Oct. 15, 2007 – Tackling the big questions over an emerging segment

By Neil Pascale
It’s the unknown that Yamaha’s Steve Nessl and others in the industry get so excited about when discussing the UTV market.
Perhaps the greatest mystery — other than just how big annual retail sales will one day grow — about the market is how many consumers who have not entered a powersports dealership will do so in the months ahead simply because of the side-by-side vehicle. Its ability to be both handy and easy to use has enabled it to reach a broad audience, some of which are completely new to the industry.
“I still run into people at shows who look at me, point to it (a Yamaha Rhino) and say, ‘What’s that?’” said Nessl, the ATV and side-by-side marketing manager for Yamaha Motor Corp. USA.
That growing familiarity with side-by-sides figure to swell sales of the vehicles that many believe to be the industry’s lone bright spot for new unit sales.
According to industry sources, the four powersports OEMs who manufacture UTVs — Yamaha, Kawasaki, Polaris and Arctic Cat — plus John Deere Co. sold roughly 140,000-145,000 units in 2006. Since there is no organization reporting retail sales, there is no official tally of annual sales.
But Yamaha provides an idea of just how fast side-by-side sales have grown. In a recent financial report, the company said it sold 36,000 side-by-sides in the U.S. in 2006, 50 percent more than the previous year.
Kawasaki, which up to this year had a UTV that was aimed at a different consumer than the Yamaha Rhino, also has seen tremendous growth in its UTV sales. Vince Iorio, ATV, UV and RUV product manager for Kawasaki Motor Corp. USA, said the company’s Mule sales have doubled over a two-year period.
“We don’t see the (UTV market) growth slowing at all,” Iorio said. “In fact this is an emerging segment.”
Polaris Industries’ Matt Homan, the company’s UTV general manager, believes the side-by-side market has been growing by at least 20 percent, if not more, in recent years.
“My guess is it’s somewhat less than that this year, but I don’t know what the actual number is,” Homan said of overall UTV retail sales in 2007. “But I think it’s still strong. I would suspect it’s still double-digit growth.”
Yamaha’s Nessl calls the quickly growing market “fun and kind of nerve wracking,” noting the fine line OEMs have to walk in providing enough product to meet consumer demand but at the same time not developing an inventory burden on dealers.
“The Rhino has been a sales success for sure,” he said, “and we’ve ramped up production each and every year.”
Whether Yamaha, as well as the rest of the industry, can expect such significant retail growth this year and in the foreseeable future is a difficult question.
“As far as how big this segment is going to be … I wish I knew that answer,” Polaris’ Homan said, before adding a thought that many others in the industry would echo, “That would be really, really helpful to know.”
Yamaha’s Nessl says the company is “trying to keep a rein on our optimism a little bit” regarding future UTV sales, noting he doesn’t expect the possible 2006 retail sales of approximately 140,000 units to double in the next couple of years.
Kawasaki’s Iorio believes the sport/recreational side of the UTV market will double within three or four years, but that in itself won’t be enough to swell the entire UTV market to twice what it currently is. The entire market includes the larger utility division, which is thought to make up at least two-thirds of the annual sales. The utility segment includes a number of OEMs that produce UTVs for the commercial sector.
“What we’re seeing is a slight flattening of the growth in the utility vehicle,” Iorio said. “It’s still growing, just not at the rate that it was.
“We think the general slowdown has affected slightly the utility side of things. But we have two (utility) models that we still have unprecedented demand for that have not yet peaked.”
Part of what’s driving the confidence in the UTV market is the likely — that further innovation will bring more interest to the segment — and the inevitable — that more and more ATV riders will grow out of their traditional quads and into the side-by-sides.
“As these vehicles become more off-road capable and come more in line with being able to do in an off-road environment what an ATV is capable of doing, and still take those couple of people and that cargo with them, it’s going to present a dilemma for people when they walk on the showroom floor,” Nessl said.
According to Powersports Business’ dealer survey, that’s already happening. In fact, dealers say about 13 percent of UTV buyers originally came into the dealership looking to purchase an ATV but eventually ended up buying a side-by-side. That 13 percent average is hardly a consensus, however, as approximately 10 percent of surveyed dealers believe the percentage is closer to 30-50 percent of ATV buyers who eventually switch to UTVs.
But OEM officials say the average of 13 percent is close to what their studies have shown.
Iorio notes consumers traditionally own ATVs for three-four years before either looking to purchase a new one or leaving the sport. Of course, more and more of these consumers are switching to UTVs, and Iorio expects that 13 percent average to increase slightly over the coming years.
Yamaha’s Nessl points out ATV sales have not suffered as a result of the growing UTV market as much as some in the industry feared. He cites the company’s Grizzly 700 as an example. When it was introduced with power steering, the MSRP was in the neighborhood of a new Rhino. Still, the Grizzly 700 is now, Nessl says, the best-selling ATV in the U.S. market.
“So we’re still not experiencing the cutting into our ATV sales as we maybe envisioned when we first launched the Rhino side-by-side,” he said. “What we are hearing, though, is that some people are being forced into those buying decisions (ATV vs. side-by-side) and we completely understand why they might be.”
The buying decisions regarding different brands or models of UTVs is still fairly small, especially compared to what some in the industry believe to be a saturated ATV market. That fairly limited UTV shopping experience is another reason why OEMs see side-by-sides as an emerging sector.
“If you look at the innovation and where the market can grow to make the vehicles better and stronger,” Homan said, “there are a lot of ideas out there still.”
Plenty of ideas but few specific reasons — outside of the current economic challenges — that figure to hamper future UTV growth. Yes, the wider and heavier UTVs often aren’t given the same access to trails as ATVs are, but those options are growing, something OEMs and the industry as a whole are working on.
Yamaha’s Nessl says he has seen strides already made in that area.
“If there’s a trail wide enough and capable of supporting them, we want to work toward making that happen,” he said, before noting, “we don’t want to force them into any environment” that jeopardizes the rider or the trail.
Such efforts figure to only build on the rapidly growing popularity of the UTV.
“The question is when do we run up against that wall?” Homan said of the unknown ceiling of annual UTV retail sales. “We don’t know when that (will occur), but I don’t think we’re there yet. It’s going to continue growing for the foreseeable future for sure.”

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