FOCUS – Competition in the Quad Market

They are everywhere. Peeking out from the aisles of your local auto parts store; lined up in the parking lot of the corner gas station; stacked on the shelves of your nearest “big box” retailer. There is no doubt; we have turned a corner of the Asian ATV invasion, especially in the 50cc and 90cc displacements. The growth of the youth category has been staggering over the past five years. We watched the number of U.S. importers rise from eight in 1998 to more than 75 in 2004. A quick search on Asian trade site Globalsources.com reveals 164 suppliers from 13 countries punching out 474 separate products. But many of these products are simply rebranded identical machines, making it nearly impossible to truly track how many manufacturers actually exist.
It’s unfair to lump all of the Asian machines into the same category. Companies like Ji-ee (E-Ton), Her Chee (Arctic Cat, BRP), Kymco, Kasea, and Aeon (Polaris, AlphaSports) have been selling in the U.S. for years. These companies are using established dealer networks, offer warranty, supply parts and service machines.
The issue facing the powersports industry today isn’t with Japanese or Asian machines that are sold through traditional means and have the backing of an established OEM and dealer network. Manufacturers, dealers and customers say concern comes from the number of machines supplied through non-traditional vendors.
HISTORY IN BRIEF
When the ATV market was exploding in the mid-1990s there were few options for families to introduce their children to the sport. A handful of offerings from a few manufacturers was all there was to choose from. Because of this, the used market for small displacement ATVs was huge. Scarcity drove the price of the used machines way up – and people were happy to pay. Despite the demand, few manufacturers were taking any steps to cater to the youth market. It wasn’t until Polaris partnered with Taiwanese manufacturer Aeon to build its youth machines in the second quarter of 2000 that the market really took off.
Around the same time, Kasea, an importer based in Seattle, Wash., started to bring in Korean-manufactured Mighty Mite ATV to augment its existing scooter distribution and Midwest Motor Vehicles in Madison, Wisc., started importing Jianshe and Jincheng scooters from China.
It wasn’t long before the machines started showing up elsewhere. “I don’t remember what year it was,” recalled Glenn Hansen, then editor of ATV Magazine and now Advertising Manager at American Suzuki. “I saw them at Wal-Mart. These were a totally different brand. In fact, I tried to contact Wal-Mart and the manufacturer, and I couldn’t get anyone to say anything about these [ATVs]. Wal-Mart didn’t carry them very long, but it was long enough that it drew a lot of attention.”
Soon after, all the major OEMs began offering models targeted at youth riders. Every year, more and more Asian machines appeared at the Powersports Dealer Expo in Indianapolis, Ind. Today we are in the midst of a revolution of new-Asian machines in the United States.
PRICE IS NO OBJECT?
Based on the growing sales, it’s clear that there are consumers who are willing to shop solely on price. And with machines advertised for hundreds lower than comparable displacement machines at the local dealership, why shouldn’t they? The question, of course, is where those savings come from. If the money saved is simply dropping the warranty, replacement parts and reliability, clearly the savings don’t truly exist.
“I’m sure that everybody has felt the pinch,” said Bruce Ramsey at Kymco. “Let’s face it, 50 to 90cc ATVs are considered by and large to be disposable products. People are not buying them based on quality. Price is the driving factor in that displacement.”
Dealers have known quality, factory-backed warranty and parts and service support to use as leverage when educating the customer who’s on the fence. The challenge of getting the customer through the door initially remains. And for every Chinese ATV that is sold at a non-traditional retailer, the dealer loses the chance to make sales. And the off-brands are selling. Traditional dealers who carry a Chinese line like the high margins they provide, even if the after-sale support costs them more in the long term.
There are larger risks to the sport as a whole as well. New ATV riders who purchase a budget machine and are disappointed with their experience may give up on the sport.
“With the 6-12 age restriction, if a customer comes in at 6 and buys a machine and it lasts a year, they still have to buy another machine to last until the child is 12,” said Steve Nessl, Yamaha’s ATV PR Manager. “The consumer who is more farsighted might be looking down the line.”
It’s up to the individual dealers to educate the potential customer about not just what they are buying, but what else is at stake in terms of quality, training and safety.
“That’s the responsibility of the dealer that sells a high-quality product,” said Lee Edmunds, Motorcycle Press Manager at American Honda. “This is a proven ATV. It has been sold in the U.S. for years. There is a parts distribution network; there is a complete warranty system behind it. The company is there.”
In an effort to compete with these new ATV retailers, some dealerships have added one or more Asian lines to the floor plan. Perhaps it’s simply a competitive tactic to get customers in the door to upsell to a franchise brand. Or, maybe they like the high margins that they make on the off-brand and are willing to live with what could prove to be added headaches.
Either way, some players readily admit that the off-brands are hurting sales.
“I can see [the Chinese] taking sales away from us, probably more than it does the big OEMs,” said Steve Murph at A&R Trading, importer of E-Ton ATVs. “People that want to buy a Yamaha are probably going to buy a Yamaha, period. They are not going to buy the cheap stuff down the street. They are not going to buy the E-Ton sitting on the floor beside it. We have hurt the big OEM sales. The Chinese have hurt our sales.”
A FAIR FIGHT
The “Big 7” manufacturers: Arctic Cat, BRP, Honda, Kawasaki, Polaris, Suzuki and Yamaha, have spent heaps of money and countless hours establishing safety guidelines and training programs to ensure that the future of the sport is not compromised. While some of the Asian brands are following that lead, there are others that simply import machines at rock-bottom prices and move as much product as possible, whether or not the customer is fully informed.
“Do the guys at [the local auto parts store] know all the age recommendations?” asked Edmunds. “Are they making sure that the proper-size person is riding the proper-size ATV? Are they doing the things that we as an industry have spent countless hours and dollars doing to ensure that we can continue to sell these units?”
To be fair, it should be noted that the some of the circulars enclosed in the Sunday paper now advertising youth ATVs are at least printing the correct age recommendations, so there seems to be awareness that age recommendations exist. But whether store personnel are verifying ages is another issue altogether.
ATV manufacturers count on the Motorcycle Industry Council (MIC) and Specialty Vehicle Institute of American (SVIA) to deal with these issues and bring new manufacturers into the fold as they begin operating in the U. S. “They as an organization want to consider the prosperity and continued success of the industry,” said Kawasaki’s Russ Brennan. “So, as these new manufacturers come to the market, they would certainly like to see them adhere to those regulations as well.”
But neither the SVIA nor MIC has much recourse if a company chooses to not join or follow the established guidelines. And if the growth of the segment continues, it’s likely that the youth injury rate will increase accordingly. And when that happens, it’s probable that an industry that has had such success policing itself could become subject to increased government regulation. We have already seen North Carolina pass legislation banning use of ATVs by children younger than eight, and certainly other states are not far behind.
The SVIA’s position is to encourage new companies to voluntarily adhere to the national programs that are already in place, including rider training, public education and ATV safety. SVIA is also the document sponsor of a voluntary 2001 American National Standards Institute (ANSI) standard. But, ultimately, if a company chooses not to comply, the U.S. government is the only entity that has much real power.
“The member companies of the SVIA urge the CPSC and other appropriate federal agencies to make similar efforts to help persuade these new entrants to participate in these long-standing and important safety initiatives and regulatory components,” said SVIA president Tim Buche. “The health and sustainability of the ATV industry depends on all participants addressing emissions, equipment requirements, and support of training programs – as well as meeting the high expectations for performance, reliability and customer service that the American consumer has come to expect.”
QUALITY FACTORS
Beyond looking at the damage the off-brand machines can do to sales or safety within the ATV industry, there is the fallout from the sales of machines with inferior quality.
Murph claims that the difference isn’t between Japanese or Asian machines, but rather between Taiwanese and Chinese machines.” There’s light years of difference between the quality coming out of the two,” said Murph. “E-Ton also has a plant in China, but we don’t feel the quality standards are high enough to bring the product out of China, or we would already be doing it to save money.”
China’s situation parallels the position Japan was in 30 years ago. When the first imported goods started arriving in the U.S. from Japan, the quality wasn’t good. But today, Japan has shed that reputation. Eventually, China will exorcise its quality demons as well.
“There are a lot of different companies producing high-tech stuff out of China now,” Murph said. “The ATV and scooter business is not that high tech. One problem with a lot of stuff that comes out of China is that it looks good on the surface. But you leave it out in the sun for three months and walk by it and thump the plastic and knock a hole in it. UV inhibitors aren’t there, and they are using too much recycled and not enough virgin plastic. You can pull the plastics off and look at the welds. Where a Taiwan weld will go all around the joint, I’ve seen where [the Chinese] will actually tack the top and bottom of the weld and never go back and fill in the hole. I’ve seen welding rods broken off in the weld and they just throw the plastic over it and keep going. I’ve been watching China. And, in my opinion, five years ago they were all ‘F’ factories. None of them produced anything worth having. Now, there are a couple of factories that are up to about a ‘C’ level factory.”
WHO’S ON THE LINE?
Established brands pay huge dollars every year for product liability insurance to cover the manufacturer and the dealer. But who’s to say that the off-brand machines and their dealers are covered? Murph says that it’s not the CPSC or SVIA that worries him, but rather a judgment in a lawsuit. “That is what keeps us in check,” he said. “Because if you don’t play be the rules, that is the first thing a sharp attorney is going to say. ‘Here are the CPSC guidelines. Why aren’t you following them?’ Well, in front of a jury, you’re hung right there. I’ve got more than $3 million dollars in inventory sitting in a warehouse right now. I can’t blow that out in a week and run from a lawsuit. These other guys that come in from China, they have $2,000 in the bank. They have a rented warehouse and they sell the stuff. If a lawsuit hits them, they get on a plane and go back to China.”
According to Joel Martin, of Martin Racing Performance in Miami, Fla., Customs is less concerned with ATV imports because they are designated off-road. “Nobody is checking to see if they are compliant with industry standards,” he said. “Some of these other companies, if you show up with $100,000 they’ll sell you the same brand, just put a different sticker on it. In the end, who does the liability go to if you have the same products running around under four different names in the U.S.? That’s my question.”
DESPERATE TIMES
There is good coming from this situation. One factor that seems to have changed lately is newfound diligence of U.S. Customs. In the past six months, Customs has reportedly begun cracking down on offshore brands flooding into U.S. ports.
“We’ve been experiencing 7-10 day delays at the ports,” Ramsey said. “They are doing a lot more thorough inspections, even of our product coming through. I’m willing to live with the delays and I hope our dealer base and consumer base can accept the delays. If that is the price that we pay as a complying importer/distributor, then that is welcome to weed out all the non-compliants, or as many as possible. I think that just what we’ve seen in delays this year is an indication of how much more they are trying to enforce the new guidelines.
“Customs has certainly seized or rejected a tremendous amount of vehicles at the ports. I was just reading one of the EPA reports and that it had turned away 3000 bikes – 21 containers out of one port alone. The smaller companies or the companies who have smaller U.S. volume they won’t be able to sustain trying to bring stuff to the United States and they’ll back down.”
But Customs alone won’t solve the problem. As off-road vehicles, ATVs are far less regulated than imported off-brand motorcycles or scooters designed for on-road use.
As long as the new-Asian brands play fair, there is little concern over increased competition. “We welcome the competition,” Edmunds said. “But we want to make sure that if they are coming into the market that they are going to market these machines the same responsible way that all of the other manufacturers have done. As long at they come into the market and continue that, that’s great. We welcome the competition because it makes everybody better.”
There is also increased consumer awareness. More people are going to get into the sport of ATV riding because of the ease of purchase and low price. But for those people to stay with the sport, they have to purchase a machine that provides a great ATV experience.
Despite the ire that many of the off-brands have caused at the manufacturer and dealer level, they are still arriving.
“You can bury your head in the sand and say, ‘We’re above that crowd.’ Or you can say, ‘It is what it is.” said Murph. “Because if they’re not being affected, they’re going to [be]. I know it’s started to affect us. Our sales in the past have grown 20 percent per year, and we’re not up that much this year. I know the old saying, “If you can’t beat ’em, join ’em.” Well, eventually, we’re going to have to join them, or we’re going to be out of business.”

– Blake Stranz
Contributing Writer