2011 snowmobile sales expected to be flat

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There’s one thing upon which any snowmobile season hangs and that’s snow, lots of it, deep and early — it makes the season, and it’s happening now in early 2011, bringing smiles to the faces of dealers and OEMs alike. There have been record snowfalls this season in many parts of the country, especially in the important snowmobile region of Wisconsin, Michigan and Minnesota. Record heavy snowfalls continued across much of the country through January.

According to a spot-check of data collected by AccuWeather, it’s been an excellent early snow season. In the Minneapolis-St. Paul area, for example, in December, snowfall totaled 34 inches. By comparison, in 2005, snowfall in the area was less than 10 inches. Snowfall in the area from November through early January was more than 50 inches — more than two feet more than during the same period last year.

In the very popular snowmobile area of Eagle River, Wis., snowfall in December was nearly 23 inches, compared to only about 11 inches in December 2005. And this year, snow depth was 11 inches or more on 16 days in December compared to none in December 2005, when the deepest snow was only seven inches for only eight days.

Through January, many areas of the Midwest and East had record snowfalls.

Dealer perspective
Derek Snowman, manager of the F.B. Spaulding dealership in Lancaster, N.H., says the 107-year-old dealership lives for winter; snowmobiles make up almost 70 percent of the dealership’s business. It’s been an exclusive Polaris dealer for more than 50 years.

The dealership sells about 225 new and used snowmobiles annually, and generates about $5.5 million in total annual sales. In mid-December, Spaulding was close to spot-on with sales from last year, even though it had been raining for several days. “I can’t complain [about sled sales],” Snowman says. “It really depends on the weather. We were a good bit ahead of last year until the rain.” The area had about 20 inches of snow in early December.

Sled sales at Spaulding are split about evenly between new and used machines. In November, there were about 45 used machines in the store, but about half that number had been sold by Dec. 15. “Everybody who buys new has something to trade, it seems,” Snowman says. “But every year we run out of used about the first of the year, and we beg people to trade them in.”

Sales are mixed for Spaulding on the PG&A side. Parts have been good and clothing has been “real good,” with lots of jackets, bibs and helmets moving out the door. Accessories haven’t done as well. “A lot of sleds come fully accessorized,” Snowman notes. “It’s not like it was 10 years ago. There’s only so much you can do today.”

Inventories are heavier than he’d like, but Snowman expects a good snowfall to solve that problem. “If we get snow, we’ll be OK. If it continues to rain, we could be in trouble.”

Spaulding is located in a new 17,000 sq. ft. store, about double the old facility, which is now used for storage. The hottest models have been non-current 800s because Polaris has been pushing rebates of about $1,400 on these models.

Is Snowman concerned about snowmobiling dying out as a recreation? In a word, no. Floor traffic at his dealership is up 30 percent to 40 percent more than last year. Much of that has to do with the increased visibility at the new location. “We’re seeing new people. Every week ,we probably see a dozen new faces,” he says.

But they’re not buying. “They’re coming in and buying clothing, it seems, but they’re just kickin’ tires on the sleds,” Snowman says. “But we can’t complain; the traffic has been pretty good.”

Meanwhile, there’s plenty of snowmobiling in the area. “We see probably 5,000 snowmobiles [trailered] by us in a weekend. You sit here on a Friday, and every other car is hauling a trailer up north. I won’t even go up there on a weekend; it’s crazy. Snowmobiling is huge in this area.”

At Nielsen Enterprises in Lake Villa, Ill., outside of Chicago, the story is much the same, although the dealership operation is different. Nielsen carries, among other items, ATVs, UTVs, motorcycles, scooters, PWC, boats, and outboard motors from Arctic Cat, BRP, Honda, Kawasaki, Polaris, Suzuki and Yamaha.

Jeff Nielsen wouldn’t tell us how many sleds the big dealership sells in a year, but he did say that sales this year are ahead of last year because of the snow conditions. The biggest problem that Nielsen sees for the snowmobile industry, outside of snowfall, is getting new riders. “It’s a shrinking industry. We could really use some fresh riders,” he says.

The key obstacle to industry growth is machine prices, he continues. “Young riders can’t afford new sleds, and it’s very difficult to find used snowmobiles. We have to make it more affordable, but we’ve been saying that for years. It’s very expensive to take your family snowmobiling. … Four new snowmobiles? Holy Moly. Unfortunately, I don’t see that going down.”

Nielsen cited Yamaha as an example. “Yamaha has a beautiful machine, but customers go into shock when they see the price. And Yamaha is lowest on non-currents, so they’re getting hurt a little bit.”

There are no inventory concerns at Nielsen. “Non-currents are the best it’s ever been,” Nielsen says, and he’s been in the business since 1969. The bottom line is that Nielsen says he’s in a good position. “I’m excited about the industry. I think the industry is a good thing, and I’m excited to be a snowmobile dealer,” he says. “I’m ready to do it for another 20 years.”

In Fergus Falls, Minn., Frontier Powersports reported that its inventory of new snowmobiles had shrunk from 70 sleds to just three near the end of January, and it hasn’t had any used sleds since November.

Heavy snow is a big reason, of course, as is the area’s strong agricultural economy.

Industry Overview
Ed Klim, president of the International Snowmobile Manufacturers Association (ISMA), works closely with the four OEMs, Arctic Cat, BRP, Polaris, and Yamaha, as well as dealers, consumer groups and government agencies. Here are some things that Klim had to say about the state of today’s snowmobile industry in North America.

1. Interest in snowmobiling among consumers continues to be high, according to ISMA surveys. Perhaps 20 percent of the population doesn’t like snowmobiling and about half of the remaining 80 percent have a high interest in snowmobiling.

2. Snowmobiling is much like the boating industry in that 70 percent of first-time buyers purchase a used vehicle. Ten years ago, that figure was about 35 percent.

3. Should the snowmobile industry create a certified used snowmobile program? Klim says it has possibilities, and dealers also like the idea. Unfortunately, this type of program is difficult to set up, not to mention expensive and complicated for the OEMs to administer. It’s not likely to happen, even though it’s a way to stimulate sales.

4. OEMs all are working on bringing less expensive models to market.

5. OEMs are required by the EPA to lower emission standards significantly in 2012. This will be the end of the process begun in 2002, when the existing regulation was passed in November of that year.

6. Dealer traffic in the key areas of Wisconsin, Minnesota and Michigan as well as all Canadian provinces is up this year. Sales in the West and Midwest are “quite strong,” but they were softer in the East early in the season. All three Canadian provinces are outperforming last year.

7. Quite a few new buyers are visiting showrooms, but not necessarily buying. “It’s a combination of lookers and serious buyers,” Klim says.

8. More money seems to be available to finance new purchases, and there seems to be more optimism among consumers.

9. There are more trails available than ever before, and they are in better condition and better marked. Access is not much of a problem.

10. Support continues to grow from state and provincial governments. “They understand the economic impact that snowmobiling has, and that it generates jobs. That gets people’s attention,” Klim says.

Our research also turned up several other points of interest that apply to the North American snowmobile industry:

1. The total snowmobile dealer network in the U.S. and Canada continues to contract. The number of snowmobile dealers is expected to decline this year by about 5 percent, approximately the same amount that it has declined in each of the last two years. This contraction is seen about equally across all four snowmobile OEMs, Arctic Cat, BRP (Bombardier Recreational Products), Polaris, and Yamaha.

2. Market share change is expected continue the trend seen over the last several years, with BRP leading at about 40 percent, Arctic and Polaris battling for second at about 24 percent, and Yamaha coming in last. The top three OEMs have been taking share from Yamaha in recent years, and that is expected to continue this year. Yamaha is suffering from high MSRPs and a lack of non-current machines following its big push last year to clean out its pipeline.

3. Even though an electric snowmobile has been developed in Finland, there doesn’t seem to be much enthusiasm for one here. Uncertainty about range, especially in very cold weather, is expected to dampen consumer enthusiasm. Insufficient speed and power also are negative factors.

4. The use of trail access for political purposes unrelated to riding also showed up this season in what could be a precedent-setting move by farmers in Quebec. The farmers union closed trails on their private lands until the provincial government met their demands for financial assistance. The closures upset riders and business owners in the area. The action prompts a question: Will other groups in North America use this tactic of closing riding areas to force their political agendas, even though they are unrelated to riding?

5. The soft economy, especially in Michigan, the largest snowmobile market, keeps a lid on sled sales.

Recent sales trends
Here’s a point of reference: The leading snowmobile states are Michigan, Minnesota and Wisconsin. Historically, and especially over most of the last decade, Michigan has been the top snowmobile state by a wide margin, followed by Minnesota and Wisconsin. But Minnesota took the top spot last year, in part because of the economic problems that faced Michigan in 2009. (Season designation is based on a March 31 close; i.e., 2010 statistics are for the season ended March 31, 2010, and statistics for this season will be available after March 31, 2011.)

Sales aren’t available by state, but registrations in Michigan dropped in 2010 to 249,849 from 346,315 the previous year, largely the result of the state’s economic problems. Minnesota posted 2010 registrations of 256,603 and Wisconsin had registrations of 226,152 units. New York was a distant fourth at 131,152 units.

Total registrations in the U.S. have held fairly steady over the last decade even though sales of new units have fallen off sharply. This is an important factor because it could indicate a continuing interest in the sport and a possible pent up demand for new sleds.

In 2001, total U.S. registrations were 1.6 million units. Registrations climbed to a peak of 1.8 million units in 2004, before slipping to 1.6 million in 2008 and 2009 and dropping to 1.5 million units last year. Registrations declined only 141,505 units or 8.6 percent over the decade.

This compares to a devastating drop in new snowmobile sales over the same period of more than 60 percent. In 2001, estimated new sled sales, according to the ISMA , were 140,629 units. New sled sales dropped last year to 48,599 units, a decline of 92,030 units, or 65.4 percent, over the last 10 years.

OEM perspectives
Power Products Marketing spoke with each of the snowmobile manufacturers operating in North America in mid-December to get their take on the season at that point, and to hear what they had to say about the outlook for the industry. Here’s what the OEMs said.

Arctic Cat
At Arctic Cat, we talked with Christopher Twomey, board chairman, and Brad Darling, vice president/general manager of Cat’s snowmobile division. “Dealers are extremely positive,” Darling said. “You call them, and they don’t have time to talk.”

Twomey said that Arctic’s market share was No. 2 in North America last year, he’s looking for share gains this year, and that for the first time in history it grabbed the top spot in the West. “When you’re losing dealers and gaining share, you’re doing something right,” Twomey says.

Unfortunately, the company had to recall more than 16,000 sleds in January because of potentially serious suspension problems. Recalled models included two of its hottest sellers this year, the F8 and M8 SnowPro.

Cat reported robust 3Q sales for the period ended Dec. 31, 2010, driven in large part by its wholesale snowmobile sales. Snowmobile sales grew 33 percent to $77.8 million in the third quarter compared to $58.7 million in the prior-year quarter, led by increases in both North American dealer sales and international sales to distributors. Year-to-date snowmobile sales at the end of December increased 15 percent to $186.5 million versus $162.3 million in the same period last year, but much of this was driven by higher international sales to distributors.

Even though Cat was running an aggressive promotion to move non-currents as old as 2007 models, Darling said there weren’t many 2007s around. “It’s one of the cheapest promotions around for us,” he said. “We’re just helping dealers if they are trapped with ‘07s or ‘08s.”

PG&A revenues “are really nice,” Twomey says. “They track with the snow and overall though the first few months we’re down a bit compared to last year, we think they will come back.”

Parts do well in times of heavy riding on older sleds, and many of the sleds in today’s pool are several years old, notes Twomey. “When you ride [in northern Minnesota], you see the age of this fleet out there, all brands. It’s an old fleet. This tells you when the economy comes back, you’ll see normal sales.

“I think snowmobiling has an incredibly bright future; there’s an incredible built up demand. The only ones with new sleds are OEMs, and the only ones with new coats are OEMs,” Twomey says. “I see similarities today to the early 1990s.”

Darling thinks sticker-shock is a factor in today’s lower industry sales compared to those of 10 years ago. “Now, they buy used, but they’re in the sport and next time they’ll buy new,” he says.

BRP
Yves LeDuc, vice president and general manager for the company’s North American operation, told us that BRP’s snowmobile business has been impacted less by the recession than the company’s other businesses, but the lack of snow last season caused a build up of non-currrents. “Basically, it stopped snowing in January last year and we ended up with a little too much inventory, but it’s nothing dramatic,” he said.

Compared to last year, BRP sales are tracking well, led by the E-TEC 800R and 600 ACE. “They’ve been tremendous; the retail around those products has been doing very well,” LeDuc says. “Overall, I’m satisfied by what I’m seeing.” BRP expected a slight decline this year, for itself and for the industry, “because we still see a recessionary environment; we’re taking a conservative view. Overall, we see a very slow recovery for the economy and we’re (moving) accordingly,” he says.

On the PG&A side, the dollars per unit is growing in accessories and apparel, especially helmets. “Accessories are very good on the snow side; there’s not a better business,” LeDuc says. BRP has a very strong lineup of accessories, and “we keep adding to this every year. That’s how we are able to offset the affect of the decline in the industry.”

BRP is the market share leader in the snow segment, and maybe that’s a reflection of the company’s fondness for the business. “This is a very important business for us,” LeDuc says. “It’s very successful from a financial and market performance point of view. Regardless of what forecasters say — and even if there are outside factors we can’t control — we’ll always look at the snowmobile business in a very positive way; it’s very important for us. “There’s a base of enthusiastic riders we can’t see in other business; they have a real passion and enthusiasm for snowmobiling. It’s the one expenditure that they allow themselves. The nucleus has barely declined over the last few years, and you don’t have that in other sectors. In the worst economy ever in 2009, it barely declined compared to other sectors. That’s the snowmobile rider; that’s why we love this business.”

Polaris
Bennett Morgan, president of Polaris, was very optimistic about the company’s snowmobile business when we talked with him in December, and the company’s fourth quarter financial report released in January bore this out.

“Sales are better than we expected, frankly, and we’re picking up a fair amount of market share,” he said. “And the market is up, overall, which is good.” Sales are driven by sales of current models, he said.

Morgan says there’s plenty of reason for optimism in the snow category. “If we have a couple years like this, we might see people who love the sport coming back in,” he says. “The registrations are solid, but they’re just registering old machines, and they’re getting older. It’s a much more optimistic number than if you just looked at new registrations.”

PG&A on the snow side is “fantastic,” Morgan says. “People are riding earlier (this year) and there’s good snow throughout the country compared to what we’ve had. [Sales] are up significantly, as a result. Life is good in PG&A and snow right now.”

Inventories are “really in good shape,” Morgan continues, adding that the “sell through is fantastic” for mountain RMKs. “The 800s are just lightening it up” and the 600 and 800 Rushes also are being well received.

Polaris' North American snowmobile retail sales to consumers increased more than 40 percent for the 2010 fourth quarter, ended Dec. 31, compared to the same period in 2009 primarily, said Polaris, because of heavy early snowfall in many key riding areas in North America and the success of model year 2011 new product introductions.

Meanwhile, sales of snowmobiles to customers outside of North America, principally the Scandinavian region, increased 43 percent in 4Q 2010 compared to a year ago. North American dealer inventories of snowmobiles at December 2010 were 22 percent lower than a year ago. For the full year 2010, which includes sales made during last winter, snowmobile sales increased 5 percent compared to the previous year.

Yamaha
Snowmobile sales for Yamaha have been “pretty good,” says Wade West, Yamaha’s snowmobile marketing manager. Sales were up through December, year over year. “Obviously, the snow helps. Nothing sells snowmobiles like a snowstorm.”

Yamaha’s pipeline is clean. West said inventory at the corporate level was clean in December, and dealers at the time were starting to sell out of some models. “Non-currents are difficult to find,” he said, “and even current models are starting to sell through.” The lean inventory situation is partly the result of Yamaha’s big push last year to clean out its non-currents. “We’re very interested in making sure our dealers are healthy,” West said.

Yamaha’s bestseller is its top of the line Apex SE with electric power steering that carries an MSRP of $14,949.

PG&A is doing well for Yamaha, and this year the company launched a vender-sourcing program at Hay Days which allows it to function as a wholesale distributor. It brought out 70 new products just for the snow side in the last year, West said.

Interestingly, West said it’s been Yamaha’s experience that snowmobilers readily will accept new technology if it provides additional benefits. What about an electric snowmobile? “Why not, if you can improve the technology,” he says. “Snowmobilers are gear heads; they’re techno-minded so why not electric?” He, like the other OEMs, however, is skeptical about battery capacity and reliability in extreme cold.

In discussing market share figures, West noted it’s easy to grab share by overproducing and then blowing out the excess inventory. “We’re not going to do that,” he said. Yamaha’s lack of non-currents this year possibly hurt its market share position by reducing inventory availability. It also was hurt by the comparatively high MSRPs on its new 4-stroke models.

— Research by Power Products Marketing