…As We Turn the Page on a Solid Year
[dropcap]B[/dropcap]efore we turn the page to 2016, it is important to take stock of what happened in 2015. There was no shortage of stories across the powersports landscape in the past year, including Harley’s struggles; Polaris’ inability to keep pace with the demand for the Indian Scout and Slingshot; the popularity of Ducati’s Scrambler; and the sharp discounting of metric cruisers and sportbikes.
On the off-road side of things, the implementation of a new plan by a new management team at Arctic Cat; a weak ATV market; softening demand for UTVs in western Canada, Texas and other oil producing regions; and Polaris’ continued dominance of the broader UTV market in the face of an onslaught of new products from Can-Am, Honda, Kawasaki and Yamaha were among the highlights of the last 12 months.
The powersports industry’s paradigm shifts were not all product related, either. Capital One’s announcement that it was walking away from the industry entirely and GE’s decision to sell its wholesale financing business were the tip of the fiscal iceberg. Throw in a dash of Harley’s weaker-than-expected performance, and it is no surprise that dealers are confused at what is going on – and where we are going from here.
To clear some of the confusion, there are trends to watch that will help you navigate the next year. With apologies to a certain late night TV comedian, here are the Top 16 themes that will shape 2016:
1. The U.S. Economy
While bikers will tell you that their motorcycle is a necessity as opposed to a luxury, buying a new bike is most certainly not a necessity. The same can be said of ATVs, UTVs, sleds and PWCs. The discretionary nature of these products is why the overall health of the economy is crucial to the performance of the broader powersports industry.
While the U.S. economy’s GDP growth has slowed from 2014 and retail sales have been less-than-ideal, the U.S. consumer generally appears to be on solid footing. This is evidenced by solid (albeit not spectacular) gains in the labor market and the fact that consumer confidence has remained high (bounced around 100 all year).
That said, much of the focus has been on the negative data points given that we are so far removed from the Great Recession, and many people fear they are indicative of the “peak” of the current cycle.
Despite these fears, dealers we talked to indicate that business has remained solid. While nobody seems to be setting sales records, consumers are still buying, aged inventory is in good shape and floorplan lines have ample capacity – all facts that point to a healthy industry.
Movement of the Yen, the introduction of new products and the strategic decisions of certain OEMs have contributed to a more competitive operating environment. Said differently, we see 2016 as year of moderate growth for the broader industry.
While fears about the U.S. economy are likely overblown, the same cannot be said of our neighbors up North. Despite the fact that recent data suggests the Canadian economy improved modestly in 3Q15, the country has struggled to deal with the impact of falling commodity prices… especially in Western Canada.
For dealers, this has been compounded by currency fluctuations brought about by the strong U.S. dollar, which has pressured profits and increased the retail price for consumers. Unfortunately, we do not see a quick reversal anytime soon.
The availability of financing rivals the importance of the general health of economy to the industry. The big stories here will be whether there will be any disruptions relating to GE’s sale of Commercial Distribution Finance (wholesale financing business) to Wells Fargo and who will step up to fill the void created by Capital One’s decision to no longer offer a retail financing product for the powersports space.
Based on conversations with dealers and lenders, the transition of CDF to Wells should go smoothly, while the retail void should be filled quickly by at least two lenders.
4. Harley’s Struggles
One of the bigger stories of 2015 was the way in which industry stalwart, Harley Davidson struggled to grow its volume (U.S. units down 1.3% through September) and maintain its market share in the motorcycle industry (down ~4% in 601+ cc market).
While the company has enacted a number of strategies to get growth back on track, there is no question that with Indian’s resurrection and the promotional activity of the Metrics, the venerable company has its work cut out for it.
5. Motorcycling Millennials?
It’s no secret that the Baby Boomers are riding off into the sunset, which is why there is a lot of excitement about the recent influx of new riders. Specifically, bikes such as the Ducati Scrambler have struck a chord with younger consumers – particularly in urban areas.
The hope is that the Scrambler and other new bikes of its ilk can continue to drive the next generation of riders into the industry. Expect 2016 to reveal more about
6. The Autocycle Market
Is it a car? Is it a motorcycle? There seems to be no consensus answer to those questions, but there is no debating whether the Slingshot is popular.
Indeed, by all accounts Polaris hit a homerun with the Slingshot as the product continues to top the company’s estimates for demand. The question becomes: What happens with the Slingshot and the Autocycle market from here? We probably won’t have a real answer to this question for another year until we see more game film on new sales and the usage trends on initial used models.
That said, our conversations with dealers indicate that the product has legs. Interestingly, even the skeptical dealers that believed the Slingshot was a fad are beginning to sing a different tune, which could mean that Autocycles are here to stay.
7. An Encore to the Scout
Indian is making a strong push to maintain the momentum it built of 2015 with the introduction of the Scout Sixty.
The Sixty is built off of the same platform as the original Scout, but features a smaller engine (60 cubic inches vs 69 cubic inches) and a lower price point than the original Scout (MSRP $8,999 vs $10,999).
Conversations with dealers indicate that this bike should be extremely successful.
8. Polaris’ Production Problems
Polaris had some production hiccups in 2015 as the combination of a new paint facility and stronger-than-expected demand hurt the company’s ability to ship enough units (particularly Scout and Slingshots) to satisfy retail demand.
To compensate, Polaris has added a new facility in Spearfish, S.D., and reopened its old paint line for Scouts, which is allowing the company to work down the backlogs and positioning it for the upcoming riding season.
9. Aftermarket Support for Indian
One of the most resounding themes from the aftermarket component producers we spoke with is the popularity of the Indian Scout. Consequently, many of them are planning to expand their offerings for the Scout next year.
Moreover, as they continue to build out their accessories packages for the Scout, many of them are now giving the Chief and the Chieftain a hard look for the first time.
Despite the fact that Polaris was able to put a solid package of accessories together for Indian, there is no substitute for the benefit of strong aftermarket support – especially in light of how much riders value the ability to customize their bikes.
In short, the incremental aftermarket support should indirectly benefit Indian retail sales going forward.
10. Land Access
Land access is always a touchy issue for off-road enthusiasts. Of particular importance is the California Desert Protection Act that has been championed by California Senator Diane Feinstein.
The proposed legislation would designate almost 1,000,000 acres in three swaths of desert in Southern California as national monuments, which is a designation Americans for Responsible Recreational Access think will ultimately limit off-road access.
One way or the other, 2016 will likely be the year that this issue is resolved.
11. Can Arctic Cat Get It Together?
With plenty of changes at Arctic Cat, including new management, new ordering systems, infrastructure upgrades, the promise of more compelling products and efforts to upgrade its dealer relationships, there is a lot of balls in the air with this manufacturer.
It will be interesting to revisit this topic a year from now, as we will have a better idea of how this story is going to end.
12. The YXZ 1000R
The most talked about new product in the UTV industry has been Yamaha’s YXZ 1000R. However there are some limitations, which will make its reception this year especially interesting.
Many Midwestern dealers believe that it will only be very popular with desert riders and the manual transmission could limit the total market size for the product.
While there is little doubt that a market exists for a manual transmission UTV, the question is: will it be a niche market as many believe or can it be something bigger?
13. Dealer Consolidation
Expect the trend of smaller family owned dealerships (~80% of the industry) selling to growing dealer groups to continue in 2016.
It is becoming clear that additional capital investments are necessary to create the optimal retail experience needed to succeed in the industry today.
The combination of many dealerships run by aging proprietors with fuzzy succession plans (many of whom are reluctant to make investments), and groups looking to snap up dealers at healthy multiples should drive consolidation in 2016.
The AIMExpo wrapped up its third annual show in Orlando, Fla., in October and it has clearly established itself as the most comprehensive powersports show in North America. That said, it has yet to hit the heights that many envision (a powersports hybrid of EICMA and SEMA).
To this end, 2016 could provide more clarity on the future of this show. In order for it to move to the next level, there will need to be more dealers attending – something that would likely happen with the attendance of Polaris and Harley-Davidson (both conspicuously absent from the last show) and some more product introductions.
15. A More Competitive ORV Market
With the new product introductions over the past 12 months, competition in the UTV market has been more intense than ever.
While there are different opinions about what models will be the most successful in the coming year, one thing everyone can agree on is that consumers will be the real winners.
16. What’s Next?
The next product hit, the next consumer trend, or even the next fad. Simply put, what’s next? The question that we all want to know the answer to and do not have!