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September 3, 2007 – Q&A with the leaders behind KTM’s U.S. market share gains

August 30, 2007
Filed under Features

PROVIDENCE, R.I. — Powersports Business met with three KTM leaders to talk about a range of items, from why they would enter a declining U.S. ATV market to if they have any interest in entering the side-by-side sector to where their international growth focus is currently on.
Here are the responses from Jon-Erik Burleson, president of KTM North America, and Hubert Trunkenpolz, director of sales and marketing for KTM Powersports AG.
The discussion at the KTM dealer meeting, which also included Harald Plockington, KTM Powersports AG’s director of development, purchasing and production, has been edited for brevity and clarity.

Powersports Business: In his speech to the dealers last night, Burleson characterized the youth or mini-bike market as “uncertain.” Can you talk a little about why you see it as “uncertain?”

Burleson: Overall the market is showing signs of not having the strength it once had. I think there are a couple of things that are important to remember: First, mini-cycles don’t have the same life cycle as a big bike. The only way to really overcome that is innovation, constant innovation. But on the same side, mini bikes are hard when you’re looking at price points, which often are determined by the Taiwanese and Chinese product. It’s hard to be innovative and putting money into a product line when it’s also competitive on that low price point. So we have to stay focused on the premiere customer segment, which is the racing segment that is not necessarily the most voluminous part of the segment. That is the segment where you can make money from an OE and a dealer perspective. We just have to set our expectations to what that market is. That particular part of the market seems very healthy, but the overall mini-cycle market, if you look at the statistics from the industry, shows some signs of weakness, although it’s hard to tell what the real market is doing because none of the Taiwanese or Chinese product is registered with the MIC (Motorcycle Industry Council).
PSB: KTM obviously has its roots in the off-road arena, a market segment that has shown new unit sale decreases in the past couple of years. How much a concern is that for you?

Burleson: We’re not seeing the 6-7-8 percent growth that we used to see, but mostly (the decrease in new unit sales) is from one manufacturer right now. I attend a lot of events and a lot of races and from my role at the AMA, there are more people than ever participating with their (off-road) motorcycle. But as long as product doesn’t change, they are not incentivized to buy. I also think that for a couple of years we were seeing the growth in off-road from the change in two strokes to four strokes and that’s why (KTM) is seeing such growth now because we’re still seeing growth in four strokes as well as the resurgence in two strokes. Many of the manufacturers have stepped out of two strokes so we’re getting a lot of the gains that they’re giving up.

PSB: The traditional U.S. ATV market, in terms of new unit sales by MIC-reporting companies, has decreased for two straight years and was down even more in the first half of this year. Why enter the market now?

Burleson: I could never say it enough: product innovation. When you go to the races, you see more guys than ever. When you look at the broad market, especially sport ATV two-wheel drive, that’s a very large market, but it’s not a real ready-to-race market. When you look at the market, there is a lot of weekend warriors in there. Our focus is on that niche segment. When we look at the top-level racing in that top-level segment, there’s plenty of opportunity for us. Of course as I said last night (at the dealer meeting), we don’t want to be the largest volume manufacturer in North America. That’s not our goal. And that’s where you have to be careful because you look at that market segment, and if there’s room for it, then you try to enter that market segment in a way you think you can do so profitably. But you can’t have a goal to out-volume everybody else. And I think that’s where we stand out different. We look to make money in the niches by sticking to our proven ready-to-race strategy.
Trunkenpolz: That’s definitely our global strategy. In each segment we are entering, we go to the absolutely prime (high-end market). We’re not talking about (producing) 20,000-30,000 units for each model. We’re talking about 5,000 units for a top, high-end product, which is different than mainstream.

PSB: One area the industry has seen continued growth in is the side-by-side segment. Does KTM have any interest in building product for that segment?

Burleson: I have an extreme interest to pay attention to that market right now, but I think it’s only possible (that KTM will manufacture a side-by-side) if you can see a real ready-to-race focus there. We’ve seen a little of that develop but not enough for our brand to work … I would say that market in its developing years is something we’ll pay attention to.

PSB: Trunkenpolz spoke at the dealer meeting about KTM’s recent push into South America. Is this the company’s current international focus?

Trunkenpolz: One of our distribution strategies in the key markets is to be present with our own organizations. We build up a subsidiary to be closer to the market, to give better service to the dealers, to be closer to the customers. We have done this pretty successfully. We have 20 100-percent owned subsidiaries worldwide. The next ones that are becoming interesting for us are some countries in South America because the economy is catching up there: Argentina is a big market. Mexico the same. On the other side, we have an eye on Asia because it is coming on strong. We just recently agreed to a joint venture in Dubai to cover the Middle East region. There’s a lot of things going with that region at the moment and in terms of sales organization, we are trying to improve and continue our growth there.

PSB: Also during your speech to the dealers, you noted KTM is “an independent company once again.” Is KTM no longer interested in having relationships with other manufacturers like the one it had with Polaris?

Trunkenpolz: In the next year you will see a lot of changes going on in the industry, especially in the European industry. Recently, BMW acquired Husqvarna. Gas Gas is for sale. So a lot of things are going on. With these changes, we think there will be a lot of challenges coming up, and we’re convinced we as an independent company can react quicker to these challenges. We will not exclude (relationships with manufacturers) forever, but we’re not seeking partnerships. The next upcoming months, years we want to stay independent.

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