DO YOU HAVE A PLAN FOR DEALING WITH TARIFFS?
By Steve Bina
In the last edition of the Bicycle Business Reporter, I wrote a primer on free trade. In that primer I opined the idea behind free trade is to allow countries to specialize in producing goods and services in which they have a competitive advantage, leading to greater efficiency, economic growth and lower prices for consumers.
I also wrote that in a perfect world, free trade would happen without any interference, but we don’t live in a perfect world. I don’t want to make any political judgments about the state of tariffs being implemented by the current administration. Rather, I’ll present a dispassionate look at what impact tariffs might have on the domestic American bicycle industry.
Let’s assume tariffs are put in place to either protect a domestic industry or to “even the playing field” to stop a foreign source from using a manufacturing advantage to undercut local production. Thus, the percentage of the tariff would be a negotiated amount between the two parties to reach parity. That’s the perfect world scenario.
Tariffs are typically unilateral, with one side determining the commodity and the percentage to charge. In many cases, that percentage will exceed perceived parity, giving the country establishing the tariff a little “advantage.” Sometimes, there are concerned interests that have sway over what commodities the tariff should cover and how much the tariff should be.
The American bicycle industry doesn’t have an advocate to influence current tariffs. Certainly, there are elected officials around the country who ride bicycles and would be happy to promote the industry. However, the industry’s biggest cheerleader recently retired from Congress, Representative Earl Blumenauer. While there still remains the Congressional Bike Caucus, it doesn’t have the same horsepower that other groups can generate.
There isn’t much of a domestic manufacturing infrastructure to make itself known to elected representatives. Earlier this summer, Bicycle Corporation of America closed permanently, laid off its remaining staff, and auctioned off all its equipment. Waterford Precision Cycles closed its doors a little over two years ago, though the names and trademarks have been purchased by another small custom frame builder.
Even the big names in business, Trek and Specialized, have moved almost their entire production offshore. The other big name in the business, Giant, never had any American production facilities to begin with. I submit that without any significant domestic production, there won’t be any impetus from elected officials to try to reduce the impact of tariffs as they affect the bicycle industry. There are many larger groups that elected officials will need to work with to try an minimize the impact on their industries (and maximize the campaign contributions).
Because there doesn’t seem to be any significant American manufacturing, there also isn’t a national labor union lobbying to protect or increase work for its membership. The United Auto Workers won representation at Schwinn back in the early 80s, but that was short-lived as the Chicago factories were closed. Mass merchant manufacturers Huffy and Murray were unionized, but when they outsourced their products, those employees were laid off and lost to the industry, too. The Teamsters, the International Association of Machinists, or the United Steel Workers never made any other serious inroads in organizing any of the American bicycle manufacturers. The workforce was too segmented and didn’t have that many potential members to warrant the expense of an organizing campaign. Today, it is estimated that the number of employees in the industry in America is just 23,000.
With the closing of the companies noted earlier, the skilled workforce needed to re-establish domestic bicycle manufacturing has been scattered. I have always been amazed when telling people I used to work in the bicycle industry, they assume it is a low-tech business. Then we start talking about what it really takes to make a bike: the design expertise for a frame, the skill to work with different materials such as steel, chromoly, aluminum, carbon fiber, and more, and the knowledge and dexterity to lace a hub with spokes for a wheel. These things can be taught, but these skills are not mainstream and take a while to learn.
In addition to losing a skilled workforce, the equipment used to make a frame, thread a fork, true a wheel, and more gets lost, too. When factories close, many times the equipment is sold off or scrapped by the new owner of the building. Not only are employees and their skills lost, but often the needed equipment and fixtures are lost, too.
Therefore, the question becomes, are there any groups that will advocate for our industry to mitigate the impact of the tariffs? The self-proclaimed American bicycle industry trade association recently made a statement that the industry was experiencing devastating consequences from tariffs and business uncertainty. They went on to state they were plenty worried about the business over the next four to five years. Whether you think the tariffs are the right thing to be happening or not, it is apparent this trade association doesn’t feel it has any influence in this matter.
Additionally, this trade association believes there won’t be any short-term relief. Along with the statement above it also sees little hope of any recovery in the business before the end of the decade.
The bicycle industry doesn’t appear to be on the radar for a tariff exemption. The key American industry opportunities for possible intervention are agriculture products, energy (oil and natural gas), airplanes, pharmaceuticals, automobiles and services. These have large number of employees and representation that gets noticed. They have elected official supporters in different levels of government that will raise visibility of the importance of a specific industry.
The reality is the current tariffs have had an impact on the bicycle industry. One opinion is that impact will last through the end of the decade. If selling new bikes will be problematic there are other revenue streams to make up the difference.
How is your store set to increase sales from the service department? Do you have a plan that will provide quarterly/annual/tune-up service at a fixed price? Do you have a higher hourly rate for e-bikes than for analog bikes? Is there a program that will upgrade components and/or tires? Have you started a program to sell used bikes? Do you have seasonal specials on accessories? Is there a mailing list of current/former customers you can use to invite customers or friends into the shop for special events?
Something else to consider is becoming a member of the National Bicycle Dealer Association (NBDA) and attending a P2 (Profitability Project) group meeting. These meetings bring together non-competing dealerships to share data, tips and successes to enhance your profitability. The tariffs are having an impact on your business and it seems there isn’t much anyone or anything can do to turn that tide. But there a few things you can do to minimize the impact.
Do you have a plan?
Contact Steve Bina: steve@humanpoweredsolutions.com