September 24, 2007 – Diversifying in a down market

SAN DIEGO — Big Dog Motorcycles is in the midst of a delicate balancing act — trying to meet dealer demand for model diversity and lower price points while at the same time improving reliability and spending more time and money on vehicle testing.
The latter two issues represent a major focus for the American V-twin manufacturer but also serve as a potential conflict to diversifying its model mix in a timely manner.
Still, the Wichita, Kan.-manufacturer displayed two new models — including a lower price point bike — and redesigned a third bike as part of its 2008 motorcycle lineup.
“Over time our lineup had gotten a little compressed, both in style and price points,” Big Dog founder and CEO Sheldon Coleman said at the company’s recent national dealer meeting in San Diego.
The manufacturer is trying to rectify that by offering the lower-price point bike, the 2008 Mutt, which will feature the first price tag under $25,000 the company has had in quite some time.
“We want to be in a more affordable zone,” Coleman told dealers, who have asked the company to build lower priced bikes. “We just can’t go too fast.”
More stringent compliance issues in California, which will begin enforcing tougher emission standards in 2008, and Big Dog’s effort to make more reliable motorcycles are obstacles at changing its model mix in a speedy manner.
Coleman believes part of the V-twin market’s current retail sales downslide can be attributed to product that might have looked like a $35,000 bike but did not necessarily run like it.
“A lot of product didn’t work really well,” Coleman said about the custom market’s recent past. ”We’re guilty of that. All of our comrades are guilty of that. We have to earn back that respect, and Big Dog Motorcycles is going to be the one that does that.”
In fact, Coleman, the sole owner of what is believed to be the largest custom manufacturer in the U.S., spent millions this year on the creation of a new test center in Wichita. Plus, the company reorganized earlier this year, establishing separate engineer teams, one which will focus on improving the reliability of current and future bikes, a second group that will deal exclusively with product development and a third that will focus on product testing.
Coleman said the company was able to invest in the additional engineering by using cash freed up by its cutback in production, which started last fall and has continued into this year. The production cutback prompted the company to layoff 7 percent of its employees earlier this year.
Big Dog expects to build approximately 3,500 motorcycles this year, about one-third as many as it was manufacturing a few years ago during the custom market’s recent peak period.
Coleman said Big Dog’s retail sales are down 20 percent this year, although President Nick Messer noted there are some positive signs in the market, including a good sales month in August.
Plus, the 20 percent downturn is likely ahead of the rest of the market, as a recent Powersports Business national dealer survey found sales off 27 percent from a year ago.
The custom market is getting hit especially hard by the reeling housing market, which acts as a double whammy for Big Dog and other custom builders. First, increasing interest rates are ballooning some consumers’ mortgage rates and hence cutting into their discretionary income. Secondly, the reduced number of housing starts is impacting contractors, what Coleman called one of the custom market’s “best customer bases.”
To potentially enlarge its market, Big Dog is striving to lower its prices across all five models while also diversifying its lineup thanks to its increased resources invested in product development.
Messer said by the time the 2008 and 2009 lineups emerge, the entire model mix will be new.
“In the next two years,” he said, “you’re going to see a lot of changes in Big Dog.” psb

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