is more likely the product turnaround, and as long as they all stick to the same programme (perhaps another one of their ‘gentleman’s agreements’) It could become the norm in Japan.
Around the time the Japanese bikes went up in price, as if to make matters worse, the big four Japanese manufacturers who were exporting to markets in the UK, Europe and USA were now not only competing with each other, they also had a growing talent of European manufacturers to contend with.
European manufacturers were starting to beat the Japanese at their own game. Moreover, they were waking up to the emerging ‘demand led’ trend. They were asking their customers what they actually wanted, and then building it.
BMW introduced the giant-slaying S1000RR, modelled around the seminal 2005 Suzuki GSX-R1000 sports bike, which wiped the floor with the competition pretty much first crack out of the box.
Meanwhile, Triumph was beating its four cylinder Japanese 600cc adversaries with a very British 675cc Daytona triple and Adventure bikes like the BMW R1200GS and the Austrian KTM Adventure were the hot new wheels in town following Ewan MacGregor and Charlie Boorman’s multi round-the-world trips.
The Death of the Middle Class
As sales volumes of high cost products like cars and motorcycles have fallen, car manufacturers have found themselves in worse condition than motorcycle manufacturers; bikes have always been a luxury item, not typicaly bought as mainstream transportation (check the ads for sub 10k mile, 10 year old bikes), and so any fall-off in sales can be easily revived with competitive pricing, and the magic of easy finance. Cars are far more expensive by comparison, and the number of people learning to drive is falling year on year.
Manufacturers who are going to not only survive the next ten years, but emerge healthy and intact in 2025 must accept that the old “middle class baby boomer” model is giving way to a “new normal”; an economy where consumption has fallen significantly and cannot be revived by false demand, based on borrowing.
Want to know why biker meets are made up of middle aged men? It’s simple demographics. The majority of the market is over 45 years old, and 60 is the new 40. Being 60 isn’t about zimmer frames, dentures and walking sticks, it’s a new period of extended, healthy life. It’s about having fun.
Because of the baby boomers’ activities, many of them are sitting on considerable property wealth, which they are going to need to fund their retirements (one reason I’m not worried about a shortage of housing)
The baby boomer market still holds huge potential, and companies who crack this market segment over the next decade will see their share prices grow significantly in a stagnant market laden with debt.
While the ageing baby boomers want one thing, at the other end of the scale we have demand from the true growth economies of countries like China and India. They are seeking utilitarian, reliable, safe and easy to maintain transportation, but they haven’t much to spend. These people may be entering the ‘middle class’, but we are talking about the middle classes in their respective countries, and it is far less than salaries in the West.
Companies which understand these two demographic groups; retiring baby boomers and developing ‘aspirational’ demographics in countries like China and India will do extremely well. Those who continue to focus on the disappearing middle ground will be like stranded fish out of water as their pool of potential buyers gradually dries up.
Comfortable and Refined / Cheap and Durable
The Japanese and European motorcycle industries have served their own wealthy markets successfully, but these markets are saturated, and the number of consumers are falling compared to the global supply chain which has been built up to serve them. Some of these businesses are going to fall by the wayside unless they adapt their business models to take a more specialised slice of the pie, serving smaller, more bespoke markets.
You might think that baby boomers are not really the sort of people who would be interested in purchasing motorcycles, but I warrant you that they have been. The rise in adventure bikes is a perfect example of the spending habits of the baby boomers.
Their wrists and lower backs can no longer take the strain and so they are giving up their sportsbikes for something still appealing but much more comfortable. Chief among them are the BMW R1200GS, retro bikes like Triumph’s and Ducati’s scramblers, and super-nakeds, a chassis and engine from a sportsbike, but with a more comfortable upright riding position.
Biking in the Year 2025
The biking landscape of 2025 will look very different to what we have today. In a shrinking marketplace, manufacturers will be forced to gather ranks and focus in on specific products. Successful motorcycle manufacturers will focus their effors on the two ends on the spectrum; on the one hand we will have more expensive, virtually bespoke products; larger capacity, refined, more comfortable bikes for those still riding in the 60+ demographic.
On the other hand, youngsters (who are basically poor by comparison) and those in the developing world who will be joining the motorcycle fold. They will have very little to spend, so bikes like the £450 Hero Honda Splendor NXG which costs 48,702 rupees or £500 will appeal.
If we give youngsters the motorcycle as a cost effective alternative to a car, the growth potential for two wheelers is enormous. But has anyone in the MCIA assessed the requirements or the desires of the young and the 55+ baby boomers? There’s no need. Just take a look at where the current consumption is in any economic sector, and you will the effects of a shift in the spending habits of those with the cash; the baby boomers.
Sales in touring motorcycles are falling, while sales of Custom and Adventure-Sport motorcycles are soaring. The boomers are rejecting the fuddy-duddy image of BMW touring machines ridden by IAM examiners wearing luminous Sam Browne belts, for something a bit cooler that doesn’t take itself too seriously; Harley Davidson, Adventure sport, and one off Custom roadsters are all popular. Naked bikes are being bought in greater numbers too, which suggests that these are being bought as toys rather than functional machines.
Expect to see a rationalisation of models; a focussing in on what manufacturers do best. Instead of offering a number of different models of motorcycles, manufacturers will offer the ability for clients to customise a more limited range of vehicles in much more specific ways to their own liking; much as you can currently with cars. This is the ‘value added’ ethos of the go faster stripes of the 1980s.
If you want to specify Ohlins or K-tech suspension, you can. If you want to specify ABS, heated grips, traction control, multi spoke lightweight wheels, just tick the box. If you want an auto transmission, LED headlights, or a state-of-the-art TFT display and anodised headstock, you can choose to have it. Want a fairing? Don’t worry, the bike has been designed to look good with any number of configurations. Want a V-twin, a triple or an inline 4. Just check the box.
Manufacturers will spend the bulk of their time and money making the core bike solid, so that in its box-standard configuration, it works well and lasts well. Honda might for example release what will be known as the “Honda One” (They would also make a Two and a Three). This bike would be:
- Cost effective to buy
- Cheap to run
- Easy to maintain
- Long lasting (ideally piece-meal upgradable over time, so that you could upgrade bits of it rather than the whole thing, as funds allowed)
The biggest market for motorcycle manufacturers, a path many have been pursuing for some time, is low-cost low-capacity models which make up the majority of transportation in the developing world.
India is a target market for the Japanese. Honda has already released the Hero Honda Splendor NXG sold in China and India, and Yamaha’s sub $500 bike, are two examples of the new market focus for the Japanese.
You may think that nobody in the developing world would buy Japanese or European motorcycles, but I think we’ll developed high-tech manufacturing has something to offer the market that domestic makers can’t. Think of them more as services economies rather than manufacturers.
As personal income shrinks, so does the economy. People will quickly tire of the disposable products they have grown accustomed to over the last few decades, and we will see a return to high quality, well engineered, durable products. Consumers will be looking for products which last and which can be fixed over time.
Japanese and European manufacturers have the quality manufacturing and design pedigree to provide customers with long lasting products, but they must design these elements into their machines from the outset.
The ’504’ model
If you go to North Africa, or even the Eastern Mediterranean, the place is chock full of cars which disappeared from UK roads sometime in the late 80’s. Granted they don’t use much salt on Turkish or Moroccan roads so their cars don’t tend to suffer from tinworm, but the venerable Peugeot 504’s, Renault 9’s and late 80’s Mercedes saloons have lasted through time because they were solidly built, parts were cheap (or even possible to fabricate yourself), and because people knew how to fix them and they were easy to work on.
Any motorcycle suitable for the emerging market must be equally appealing in these regards, and as parts wear and eventually fail, they must be able to be replaced with new (often improved) parts from the factory shelf. People in the developing world don’t want to be replacing their motorcycles every three years, they want them to last 20 and be cheap and easy to service and maintain (ideally they can do it themselves with the tools under the seat). Such design is well within the capability of the likes of Honda, Triumph and BMW but it must be on the drawing board from the outset.
The Boomer Market
It is clear from the rise in sales of adventure touring motorcycles, that boomers are still interested in bikes, but they are moving away from the two stroke race replicas of their youth, through their litre superbikes, towards something powerful, stylish but with a little bit more comfort.
Some gentlemen bikers in their mid forties to mid sixties still buy themselves sportsbikes, but they are far more likely to put down a deposit on a KTM Adventure, R1200GS or Triumph Explorer than a Japanese sports 600.
How about the wider motorcycling market for baby boomers? They will be looking for something to do with their time. Having stopped work, they are time rich and cash poor. I would expect their interest in motorcycles to expand rather than contract as they get into their retirement years; expect to see more education and time spent tinkering, not just in the garden, but in the workshop.
We might see a rise in workshop courses on how to maintain and service classic motorcycles, increases in touring trips (potentially with the wife on the back), advanced riding courses, even 55+ track days (Ron Haslam “Rocket Ron” runs a track school at Donnington and he is 58 years old, and almost certainly faster than you).
In a shrinking market, motorcycle manufacturers can no longer each be all things to all people, they must decide what they stand for, and make that their primary focus. Just as one individual cannot serve an economy on his own, he is part and parcel of a bigger picture, motorcycle manufacturers must decide what they wants to contribute to the mix. Manufacturers must focus on what they do best. Instead of making 10 reasonable models, they should make three truly excellent ones.
Think about what John Bloor did when he resurrected Triumph; he focussed the organisation’s efforts into producing a few products based on the same underpinnings. I expect to see a similar thing returning to the world of motorcycles.
If manufacturers leave it too late, they will discover that in a world laden with excessive debt repayments and a shrinking money supply, the middle class demographic (which is paying off all the debt) has no money left to buy luxury items like motorcycles. Two distinct groups will remain
1. The rich (for whom money is no object) who will want something special, and
2. The poor (who want a cheap, reliable, durable means of transport).
Let’s hope the manufacturers get the message before they too disappear.