SEMA News - June 2010

Powersports: Emerging From the Valley of a Down Market

By Steve Campbell

	SEMA recently added a powersports section to the annual SEMA Show, which will be held this year from November 2–5 in Las Vegas. SEMA’s goal for the new section, as well as the creation of a new Powersports Advisory Group, is to bolster the industry and help powersports companies grow and prosper.  Photo Courtesy of Eibach Springs

Motorcycles and scooters play a key role in transportation systems throughout much of the world. Economical to own, maintain and use, easily navigated through tight and winding roads, a breeze to park and flat-out fun to ride, they are primary conveyances in Asia and large segments of Europe. In the United States, however, motorcycles and other powersports machines, such as all-terrain vehicles (ATVs) and side-by-side utility type vehicles (UTVs), are viewed almost exclusively as luxury items—toys that enthusiasts prize but most mainstream consumers consider only for hobby or secondary use. That view of powersports vehicles as luxury items is the main reason why the industry suffered an overall drop in sales of 44% during the recession years, according to industry expert Gart Sutton & Associates (GSA). A motorsports and powersports dealership and retailer trainer and consultancy, GSA offers data showing that sales began to skid in 2006, and 2007 was the first year in nearly a decade and a half in which industry sales declined rather than grew. As a result, dealer inventories piled up before manufacturers began to back-off production.

“There was a dramatic change in the retail sales of motorcycles,” said Sel Narayana, who works on sales, logistics and operations in Asia for motorcycle manufacturer KTM. “Consumers protected themselves and became very careful of their spending. That was reflected in the market for motocross, ATV and other products in the powersports industry. Now, however, things are looking more positive again.”

The changes in consumer buying habits led to a record level of dealership failures during the past two years, according to a recent GSA survey, but that shakeout may actually help some of the businesses that remain. Jimmy Lewis, editor of Dirt Rider magazine, said that a number of companies had come into the market while it was in a boom state and counted on making money without an emphasis on supplying quality products.

“The companies that made decisions based on the idea that the market was just going to keep going have been weeded out,” Lewis said. “People are still riding, though. Race entries are up, and people are still participating. Aftermarket parts sales are really strong even in the down economy. Instead of buying a new bike, people are buying brake pads, sprockets, chains, new graphics and are freshening their bikes so that they can keep riding them longer. In that sense, the industry is still very strong.”

	Floor traffic is picking up, dealers are holding better margins and some banks and credit unions are starting to free up money. Dealers have also reduced their old inventories, so they are not “warehouses” for the manufacturers. Service work is strong as customers are repairing rather than replacing their bikes. Photo Courtesy of KTM

Steve Jones is the general manager of GSA and also writes a featured column in Motorcycle Product News magazine and edits GSA columns for other publications. He recently conducted a limited survey of dealers to get their take on the state of the market and found that, indeed, the industry remains optimistic overall.

“Current motorcycle sales continue to be down,” Jones said, “but March picked up for many dealers. Floor traffic is picking up, dealers are holding better margins and some banks and credit unions are starting to free up money. Dealers have also reduced their old inventories, so they are not ‘warehouses’ for the manufacturers. Service work is strong as customers are repairing rather than replacing their units.”

Dealers also reported that used midsize motorcycles and many new models with rebates are selling well in the street market, Jones said, including the three-wheeled Can-Am Spyder, although many do not class it as a motorcycle. Most of the movement is occurring in the low- and mid-priced classes, but even sport bikes appear to be picking up somewhat after the diminished sales wrought by the economy.

“Overall, there is a slow shift to ‘standard’ bikes that provide good performance but more comfort than sport bikes,” said Sean Finley, group publisher for Source Interlink Media's motorcycle group, which includes Motorcyclist, Sport Rider, Super Streetbike, Cruiser, Dirt Rider, ATV Rider, Hot Bike and Baggers magazines and their associated websites. “In the sport-bike market, which drives a lot of the innovation, traction control and antilock braking are now improved to the level that they are being embraced even by very serious riders.” 

There has also been a strong push toward light cruisers in the V-twin market, which now includes offerings from not only Harley-Davidson, but also from most of the Asian manufacturers. “Harley-Davidson just introduced a new line of Sportsters, which are smaller bikes that have a heavyweight cruiser feel,” said Ken Laivins, principal owner and head of design at Hardstreet USA, which manufactures saddlebags and bodywork for V-twin motorcycles. “Honda also cut all of its cruisers down to smaller displacements, and Yamaha just brought out a V-Star 950 that retails for $8,000–$9,000. These light cruisers are easy to own, easy to maintain and are accessible for more people to ride, including women. We’re seeing a surge of riders getting into bikes that they otherwise might have ignored.”

Narayana pointed out that the industry is focusing on environmentally friendly and user-friendly models, but he, Jones and Laivins all said that financing and insurance are problematic for larger models and for young people 16–20 years old. This core youth market isn’t financially capable of getting into bigger bikes, Narayana said, so the industry needs to focus on smaller, less-expensive models in order to cultivate new riders. Some hoped that scooters might provide that low-cost entry, and they did spike in popularity when gas prices rose in the summer of 2008. But as soon as fuel costs subsided, so did the fervor for scooters.

The soft market also extends to the off-road segment, where the challenges are exacerbated by land-use issues and the public perception of off-roaders in general. “It’s hard to defend legitimate off-highway vehicle (OHV) use to those who don’t understand it,” said Lewis. “They think that any motorcycle trail going through a national forest must look like a war zone. In fact, though, motorcycle trails can be as pristine as the Pacific Coast Trail. The radical environmentalists portray OHV use as really destructive, but the truth is that most bike riders are very good stewards of the land who enjoy recreating outdoors with their families.”

	The family aspect of off-roading powersports is notable in the side-by-side UTV market, but farmers are also using UTVs in some areas as low-cost alternatives to trucks and tractors.    Photo Courtesy of ATV Rider Magazine

The family aspect of off-roading powersports is particularly notable in the side-by-side UTV market, but farmers are also using UTVs in some areas as low-cost alternatives to trucks and tractors. ATV sales have also begun to rebound somewhat, with power steering affecting sales of larger ATVs, Jones said, and Finley added that several ATV manufacturers have recently introduced race models that don’t require many aftermarket modifications to make them competitive, though, there is still room for improvement in suspension and engine performance. In fact, specialty-equipment manufacturers offer contributions throughout the powersports industry.

“There is continuous innovation from the aftermarket,” Finely said. “A few of the significant products include an ‘automatic’ clutch from Rekluse that makes it virtually impossible to stall the bike but still provides the ability to override the clutch with the lever to allow the rider to optimize traction and engine revs. Quieter exhaust is also becoming more and more important due to tighter standards at the racing level, but it’s also an important topic for land-
use issues.”

Oliver Rathlein, vice president of marketing for Eibach Springs, said such environmental improvements are running in tandem with technological refinements, resulting in “green” products that also provide better power. “We see more and more bikes going to electronic fuel injection/ignition systems, including motocross and dual sport,” Rathlein said. “That sometimes adds weight to the bikes, which requires stronger springs, such as our proprietary High-Ten spring steel alloys, to deliver consistent suspension performance.”

Retailers also recognize that people are holding onto their powersports equipment longer rather than moving into new bikes the way they use to. Lewis wonders if the heyday of owners buying new bikes every year or two might be over, but he believes that business will eventually return to a more robust level and will then stabilize. In the meantime, he sees profit in service.

“Retailers should stock the equipment that will help people keep their current bikes running longer,” he said. “I’m not 100% sure that we’re in a recovery cycle just yet; people are still sitting on the fence, and that’s what is stopping them from buying a brand-new bike. But any bike wears out, so if a guy really likes to ride, he eventually has to replace it.”

Dealers recognize the realities of the marketplace, so service and customer satisfaction have become paramount. “A lot of people who ride motorcycles are not mechanically inclined,” Laivins said. “There are opportunities to help them put accessories on the bikes and give them the kind of service that they’ve grown to expect with their cars. In addition to selling bikes, dealers should be looking at including accessories and being outfitters. That is particularly true with used bikes.”

Most dealers report that traditional advertising is not producing, according to GSA. They’re finding that their best results come from social marketing, working trade/sports shows and community events, and they’re also using 21st century tools to market their products.

“Internet sales and the use of eBay to move obsolete inventory have changed dealer business structures,” said Jones. “They’re now using true computer-based customer relationship management tools instead of the traditional paper traffic logs. Most customers come in after considerable web research. They know about the products and what is on sale on dealer websites. TV ads are driving traffic to see products, such as the Spyder.”

	Economical to own, maintain and use, easily navigated through tight and winding roads, a breeze to park and flat-out fun to ride, powersports vehicles are primary conveyances in  much of the world, though they’re still viewed primarily as luxury items in the United States.  Photo Courtesy of Dirt Rider Magazine

There has also been a big shift to online sales on the aftermarket side, Finley said, so every “mail-order” company must provide a good website that lives up to consumers’ expectations.

“People buy other products online and expect that same level of customer service and ease of use,” he said. “Some companies are slow to recognize this opportunity. As magazine publishers, we still believe that print is important in reaching the market, but we also provide dedicated websites that now reach more unique visitors than the base magazine for each brand. Combined, we reach more people than ever.”

SEMA recently added a Powersports & Utility Vehicles section to the annual SEMA Show, which will be held this year from November 2–5 in Las Vegas. SEMA’s goal for the new section, as well as the creation of a new Powersports Advisory Group, is to bolster the industry and help powersports companies grow and prosper.

John Waraniak, vice president of vehicle technology for SEMA, said that the association is to the auto industry what ESPN’s X-Games is to the action sports industry. “They both represent unique global platforms for extreme performance and lifestyle activation. Passion for performance and an emotional connection to self-actualized lifestyles are common denominators between successful SEMA and powersports manufacturers, distributors and retailers. The SEMA Show is one of the largest gatherings of small businesses in America, so I am confident that integrating leading powersports companies at the Show with SEMA’s programs and benefits will offer new dimensions of growth, innovation and profitability for both the powersports and specialty-equipment industries.”