Maneuvering in tricky terrain

Honda identifies segments likely to be the first to return to growth mode

What vehicle segments figure to return to a growth mode sooner than other industry categories?

What shifts in the crucial sport bike market is the industry likely to see in 2011 and beyond?

Is the much-discussed electric vehicle market going to become a true presence in the industry or remain merely an interesting footnote?

In a wide-ranging interview with Powersports Business, American Honda Motor Co. executives

discussed these pivotal topics and others that figure to play an important part in defining what the industry will look like in 2011.

Ray Blank, senior vice president of American Honda, and Bob Gurga, assistant vice president of sales for American Honda, echoed largely what other industry executives have forecasted for 2011: more challenging times, but also reason for optimism.

“Next year we’re expecting things to be off a little bit again,” Gurga said of new unit sales, “but not as far down as it was this year.”

Just as importantly, Honda executives see industry segments performing differently over the coming year, expecting segments to vary in how quickly they return to a growth mode. “We see a lot of the practical segments coming back first, like utility ATV and scooters,” Gurga said.

The touring market, meanwhile, is expected to remain fairly stable thanks to its older and more affluent demographic.

The true enthusiasts, those behind the sport bike and motocross segments, will start returning next, replacing their older bikes and seeking new technology, Gurga believes. Even farther down the new unit growth timeline, as Honda sees it, is expected to be the purely recreational product purchases, such as cruisers and dual sport bikes.

Already Honda is starting to see stabilization in the practical vehicle category, like utility ATVs and scooters. “We’re starting to see that become the first segment where noncurrents aren’t such a big impact anymore,” Gurga said.

HP vs. MPG

Last August, after the huge new unit falloff experienced in the summer 2009, Blank noted a significant change in the market, believing the consumer mindset had swayed from visions of 200 hp to more toward 100 mpg. A year later, has the performance of the sport bike market changed that belief?

“I don’t really think so,” he said, noting the horsepower-hungry sport bike consumer is still present, but perhaps in smaller numbers. “I think that trend is still there but in a narrower market vein. I think there’s some more diversification.”

Honda’s 2011 lineup certainly reflects that, as the company introduced a lower-displacement, 250cc sport bike that will challenge Kawasaki’s Ninja 250, which was among the nation’s top three selling on-road motorcycles from June 2009-May 2010, according to R.L. Polk’s compilation of state registration data.

“The 250cc bike is going to be a great addition to the lineup,” Gurga said. “It fits right in what we see as the practical customer, the first-time buyer and the person looking for an economical way into motorcycles.”

The diversification of the sport bike category may not be solely limited to more interest in the 250cc category. Blank sees an emerging trend among 20-somethings for café racers, classically designed bikes that often feature smaller-displacement engines.

“Gas prices certainly have something to do with that because smaller-displacement bikes will get better mileage,” Blank said.

“During the gas crisis, the focus kind of shifted to motorcycles as transportation so we didn’t necessarily have to have high performance. I don’t think that’s gone away. I think that’s still here.”

EV segment

During the same week Blank and Gurga spoke to Powersports Business from American Honda’s Torrance, Calif., headquarters, the close-by Los Angeles Auto Show was drawing headlines across the nation for a number of new electric vehicles that manufacturers were bringing to market. Honda, in fact, was expected to unveil an electric-vehicle concept and a plug-in hybrid platform at the auto show.

“There appears to be a great deal of interest,” Blank said of the emerging electric vehicle market in powersports. “How that might translate into sales remains to be seen.”

Price, the range and performance of such vehicles remain valid question marks. Blank noted for lower-speed, short-distance commuting “there’s a market (for electric vehicles) out there and an interesting market.

“The market is youthful and looking for new things and different things … so there’s great potential there.

“The older customer seems a little bit more reluctant, looks more at the standard IC (internal combustion) type of power because the advantage it gives — if not performance, certainly range.”

Network status

The drop in new unit sales that started in the fall of 2008 and continues today has not led to a huge decline in Honda’s dealer network, Gurga and Blank said. Although there have been Honda dealer losses, the number doesn’t compare to those seen in the 1980s when negative exchange rates and federal government regulations led to more severe network challenges. And what dealer failures that were experienced last year have lessened this year.

“The overall rate of failure isn’t all that large and the fact is the network has weathered the economic situation pretty well over the past two or three years all things considered and in comparison to other franchises, at least with the information we have,” Blank said.

“We’re really proud of our dealers and the job they’ve done through this very, very difficult time. We always have to remind ourselves that the motorcycle industry is cyclical and it was time for the rollercoaster to go down so it could start going up again. (The recent new unit sales decline) fits the classic graphic that goes back to 1960 very well.”

Blank and Gurga note Honda continues to see positive results from its single-line, Powerhouse dealers. “They perform better than Honda

dealers in general,” Blank said, noting the company works with some of its Powerhouse dealers to track their profitability. “They have a higher unit output per store.”

Blank believes the added unit sales are a result of those dealers having a full Honda model representation. “There’s a difference from when you buy at Nordstrom’s than when you buy at Ross Dress for Less,” he said, comparing the Powerhouse shopping experience to a multibrand dealership experience. “(At Nordstrom’s), you can get whatever you want. You can find it. You can get it serviced and get everything you need.”

The future

Even as Honda officials use a common phrase to describe their 2011 forecast — “cautiously optimistic” — there is considerable optimism about the longer-term industry picture. Much of that optimism for Blank resides in the generations following the Baby Boomers.

“I think kids today might actually be the first generation to see a real transportation option for motorcycling,” he said.

“If you had a demographic that was composed of predominantly Baby Boomers for the next 20 years, Boomers in the same age group as they are right now, I don’t think you could feel very proactive about what the potential for the industry could be because you’re already seeing within certain categories some falloff because of the age of the user.

“The important thing is that the fashion continues to be very high,” Blank said of the industry and its allure to younger generations. “If we weren’t cool, we wouldn’t or we shouldn’t expect to be particularly successful with those two generational groups. But motorcycling is cool, and I think much better established on a better foundation than it has ever been so we look to a bright future.” PSB

BRP: Key category areas, improved inventories fuel optimism for 2011

It was almost three years ago today that BRP’s CEO made the company’s UTV segment intentions clear with a simple assertion in Powersports Business: “It will come.”

What followed was two years of built-up expectations that culminated in a media launch this spring and a public unveiling in early summer. But Yves Leduc, vice president and general manager of BRP’s North American division, is quick to wave a caution flag in any attempt to measure the company’s success in what may prove to be one of the industry’s most vital market segments going forward.

“We’re talking about 1½ months of retail,” he says, noting the first Can-Am Commanders were shipped to dealers in late September.

But Leduc also is quick out that “the expectation is high and it’s playing in our favor.”

The likely growth of that category plus other new product developments and a significantly improved inventory position provides confidence to BRP officials going into 2011 even amongst continued, unfavorable economic conditions.

“We’re looking at our markets from a very conservative standpoint,” Leduc said. “We don’t believe they will head back on a growth slope. So we’re assuming a very long recovery, which implies further, slighter declines next year in pretty much every market, except side-by-side.”

Even with that conservative outlook, BRP envisions a positive 2011, with growth coming in key international markets, including Russia, Australia and South America. “They seem to be out of recession mode,” Leduc said of those areas.

Just as importantly, the Commander side-by-side and the Spyder roadster, BRP’s expanding three-wheel model lineup, provide growth potential in North America. Even though as Leduc readily points out, the BRP side-by-side is still extremely new to the market, it is giving officials reason for confidence. Part of that confidence lies behind the Can-Am brand name, which has strengthened considerably since BRP started branding its ATVs that.

“If you look at the positioning of the product and where the industry seems to be going,” Leduc said, “I’m looking at retail sales (of Commander) that notably exceed what we were originally planning for.”

Back in 2008, BRP officials had planned for a reduction in retail sales for 2009 amongst signs of escalating U.S. unemployment and other negative economic indicators. But Leduc candidly points out the 2009 industry retail sales “turned out to be far worse” than expected, which left BRP and most other industry manufacturers in a painful position of reducing production.

Two years and many painful decisions later, BRP is reporting a much improved inventory position. Dealer inventories, in fact, have been reduced by 50-60 percent, Leduc said.

“This is one of the reasons why we feel comfortable about being able to withstand a very, very slow recovery,” he said. “We brought inventories down to a healthy level, healthier than we’ve seen in many years.

“That’s a result of a significant production adjustment and providing our dealers with support programs to help them liquidate noncurrent inventory.”

Has BRP also cut down on the SKUs it offers, something other manufacturers have done to better position themselves in a shrunken market? In some cases, yes, Leduc said.

“We don’t look at the number of SKUs as the leading indicator whether we’re doing the right thing or not,” he said. “The real thing is to reduce complexity.

“The most important way to reduce complexity internally is making sure you standardize platforms and you avoid the proliferation of different platforms. I think we’ve done a pretty good job of that.”

He points to the company’s Sea-Doo lineup as an example.

“When we reduced our watercraft lineup to use one power pack, then you end up having far fewer platforms,” he said, noting that has in turn helped the company focus its marketing efforts.

In the past, BRP focused part of its watercraft efforts on having at what the time was considered the highest-horsepower craft on the market. That claim arguably now resides with a competitor. How important is having the highest horsepower PWC on the market?

“For the enthusiast segment, it is important,” Leduc said. “But the most important part is how we look at the watercraft market. There is a greater portion of the market for whom power is not that important.”

This portion of the market, BRP believes, will instead be driven by new technology like its iBR “intelligent brake and reverse” system. “The braking system brings a new dimension in terms of safer riding but also fun,” Leduc said. “It adds a fun factor that wasn’t there before.”

BRP also is focusing on the entry-level buyer in the PWC category, as Leduc notes that “price access” has steadily become a bigger issue as OEMs produced higher horsepower units and switched to a four-stroke engine.

“The average price never stopped creeping up,” he said.

Looking beyond product categories, Leduc said BRP is “focusing on the financial health of our (dealer) network overall and its ability to deliver the brand promise.” What does that entail? Leduc pointed to coaching and supporting dealers “in delivering retail excellence as part of their business model.” PSB