Aug. 11, 2008 – The key to industry’s 2nd half

By Neil Pascale
Editor
Industry executives are keeping a sharp eye on the ebb and flow of oil prices, believing a drop could help the powersports industry overcome a decidingly mixed first half.
Overall, retail sales of new units dropped slightly more than 8 percent compared to a year ago to more than 798,000, according to the Motorcycle Industry Council (MIC). That data includes on- and off-road motorcycles, ATVs and scooters but not UTVs nor new-entrant OEM sales.
Off-road sales were the main culprit for the decrease as ATV sales fell more than 23 percent from a year ago and off-road motorcycle sales dropped nearly 20 percent.
Arctic Cat CEO Christopher Twomey, in a recent conference call discussing retail sales, linked decreased ATV sales to the troubling U.S. economy. “I don’t know anybody who believes that this market at the retail level (will rebound) until we see a more positive consumer confidence and general strengthening of the economy,” he said.
Others point more specifically at the increased oil prices and the resulting lack of discretionary dollars as the main cause for off-road sale decreases.
“I think from the short-term standpoint and reaction, it’s really tied more to fuel prices,” said Eric Bondy, CEO of KYMCO USA. “Clearly I think our ATV customers are being dramatically impacted by this tremendous increase in fuel prices.”
On the other hand, the industry also has seen its share of gains from increased oil prices. Scooter sales jumped more than 65 percent from the year-ago period and dual-purpose bikes were up more than 24 percent. Sales of lower-displacement motorcycles also have fared well, with Kawasaki recently reporting a 100 percent increase in sales of its Ninja 250R.
The important on-road motorcycle market — the largest sector that’s reported on by the MIC — was essentially flat compared to last year, although June’s healthy increase (7 percent) over the year-ago period hinted at better things to come.
In fact, several manufacturers have reported increased on-road sales, from Ducati to Victory to Kawasaki to Yamaha. The latter, according to Bob Starr, general manager of national corporate communications for Yamaha Motor Corp. U.S.A., saw double-digit percentage growth in May and June and continued strong sales into July.
“We’ve been overall very successful in executing our strategy and we gained (market) share in all the key categories that we really focus on,” said Henio Arcangeli, Jr., motorsports group company president at Yamaha Motor Corp. USA.
Yamaha’s first-half successes included the scooter market as the company’s year-over-year increase exceeded the industry as a whole (65.7 percent over the 2007 first-half.)
“From what I can see in talking to dealers, I think the biggest driver for how well the scooter business is going to be for the second half of the year is really all about product availability,” Arcangeli said.
KYMCO’s Bondy has a similar belief in the scooter business, believing the recent dramatic rise in sales can last if the inventory is sufficient.
“I don’t see anything that will turn that around in the real short term,” Bondy said of consumer interest and demand of scooters, “and by the real short term, I’m talking in the next 60-90 days.
“We really think for the remainder of this year and even the first half of next year, depending on what happens with gasoline prices, that scooters will continue to remain a real viable alternative for transportation.”
The price of gasoline figures to have an equally dramatic effect on off-road sales as well, industry officials say.
“In general the off-road market has some softness this year,” Arcangeli said. “Obviously a lot of it has to do with the economy, consumer confidence and also fuel prices. What I am encouraged about is as fuel prices come down, I think that will help the off-road market.”
The decrease in U.S. core ATV sales has certainly accelerated as oil prices have increased. In 2007 at the midway point, U.S. ATV sales were down nearly 10.5 percent. Fast forward a year where gas prices have increased at least 35 percent and the rate of core U.S. ATV sale declines have doubled.
“If crude continues to bounce around $130-$140 a barrel range, I really think it’s going to take us a good bit of time” to see off-road sales rebound, Bondy said, adding “not necessarily that the market won’t turn around, but that customers need to react or acclimate to these higher gas prices.”
Twomey, Arcangeli and others also point to new product innovation as key to spurring second-half sales, not only on the on-road side but in the sluggish off-road sector. The latter, in just ATV sales, still accounted for close to 245,000 new unit sales in the first half.
“The off-road riding and activity have become very much ingrained as a family activity in the United States,” said Starr of Yamaha, “and as much as the economy has affected it a little bit, we’re quite optimistic it will rebound.”