ATV Market

This category remains the best performer within the powersports industry as dealers continue to report solid retail sales. After adjusting to a more sustainable 12.4% growth rate in 2001 (versus annual growth of 19%-26% during 1998-2000), we believe the overall economy — and to a much lesser extent, the West Coast port shutdown — resulted in the industry posting 5.5% retail unit growth for 2002.
Based on industry unit sales back to 1982, ATV retail unit sales show a relative immediate correlation to consumer confidence. Clearly the data demonstrates that changes in consumer confidence have more of an immediate and not lagging impact on retail sales.
Retail sales slowed in October/November, which partially may have been related to the West Coast port shutdown, as this delayed some shipments of ATVs from Japanese OEMs without U.S. manufacturing.
A few dealers indicated that the delay in shipments adversely impacted sales during the holiday season, especially youth models which historically sell the strongest during the holidays.
Dealers did mention that floor traffic and ATV retail sales to date in January were tracking at a more brisk pace than seen during December of 2002 (when retail sales were up 7.6% vs. a strong 24.0% comparison). Our dealer rating for sales again slipped modestly to 6.5 versus 7.3 and 7.1 in September and January 2002, respectively, with sales of large displacement models (500cc-700cc) continuing to be the most robust.
Inventories across the country remain quite comfortable with a dealer rating of 7.5, unchanged from last September and improved from last winter. Demand, especially in the Upper Midwest (offsetting poor snow conditions) has kept manufacturer and channel inventory in check despite ramping production capacity and a moderately cooler retail environment.
However, we feel that at current levels the supply and demand for ATVs appear to be well-balanced as we no longer hear widespread complaints about selected unit availability. Major competitors Honda and Yamaha, and Polaris remain rational with regards to promotions and production.
In general, financing incentives within the industry remain relatively constant on a year over year basis. At this point in the economic cycle, we would not expect material increases to OEM capacity and would likely consider such moves ill advised. Barring further deceleration in consumer attitudes or expected order levels, we do not anticipate dealer inventories will be a major concern for 2003.
Our dealer rating for anticipated orders of 3.3, a slight decline from 3.7 and 3.6 last September and January 2002, respectively, still indicates an increase in ATV orders for 2003. Again, we are not hearing of significant demand correction, but continued tempered optimism for 2003. With some dealers coming off of another excellent year, uncertainty about the potential of war with Iraq and weak consumer confidence remain the points dealers note most when discussing their expectations going forward.
We believe 2003 retail sales unit growth of 8% is achievable (this could prove conservative if economic activity accelerates).
We anticipate little overall change in market share, with Honda and Yamaha giving up a few points in 2002 to Polaris, Artic Cat, Kawasaki, and Suzuki. 2003 should see even less market share movement, with Polaris likely posting further modest gains (based on the new 600 and Predator introductions) at the expense of Suzuki. Depending upon the Japanese manufacturer’s levels of incentives/promotions, we anticipate that Polaris will again be targeted for its leadership in the automatic utility market.
Looking beyond the immediate war and economic concerns, we believe ATV growth over the next several years will approximate high single digits to possibly low double digits in a normalized economic environment as this segment remains the most under penetrated of the three major powersports segments (40% of purchases are from first time buyers) and serve a wider variety of purposes when compared to snowmobiles and watercraft.
One reoccurring theme mentioned by several dealers is the secular shift in attitude by consumers to spend more time with the family, translating into a sustained demand for ATVs. This transformation could be a direct result of the terrorist attacks, prompting many families to substitute vacations for ATVs, in which they are able to experience the enjoyment of ATVs more often than a one-week vacation with the family.

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