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Sept. 22, 2008 – KTM reducing production

By Neil Pascale
KTM is cutting back on its North American production for off-road vehicles in 2009 as a result of a weakening U.S. dollar and a softer U.S. off-road market.
Jon-Erik Burleson, president of KTM North America, told Powersports Business that the Austrian manufacturer would reduce production by 30 percent for its off-road segments next year for its North American market. That reduction will not, however, extend to the company’s growing on-road segment, which will include the RC8, the company’s first superbike that was unveiled to U.S. dealers at KTM’s recent national meeting.
There, dealers were informed of the company’s plan to strengthen its brand marketing in the on-road segment, plus of KTM’s market share gains in its off-road segments. KTM’s off-road sales since January have declined 6 percent from a year ago but are stronger than the rest of the industry (off 16.6 percent).
“The past six months have really challenged us to make some tough decisions,” Burleson said, noting the company has had to reduce KTM North America personnel as a result of the upcoming production cutback.
The reduction comes partly as a result of the weaker U.S. off-road market but also due to the weaker U.S. dollar, which has declined in value to the euro almost 25 percent in the past three years.
“In certain manufacturers, that’s nearly your whole gross margin so you have got to be really cautious,” Burleson said.
Even though the dollar rebounded slightly in late August, Burleson said the company does not foresee the current exchange rate climate changing substantially anytime soon.
“It’s going to be a strong euro-weak dollar environment for awhile so we need to substantiate the value of our motorcycles and our brand and build a business plan that allows us and our dealers to be profitable,” he said.
“Our primary focus going forward needs to be on our brand and the protection of our brand and really elevating ourselves from what we feel is a premium brand to that next level.”
Part of achieving that next level will entail keeping a close eye on dealer inventory.
“If there are too many bikes in the market, it’s nearly impossible to position yourself as a premium brand and also being able to avoid the discounts and the rebates and all the stuff we see out in the market.”
The production cutback will not only improve dealer inventory next year but also help reduce noncurrent inventory.
“Just that alone helps significantly to rebalance ourselves as a premium brand,” he said, “but it doesn't do all the things we need to do.”
Another key element going forward for KTM will be bringing some of its success in off-road marketing, which keys on grassroots events and participation in the racing world, to the on-road side.
“We’re taking a real strong effort to embrace the lifestyle of motorcycling and the way in which we deliver products to customers,” Burleson said. “Being part of the lifestyle is a huge point we’re going to have to be focusing on to be successful in the years coming forward. To just be developing great products or have great dealers is all necessary, but it doesn’t end there.”
Part of the company’s on-road marketing efforts have included forming partnerships with track day companies, including Fast Track Riders on the West Coast and Sport Bike Track Time in the East. KTM also has become a main sponsor of the Mid Ohio race track and racing school. While the arrangement certainly presents marketing opportunities for KTM, Burleson pointed to another reason behind the sponsorship.
“In reality, we wanted to become the official motorcycle of Mid Ohio so we could have a place to go ride,” he said.
Certainly the RC8 will be one of the bikes that KTM staff, dealers and customers will be riding at the Mid Ohio track.
“Our corporate goal is to be the leading European motorcycle and motorsports manufacturer in the world,” Burleson said. “From a per unit perspective, we’re already there in the States. But until you have that superbike, it’s tough to say you’re the leading European motorcycle manufacturer. We have that now and we really feel it’s a great addition to our product line from a units perspective. But just from a brand perspective, that’s the final exclamation mark we were looking for to say, ‘Hey, we’re here as a premium sport bike manufacturer.’”

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