May 12, 2008 – OEMs respond to slowdown

By Neil Pascale
Editor
Powersports manufacturers are making cutbacks in production, employees and sometimes both after a rough first quarter.
The industry’s new unit retail sales were down 15.1 percent compared to the year-ago period, according to Motorcycle Industry Council (MIC) data that includes on- and off-road motorcycles, scooters and ATVs, but not UTVs, PWC or snowmobiles.
The continued retail sales decline — similar new unit sales were off nearly 10.5 percent last year — and lingering worries over a slowing U.S. economy have prompted powersports manufacturers to make difficult decisions. Harley-Davidson announced layoffs and production cutbacks in early April after reporting its U.S. retail sales dropped nearly 13 percent. KTM also announced a cutback in new unit shipments and Japanese OEMs have dramatically decreased shipments to the United States in each of the first two months of the year.
Even Polaris Industries CEO Tom Tiller, who recently reported a record first quarter, said in a conference call that he couldn’t “remember a more volatile environment.”
There are some positive signs for the industry, however.
Dealership traffic remains either on the upswing or very close to last year’s levels, according to data provided by the RPM Group, one of the industry’s largest 20 group providers. Data from dealers show traffic at metric dealerships increased almost 22 percent compared to a year ago while Harley-Davidson foot traffic is down about 3 percent. RPM Group officials noted at the time of the reporting, only about 90 percent of their Harley dealers had reported March’s numbers.
Another positive: Two new unit segments bucked the overall industry downturn. Side-by-side quads continue to grow in sales volume, with Polaris noting it is still not meeting consumer demand more than eight months after debuting its RZR. Snowmobiles also had a big first quarter, with U.S. sales expected to be in the single digits in terms of percentage growth for the overall selling season.
Still, the industry’s largest new unit segments showed significant declines in the first quarter. According to MIC data, on-road motorcycles fell 11.2 percent compared to a year ago. Street bike sales in March were off more than 19 percent vs. 2007. ATV sales were even worse, down close to 24 percent in March and nearly 21 percent in the first quarter. Quad sales, which do not include new-entry OEMs or side-by-sides, have retreated each of the past two years. The first-quarter sales volume of more than 114,000 units represents a nearly 29 percent decline from two years ago.
Data from metric and Harley dealerships, which is provided to Powersports Business by ADP Lightspeed, has shown overall dealer sales down each of the first three months of the year.
When U.S. retail sales will pick up is a mystery that some industry companies aren’t willing to wait out before making a move to lessen any potential harm.
“From my vantage point, it is unclear when the U.S. economy will recover,” Harley-Davidson CEO Jim Ziemer said in a conference call discussing the company’s first-quarter results. “As a result, we’ve taken important steps to significantly reduce our shipments for the rest of this calendar year and to reduce our workforce.”
Harley-Davidson’s workforce reduction is planned to include 370 union employees, or about 6.5 percent of that workforce, and 360 nonproduction employees, or about 10 percent of that personnel group. During a conference call with stock analysts, Harley-Davidson officials estimated the layoffs would cost the company about $20 million-$25 million.
The first-quarter slowdown in its U.S. market also caused Harley-Davidson to adjust its yearly production. The U.S. on-road market share leader will now ship 23,000-27,000 fewer motorcycles than it did a year ago.
“The economic slowdown has affected Harley-Davidson,” Ziemer said in the conference call. “There’s no sign of when things might turn around.”
Austrian manufacturer KTM also announced a production cutback, although the total vehicle number will still outnumber last year’s total. KTM’s management board recently announced it will produce 5,000 more motorcycles this year rather than 8,000 originally planned.
Metric manufacturers also have made adjustments. Export shipments to the United States from Honda, Yamaha, Kawasaki and Suzuki dropped nearly 21.5 percent in February after declining nearly 29 percent in January, according to data from JAMA.