Snowmobile Market

This category remains under pressure due to lack of significant snow in the three most important markets for the industry — Southern Michigan, Minnesota, and Wisconsin — as a result of the mild Él Niño. In the U.S., Él Niño typically produces warmer than normal late fall and winter conditions for the northern Great Plains and upper Midwest, a drier than normal fall and winter in the Pacific Northwest, and a higher than average number of East Coast winter storms.
Season-to-date, the mild Él Niño has produced a drier than normal winter in the Great Plains and upper Midwest, a near normal winter in the Pacific Northwest, and higher incident of winter storms for the East Coast/Northeast. While the Midwest did receive a good amount of snowfall the first week in February, given the poor season-to-date sell-through in these key regions, it is likely that 2002/2003 season will end with weaker than expected retail sales.
We believe global retail unit sales will decline 2%-3%, as the negative influence of the mild Él Niño results in U.S. sales declining 3%-5%, partially offset by growth in Canada and other international markets. The 2003/2004 season may again be another disappointing year for manufacturers as dealers may be hesitant to order more product due to the excess 2002/2003 model carry over.
Longer term, we feel this segment can grow in the mid-single digit range, driven by favorable demographics and a high repeat purchase pattern of users (about 90% of sales are repeat buyers).
Poor snow in the Upper Midwest region, parts of Northeast, and Mountain/Pacific has resulted in poor sell-through for the 2002/2003 season. Our dealer sales rating (i.e., sell-through) stands at 4.5 versus 6.2 and 7.7 last January and March, respectively. This decline is the direct result of the lack of favorable weather conditions in key markets for sleds, and has been driven by dealers in the Upper Midwest. Michigan, Minnesota, Wisconsin, Ontario, Quebec and New York account for an estimated 65%-70% of the North American market (the season either happens in these areas or it doesn’t). With 2002/2003 shaping up to be the second consecutive poor snow year and the fourth poor snow season out of the last five seasons for the industry, dealers have been forced to move product at little or no profit.
Customers are buying a majority of units later in the season, with 60%-65% of all snowmobiles now retailed by the end of December (versus 75% a few years ago). The 2003/2004 selling season could be difficult due to the continued dealer build up of carry over inventory, the weather’s impact on parts/service revenue and the potential of incurring flooring costs (depending on the level of manufacturer assistance) until next season on carryover products.
Dealer sentiment on available retail snowmobile inventory has also declined to a 5.0 versus a 6.1 at this time last season. This compares unfavorably with the 7.8 reported in March 2001, after good January snowfall helped clear additional units from the retail channel. Dealers indicated that manufacturers began launching modest incremental rebate programs in mid January. However, it appears that these incentives have yet to have a “real” effect on influencing sales.
When asked to address orders for the 2003/2004 models, many dealers felt that total orders would be down as evidenced by our overall dealer rating of 2.0 versus 3.0 last January. At this point, the lack of adequate riding conditions for a second consecutive year leads us to believe that any upside for orders should be considered very unlikely. As always, manufacturers will continue to push for growth in pre-season commitments via incentives and new products.
However, dealers are increasingly expressing a desire to first focus on prudently running their business (i.e., order only what they feel comfortable in selling) and if necessary forego minimum buy orders required to qualify for incentive flooring terms.