Dec. 5, 2007 – Polaris: Staying the course for 2008

By Steve Bauer
Managing Editor
With a struggling U.S. economy and growing competition from Asian imports, Polaris CEO Tom Tiller believes the key to the company’s success in 2008 is simple: innovation.
Coming off a year when Polaris introduced its Victory Vision, Ranger RZR UTV and several upgrades on its ATV lineup, the company says dealers and consumers can expect more Polaris innovation in different market segments.
“It’s not like we’re going into the grocery market business or anything like that, but we’ll continue to find areas where we can bring the Polaris brand into a market and figure out a way to gain a competitive advantage,” Tiller said.
Although he wouldn’t get into specifics, Tiller hinted Polaris will once again offer its dealers and consumers new product
innovations that the company believes will be as successful as its 2007 product line.
“I think that 2008 will be a very good year for Polaris innovation. 2007 has been a challenging year, no question about that, but we’ve done quite well and I think our dealers have done quite well,” Tiller said. “Really by delivering innovation, if you look at the Vision, the RZR, what we’ve done on the military side, we’ve done a good job in working with our dealers and finding a way to win in a tough market. If current market trends hold, we’ll beat market share in every single segment we’re in. The key to us is sustained innovation, and dealers should be excited about what we have in store for 2008.”

A shift to UTVs?
Although Polaris’ launch of the RZR has been a sales success, Tiller insists the company isn’t going to focus future research and development entirely on UTVs at the expense of its ATV lineup.
“We’re going to continue to invest pretty heavily in both. They’re both very important aspects of our business,” he said. “In 2008 you’ll see very strong product introductions in both segments. One of the advantages we have is that we can share the cost of development across the two platforms. You know we have a nice size side-by-side and ATV business, which tend to share quite a bit of technology, development expense, etc., so we try to leverage those costs across both. We don’t necessarily feel we have to sacrifice one to advance the other.”
Tiller says although the ATV market has been challenging
for the entire industry, it still remains a vital revenue source for the manufacturer and its dealer network.
“Polaris’ sales are down, but well less than what the overall market is,” he said. “We’ve gained market share this year, which we’re obviously pleased about. But just because the industry isn’t growing doesn’t mean that you can stop innovating. If that were the case, your business would shrink substantially more. We think there’s going to be a large, attractive ATV business well into the future, and we’re going to make sure that Polaris has our fair share of the market.”

International expansion
Although Polaris is looking into eventually expanding its recreational vehicles and Victory brand to individual markets overseas, the company is still undecided on how or when it wants to expand on a broader scale.
“In terms of entering a large global market like Europe or Asia, it’s a pretty important step in the development of any brand, and the amount of resources needed to do that are considerable,” he said. “I think our primary focus for 2008 will be growth in both the heavyweight cruiser and touring market in the U.S. Of course we just started shipping Visions, so the first handful of customers just received those bikes, but we’re just getting going in the touring market. So I think before you would expect to see a big geographical expansion, our next logical place to go is in the U.S. touring market.”
As for the impact that global competition has had on Polaris’ bottom line, especially from Asian imports, Tiller says the impact hasn’t been as significant as many in the industry have been concerned it would.
“Personally I’m not consumed with what’s happening with the Asian imports. We’ve got plenty to worry about in our own little corner of the world and try to satisfy our own dealers. If you look at the other established manufacturers, they provide plenty of competition for us, and it’s a very competitive environment. But up to this point I wouldn’t say Polaris has been significantly impacted by the Asian imports, it tends to be more at the bottom end of the market.”

Inventory reductions
Another key to keeping Polaris healthy in a challenging economy is the major inventory reductions that took place during 2007. With the most drastic of those cuts now behind the company, Tiller says Polaris is in better position to react faster to changing sales trends than ever before.
“We made a significant effort a year ago to reduce shipments and get inventories in line, particularly on the ATV side, but also to a certain extent on the snowmobile side,” he said. “I’m very glad we did that given where the economy is with the housing industry, etc. I think what you’ll see going forward are smaller adjustments than the drastic ones that occurred in 2007.
“Everybody is nervous about where the U.S. economy is right now and what’s happening with the housing situation, and we want to be very sensitive to both our inventory levels and the dealer inventory levels.”
Overall, Tiller says the company doesn’t expect to see any major improvements in the U.S. economy, and with that in mind he believes that the 2008 market will be very similar to what the industry faced in 2007.
“This year was a challenging market for just about everyone in the powersports market, and I think we performed pretty well in that market, and the key was innovative product,” he said. “That in combination with getting the inventories down, we’re in substantially better shape than we were 12 months ago, and I think that as we head into 2008, it will be more of the same.
“I certainly don’t expect the economy to pick up quickly. Consumers are going to be shopping around and looking for the maximum value that they can get. On our end, we’re going to try and outperform the industry in a very challenging market.”