July 2, 2007 – Arctic Cat reaching into new segments

By Steve Bauer
Managing Editor
LAS VEGAS — After being introduced to seven new model releases in 2008, attendees at Arctic Cat’s ATV dealer meeting in Las Vegas were buzzing about the company’s bold strides in product development, including the attention-grabbing ThunderCat 1000. But the ThunderCat is only one example of the changes Arctic Cat is making to separate itself as a company that caters solely to utility vehicle consumers, hoping to steal some of the recreational vehicle spotlight away from its bigger competitors.
“We’re gearing ourselves a little more performance based,” said John Tranby, Arctic Cat’s marketing communications manager. “We’ve always been the rough, tough, get it done ATV, and we still have that, but we are obviously out there racing our ATVs, making changes to calibrations and suspensions for a more recreational ride, especially on the 700H1 and the ThunderCat. As far as growth, we’re looking to penetrate more into the recreational rider beyond just the utility user.”
Ole Tweet, vice president of new product development for the company’s ATV group, says the company doesn’t foresee the ATV market heading in any one direction. Because of that, Arctic Cat is focusing on developing machines that don’t fit in traditional segments.
“This industry encompasses a variety of segments and our plan is to have vehicles available for as many as we can,” Tweet said. “For example, when you look at the youth market and now with the new ANSI standard that’s being developed we’re looking at a transitional model that goes between a youth model and what’s typically been called an adult machine where before you had to be 16 years old to ride it. But we really see a market divided up into many segments.
“However, I think people buy different models for different reasons. If you look at things like refrigerator pricing, as I call it, there are different machines for different people and their needs. And as you see with our 366, we’ve made it a less highly suspended yet still full-featured machine at a lower price than all the big stuff that we’ve had in the past. If you compare our new 366 to the 400, when you sit on them, one is very frisky and nimble and fun to ride, the other is just brute strength, the ‘I can get this job done’ kind of machine. Not everybody has to do a job with their ATV, many ride solely for recreation, and we recognize that.”

Branching Out
Much of Arctic Cat’s future growth is dependent upon branching out into untapped segments, which Tweet says the company has started addressing with some of its 2008 models.
“Yes, there are several areas of potential growth for us, and we corrected a couple of those this year,” Tweet said. “We haven’t had anything in the 300-350cc market in the past few years so getting the 366 out is really important to us. We also didn’t have a large displacement machine where we were at the top of the pack, but now we do with the ThunderCat. I think it’s important for us from an image standpoint, too.”
One large growth area Arctic Cat admits it hasn’t focused much on in the past has been the sport segment, which Tweet says the company is considering for the future.
“That’s one segment that we’re still not in that’s a pretty big part of the market,” he said. ‘We have a couple machines that do very well, but we don’t have the presence and variety that we’d like.”

High hopes for the Prowler
One segment Arctic Cat continues to expect big things from is its Prowler UTV lineup. Larger OEMs, such as BRP, Honda and Suzuki, remain on the sidelines in this rapidly growing market, and Arctic Cat plans to take full advantage of their absence.
“I can’t answer what they’re thinking, but I hope it takes them a long time to get in,” Tranby said. “We’re going to do as much as we can as quick as we can, and we’ve added more features and bigger engines, and I think you’ll continue to see that. I was actually surprised that some of the bigger companies haven’t jumped in yet. I’m sure they have plans to but they haven’t gotten their product where they want it yet.”
Tranby says any company looking to enter the UTV market will need to gear its vehicle for recreation, as more consumers demand versatility from a side-by-side.
“If anyone’s coming out with something new, they have to plan it toward the recreational arena because our dealers are not commercial dealers,” he said. “If and when they get in, they’ll probably have a recreational vehicle. It’ll be able to do work but it isn’t just a 1,000-pound payload where you throw on a hay bale and go. Basically it will replace some ATV sales at the end of the day. And we saw that. We no longer carry a TBX, which was an ATV that had a box on the end of it that dumped, because those guys were heading toward side-by-sides. In fact, nobody has a box ATV anymore.”
Although the company continues to develop its UTV line, it doesn’t see side-by-sides completely replacing ATVs as the recreational vehicle of choice, instead continuing to complement ATVs as a choice for consumers who enjoy riding with a passenger.
“I don’t think UTVs will take over ATVs, but you’re starting to see more people look at them that previously only looked at ATVs,” Tranby said. “They’re great if you’re riding them on private property. But the other thing I think is going to occur is that as trail systems get more organized and we get more trail systems, you’re going to see more people interested in ATVs for that reason. And I think you’ll see UTV product in the future that maybe doesn’t have racks on it, just a fun trail machine that really I equate to snowmobiles, going in that direction.”

Market share fears
A large concern to many OEMs has been the influx of Chinese-made ATVs into the U.S. market, and many in the industry point to Chinese manufacturers as a reason for the recent stall in MIC-reported ATV sales. Arctic Cat acknowledges that Chinese ATVs have impacted its effort to grow market share, but believes the problem isn’t a long-term one.
“Obviously growth is important to us,” Tranby said. “Do we fear losing out market share to Chinese manufacturers? You know, there might be a short term where that’s possible, but I don’t think in the long term it’s a concern. They don’t have service capabilities, the machines have quality issues, etc. I don’t see them as a long-term threat. I see it as a short-term event, and the good ones will emerge and the bad ones will disappear.”
Tweet says his concern lies more with the lack of safety standards followed by Chinese manufacturers rather than diminishing sales.
“When you look at some of the stuff from China that’s coming in, it doesn’t even have the basic labeling that we have,” Tweet said. “So my main concern is one of safety and protection of people because they deserve to have a machine that complies with accepted rules with the Consumer Product Safety Commission. A lot of the machines that are coming in don’t have any of that.
“One of the big things consumers have to remember is that our products are not throwaways. You’ll have a much longer and more fun relationship with our machines than you will with stuff that maybe you had to put together yourself out of a box, or doesn’t have parts or service available. The positive side of it is a lot of people are probably going to get into the market with their $500 machine, but they’ll stay in the market because of one of ours. So I look at this as not really trying to stomp on them competition wise. What I want is for them to bring these products in safely and meet all the other requirements we do and pay for the training, etc. Ultimately we’ll benefit because people won’t stay on that machine. They can’t, because it won’t be running.”

Guarded Optimism
Like most in the industry, Arctic Cat suffered from lackluster early season sales. Although the company can’t pinpoint the reason why sales have been slow in 2007, it expects the dealer meeting to give it a better idea of sales expectations for the rest of the year.
“We’re speculating like everybody else,” Tranby said. “We talk about gas prices, we talk about consumer confidence, which was a few ticks down, but at the same time the stock market has been at record highs. Everybody can talk and act like they have a great answer, but nobody knows. It’s one of those intangibles that you just can’t put your finger on.
“We’ll have a better understanding of what our sales expectations will be for the rest of the year once this show’s over. We’ll have a better idea of where our dealers’ heads are, how they feel business is going and what they order. They’re obviously excited about the product, since we came out with seven new products. And dealers, like consumers, like to sell and buy what’s new. So it’s been positive, considering how the beginning of 2007 has gone. It’s great to have our dealers fired up and ready to get the product into the showroom.”