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End of the season sales report – November 13, 2006

While a leveling off of the personal watercraft industry’s somewhat rapid decline was undoubtedly good news in 2003 and 2004, initial reports that 2005 had actually seen a solid increase were probably met with mixed emotions around the industry.
Certainly the news was good, but could manufacturers and dealers alike once again get their hopes up? Or was this just a temporary blip on the radar, a tease of better days to come that might not materialize?
Given the weight of 2006’s economic news, many in the industry probably feared the latter. That fear, however, may be unfounded. Despite the economic pressure in 2006, the PWC industry appears to be holding its own, resulting in a year that, though it looks relatively flat, is certainly showing signs of regaining its health.
Powersports Business recently spoke to several key players in the PWC industry to put it all into perspective.
“For us, the industry being flat is not a downer, it’s not bad news,” says Sea-Doo’s Louis Levesque. “It’s still good news.”
Levesque’s rationale? Call it the Polaris effect. As Levesque maintains, following the Minnesota-based manufacturer’s exit from the business, a wealth of their product became available at bargain-basement prices. The effect may have been an artificial surge in the overall numbers for 2005, resulting in a snapshot of the industry that may have been slightly out of focus.
“The industry is pretty much flat versus a year ago, but for us, we view that as a success,” Levesque said. “Last year Polaris decided to quit the industry, and they did a lot of dumping. Big promotions, cutting prices, there were a lot of units out there that they had to get rid of. And they spent probably millions to generate retail. So for us to go to the year after, and see the same level of industry, it’s pretty good. It means we kept that growth of ’05.”
Levesque said the industry fared the worst in ’06 in the Midwest, an area that was been hit by the one-two punch of surging gas prices and a sagging auto market. However, the South, one of the most significant markets for PWC, showed a notable increase.
“We see there is a very good trend out there,” Levesque said. “For sure, people will say the industry is flat in ’06 versus ’05, but I will say the ’05 industry maybe was over-inflated because of the dumping. In ’06, we’ve kept that growth, we’re still at the same level, and we believe next year we will see growth again.”
Yamaha’s Mark Speaks, however, counters that the impact of Polaris’ departure was minimal.
“I don’t think there’s any question that in ’05 Polaris sold some units at a low price, but in ’06 so did Honda,” Speaks said. “The fact that Polaris exited the business, I don’t think had much impact in ’05 or ’06.”
More indicative of the industry’s strength, argues Speaks, is the industry remained on its level foothold despite a year of tremendous economic pressure, along with less-than-favorable climate conditions in a key area of the country.
“Certainly there were some negative issues we had to contend with,” Speaks said, “like high gas prices and low lake levels in much of the Southeast. But despite those issues, the personal watercraft market was stable in ’06, volume was almost identical to 2005 in total, and for us. Considering market conditions, we think that’s pretty darn good. I think if it hadn’t been for those significant negative factors that the industry might have seen a little bit of an uptick in ’06.”
Any serious growth was probably out of the question. Manufacturers played it relatively safe in 2006, avoiding the overconfident builds that would saddle dealers with excessive inventory, or clog the pipeline heading into 2007.
“There really wasn’t enough inventory in the pipeline to support much growth,” Speaks said. “It’s the second best year we’ve ever had in terms of low dealer inventory, and it looks like our competitors are in just as good a shape. Dealers are optimistic, and we think they have good reasons to be.
“In June, we thought the high gas prices and the fact that many states where personal watercraft sales are quite significant were struggling with low lake levels, we thought we would see ’06 volumes down compared to ’05. In fact, as recently as early June we were expecting that. But June, July and August were all good months, and the industry came in almost in a dead heat with ’05. By our calculations it was up 200 units.”
Levesque believes the slight uptick is partially a result of the woes of the economy weighing less heavily on the average PWC consumer, who perhaps view their sport as more of a passion than a hobby. “I feel that the people are so passionate, for them it’s not a big deal to spend $100 more a year,” he said. “By the way, when you do the math, at the worst case last summer, on average it would have cost $100 more for the summer to use your watercraft. So I think either people do the math, or they are just so passionate about it they do not care.”
As to the exact numbers, market research firms confirm the market is indeed up marginally for 2006, averaging out at just under a percentage point in growth by fall.
“Relative to information from the other boat segments, the PWC segment appears to be holding its own, where (other boating segments) are declining,” said Aarn Rosen of Statistical Surveys Inc., a Michigan-based company that tracks PWC sales through retail registrations. “In a crazy kind of way, that’s growing. To me, that’s positive.”
Judging by the optimistic outlook that appears almost universal for 2007, that level-to-upward line should continue on the sales graph.
“Our 2006 watercraft sales are tracking well above the industry numbers,” said Kawasaki Product Development Director Patrick Kelly, whose company appears poised to have one of its best years in recent history thanks to the introduction of a pair of compelling new craft. “We are very pleased with our 2006 sales and are even more excited about next year. Our dealer orders for 2007 product completely exceeded our expectations. Next year should be very exciting."
“I don’t like the word optimistic,” Levesque said. “But we look at trends, and the trends look good for watercraft.”
He noted that roughly 1.4 million watercraft were in use in the United States and Canada last year.
“There’s always a cycle, so those models will be replaced,” Levesque said. “Those guys will have to renew one day, and we feel that they’ll come more and more often.”
As Levesque points out, the watercraft of today offer a compelling reason to upgrade. Technology alone has increased dramatically. “The word of mouth is exponential,” Levesque said of buyers who have upgraded older models. “At the beginning, in 2002 when we introduced 4-TEC, not a lot of people had one. But now, we’re starting to reach a critical mass of people with new technology. And we believe this will grow exponentially because of word of mouth.”
In fact, many industry insiders argue that personal watercraft may once again be approaching the golden child status it shared early in its growth cycle.
“Overall, business conditions look good for PWC,” Speaks said. “The percentage of (PWC) buyers that are first-time buyers is extremely high compared to other powersports products. That’s a good, solid sign.
“New technology, four-strokes specifically, is what really turned things around. When four-strokes hit the market, we finally saw new vehicles sales stabilize, and with the introduction of low-priced four strokes, we saw demand for new vehicles grow. I think as long as manufacturers stimulate the market with new product, we’ll see growth.” psb

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