SEMA News—September 2011
Powering Through Turbulent Times
Industry Experts Discuss the Passion Fueling the Powersports Recovery
By Chad Simon
If you were to ask nine different power-sports experts about their perspectives regarding the current state of the industry and where it’s headed, chances are you’d get nine different answers. Well, that’s just what we did. Our interviews with nine major industry players from various niches uncovered many issues, including how the recession impacted their businesses, how their customers are coping with higher fuel prices and what must be done to ensure the survival of not only their own businesses, but also this whole important market.
American Honda Motor Co. Inc.
The powersports industry is finally leveling off, reported Bill Savino, manager of motorcycle press for Torrance, California-based American Honda Motor Co. Inc. Honda experienced a couple years of hard economic times, but things finally seem to be stabilizing, and Savino expects further improvements with the availability of two new products—the CBR250R entry-level motorcycle and CB1000R naked sport bike.
Further complicating an economic recovery are fuel prices, which are on everyone’s mind lately. When fuel prices spike, sales of motorcycles under 750 cc also seem to increase, which is why Honda rolled out the 110-mpg PCX 110cc scooter last year.
“We had 14 years of straight industry growth, and when the recession hit, we saw a couple years of definite decline,” Savino said. “The positive is that we cleaned up our inventory and are now up-to-date with our current inventory. We’re in a good position as the industry starts to respond and improve going forward. Business is starting to pick up, though, it’s nowhere near what it was a few years ago. We’re not seeing double-digit declines anymore, which makes it easier to plan.”
Yamaha Motor Corp.
The personal watercraft industry is rebounding, with demand up 20% compared to last year, reported Mark Speaks, president of Kennesaw, Georgia-based Yamaha Motor Corp.’s watercraft group, which mostly features Wave Runners. With a median age of about 47, the enthusiasts in this market are a little older than in other powersports markets, and most buyers are married men with two children and a household income of well over $100,000.
When fuel prices spike, sales of motorcycles under 750 cc also increase.
“This is not the first time we’ve seen $4 gasoline, and it doesn’t seem to have the same impact as it did back in 2008 when we first saw it,” Speaks said. “However, if gas prices were to hit $5 per gallon, we would see a significant loss of sales. Rising fuel prices are a complicated issue when it comes to personal watercraft, because many of our customers also own boats, and we find that as gas prices go up, it can actually have a positive impact on sales. People put off purchasing a bigger boat to buy a personal watercraft because they are much more fuel-efficient, but once prices go past their tolerance level, then we see a negative effect.”
Since the onset of the recession, Yamaha has experienced an increase in the portion of value-oriented product sales. In addition to value, customers seem to want the right combination of style, reliability and performance, which are the key drivers.
“Going forward, we must ensure that we’re maximizing value for our customers,” Speaks said. “The greatest risk to our industry is that prices inflate on our products to the point where we price more customers out of the market. We don’t have any customers to spare, so it’s important that we manage prices carefully.”
The powersports industry is repairing itself, much like other parts of the automotive aftermarket, according to Brock Weld, president/owner of Orange, California-based BMF Wheels, which specializes in custom wheels for trucks, side-by-sides and UTVs. Catering mostly to men ages 14–50, Weld said his customers are usually truck owners who identify with the counterculture. They aren’t into compact, eco-friendly cars; they just want to drive what they want, whether it’s on the street or off-road. The whole side-by-side custom wheel started as a side project and took off, which surprised Weld because his core business revolves around custom truck wheels.
“Virtually everyone who owns a side-by-side or UTV also owns a lifted or leveled truck, so it seemed like a good extension for us,” he said.
Though color matching has become increasingly popular, carbon-fiber blackened machined wheels for side-by-sides and UTVs are still strong sellers.
“It got so big so quick that a lot of people started to say, ‘I don’t really care about motorcycles that much,’ which is why it will never recover to the stature it once was,” he said. “Powersports is different because it’s a lifestyle. It’s going to come back and continue to grow.”
Gas prices are definitely a factor, but Weld believes that they only cause people to postpone their purchases, not give them up entirely. Consumers, he says, are not going to spontaneously start driving an economy car when their heart and soul is with a lifted truck. They might have to wait or buy a used lifted truck, but they’re going to find a way to make it happen one way or another.
Bring in the Youth
Looking ahead, Weld sees a large gap between the older and newer generations in the custom wheel industry and believes that it’s critical to lure younger buyers. He also believes that some powersports suppliers don’t necessarily understand some of the tools available to them, such as social media and other forms of communication technology geared toward the younger generation.
Another method of survival is to exhibit at the SEMA Show, which Weld does annually. “I wouldn’t be where I’m at today if I didn’t display at the Show,” he said. “Especially for a guy like me, where I’m trying to break into a new market, such as powersports. Having that section available opens up a whole new realm of dealers and distributors that normally I wouldn’t talk to.”
Some of the latest industry trends for ATVs, UTVs, trucks and buggies include LED lights.
“The Big Four manufacturers [Honda, Kawasaki, Yamaha and Suzuki] were off by 50%–60% in off-road vehicle sales, and that just filters down to the rest of us,” Moore said. “The sand market is probably off about 70%–80%. As a whole, I would say the entire industry is off about 50%.”
Males between 35 and 50 years of age are Baja’s target demographic, and they look for performance and value first when evaluating product. According to Moore, the latest industry trends include LED lights and, unfortunately, Chinese knock-offs. To combat the knock-offs, Baja has to constantly innovate.
“Looking forward, one of the biggest threats to our industry is regulation, such as land-use issues, which affects our ability to be enthusiasts and also could kill our industry,” Moore said.
Gart Sutton & Associates
The powersports industry has suffered a long stretch of downturn, but the past few months have finally been positive, according to Mike Brunken, general manager for Gart Sutton & Associates, a provider of motorcycle 20 Clubs, which offer clients a blend of training opportunities, resources and business operations support.
Powersports has been hit harder by the recession than most businesses, reported Brunken. When discretionary spending is unavailable, the motorcycles that people have always wanted drop from first or second on their wish list to seventh or eighth. Higher fuel prices always help motorcycle and scooter sales, especially street bikes, but not off-road vehicles, such as ATVs and motocross bikes.
“Many dealers are also getting into used motorcycles,” Brunken said. “OEMs are short on production due to the tsunami in Japan earlier this year. A lot of our dealers are concerned about their inventory levels, so there’s a big push to get into the used market with a lot of low-cc street bikes being sold now.”
Providing great customer service is critical, and that’s what businesses in this industry must do to gain an edge over their competitors. Brunken suggests following up with customers to ensure that you’re their place to go to get powersports products.
NADA Appraisal Guides
In late 2009 and early 2010, the powersports segment was hit particularly hard, but the good news is that Q4 of 2010 and Q1 of 2011 showed steady increases, including a 7% increase in Q1 of 2011, which was the first quarterly market increase in a couple years, reported Sims. However, drivers still have to contend with higher fuel prices, which are sending some into motorcycle dealerships. It happened in 2008, as well, which led to an increase in sales of scooters and road bikes that can get 35–45 mpg.
Because the market is divided into various segments, consumers are motivated by different purchasing factors.
“For instance, V-Twin enthusiasts want comfort, performance and fuel economy,” Sims said. “Some bikes offer affordable alternatives for power, comfort, technology and performance, while others may be more expensive and not have the same features. But those folks aren’t looking for the same thing. At the end of the day, it all comes down to value.”
MARSHALL MOTOART LLC
Despite a sluggish economy, it’s business as usual at West Haven, Utah-based MARSHALL MOTOART LLC, which specializes in aftermarket accessories for the POLARIS Ranger and RZR and in custom side-by-sides using existing powertrain components. As a partner to POLARIS Industries, MARSHALL MOTOART’s 5.5 Cage Kit for the crew and midsize POLARIS Ranger allows three more people to ride—two with full legroom—in a safer fashion. New this past summer was a full line of RZR accessories, particularly the Gull Wing Doors and Stinger Bumper. The side-by-side and UTV business is family-oriented; from kids 16–18 to baby boomers, but the main demographic is males 30–60.
Another way consumers are saving money is by downsizing their equipment, said Chris Burke, MARSHALL MOTOART president.
“Because of the recession, a lot of guys used to have a Jeep and a boat. Now they are looking for one vehicle that they can do a lot of different activities with, and that’s where the side-by-sides are awesome,” said Burke. “You can take them to the dunes, you can take them to the rocks, and some states, such as Arizona, have made them street-legal, so you can buzz down the road in them. In some ways, the recession has helped our business because people are now looking to do more with less.”
Side-by-sides are also popular because they take up less space in the trailer, use less fuel, cost less to insure and are cheaper to run and maintain. During the recession, MARSHALL MOTOART experienced just a slight dip in sales.
“We weren’t selling the big, wild machines that we used to sell,” Burke said. “Now it’s more of the bolt-on accessories and guys doing just one thing here and there versus just dropping off a machine and saying, ‘This is what I want.’ You have to adapt and be flexible and just roll with the punches. We used to build high-end sand rails, but if I was just doing that at this point, I’d be out of business.”
Quality is the most important factor for consumers when making a purchasing decision. “We’re not the cheapest company, largely due to in-house designing and manufacturing,” Burke said. “We offer good value for what you buy, but our main thing is quality and customer service. Five years ago, the industry was flooded with everyone and their brother building something. There was a lot of junk out there. The recession took down some of the big guys that were good, but it also got rid of some of the guys who shouldn’t have been doing it in the first place.”
Listen to Your Customers
Also, exhibiting at the SEMA Show last year for the first time enabled Burke to make several new contacts he wouldn’t have made otherwise. “The Show gave us great exposure and credibility,” he said. “When people hear that you’ve done the SEMA Show, they know you’re a serious player in the game. We had a positive experience, and we’ll probably double our booth size this year.”
KTM North America
The overall motorcycle business is 65%–70% less than it was at its peak in 2008, according to Jon-Erik Burleson, president of Murrieta, California-based KTM North America, which is the largest European motorcycle manufacturer doing business in the United States. The company specializes in off-road bikes and is a developing brand in the travel and sport street segments. Burleson said that the industry is bottoming out but that there are growth opportunities in some segments, especially lower-cc bikes, though performance and luxury segments are still having some tough times.
“The businesses we know and talk with have figured out how to make a living at this level, but times are still pretty tight,” Burleson said. “I don’t think we’re going to see any material increases in the next three years because motorcycles have not developed as a solid transportation choice among consumers. We’re getting there, but still, the majority of motorcycles sold in this country are used for entertainment or as a secondary leisure vehicle.”
KTM is doing some R&D with electric motorcycles. According to Burleson, the technology is already there and priced competitively. Unfortunately, the technology for batteries is not. Batteries seem to be about half the cost of the vehicle, and there are a number of issues with range and how battery performance affects the performance of the bike at the end of the charge cycle. Burleson estimates that the technology is about 5–10 years to being fully accepted in the U.S. market as a viable option for the broad motorcycle consumer base.
Burleson believes that most sales increases will be on the transportation side due to more commuters coming out of cars and into motorcycles for economic reasons. The U.S. motorcycle business has two fundamental issues behind it. The first is that they
are a luxury item, unlike in other countries, such as Brazil and India, where they are the primary source of transportation. Secondly, the average customer is getting older and, with Harley-Davidson capturing such a large piece of the pie, demographics come into play.
“From a KTM perspective, we’re always looking to see where the young kids are coming into the business, because overall, we have an aging demographic that’s not being replaced by the younger generation as the older people are stepping out or even sideways into other types of entertainment that are the next step after a motorcycle,” Burleson said.
Amsoil Quickshot won the award for Best New Powersports Product in last year’s SEMA Show New Products Showcase.
“To do that, they need an oil that will provide protection,” Groom said. “A lot of times people will say, ‘As long as it makes it until the end of the warranty, I really don’t care.’ This is changing drastically. Now they’re saying, ‘I just spent $15,000 on this Harley, and I want to make it last; tell me how to do that.’ So while the industry itself is down, our side of it, in certain areas, seems to be up.”
According to Groom, the industry is currently experiencing an age-group shift. Amsoil owns a large chunk of the baby-boomer market, and the company’s Harley-Davidson oil sales reflect that. Harley owners are still buying, but they’re retiring, so the spotlight should move to Gen-Y. The number of riders in the 20–34 age group is increasing, and they communicate in a completely different way. Target them using various channels, such as social media and through sponsorships and advertising.
“Don’t get stuck in a rut by catering to only the baby boomers,” Groom said. “Look at who’s coming up; start marketing toward the Gen-Y’ers and the growing female demographic. Don’t forget your roots, but branch out. If a company can do that, they’re going to grow. We’ve had double-digit growth for the past several years. Look at the market and provide not only for the application, but also for who is using the stuff. Keep an open mind and change with the times.”