Mortgage ane economy concerns dampen '07 PWC sales through May — but the market could pick up
In 2005, after three consecutive years of flat sales, it appeared that the personal watercraft market was finally undergoing a significant turnaround. But 2006 year-end sales figures indicated that the market had leveled off.
May year-to-date sales for the 2007 season have confirmed that the market continues to inch along and may actually be up less than 1 percent compared to the same period last year. A strong summer, however, could see sales increase around 2 percent to 3 percent over the 2006 volume.
Based on our research and including our estimate for Honda's unreported sales, year-to-date U.S. PWC retail sales in May were up slightly. There is some optimism for a good summer, although the May year-to-date numbers have demonstrated that the market has not yet been able to replicate the impressive growth rate of the 2005 season and has barely been increasing this season — much like the 2006 season.
The market seemed headed for steady growth through the first seven months of the year. But a disappointing May, with some industry sources saying the decline was as much as 6 percent, appears to have slowed the market. This figure for May, however, may be misleading because several industry sources have indicated that Sea-Doo sales were significantly down during the month. This may have artificially depressed the growth rate in the May year-to-date figures, and we expect Sea-Doo in particular to post significant sales growth in June.
Most analysts expected the market to experience 2 percent to 3 percent growth rate. As it currently stands, the May year-to-date sales for 2007 were up by less than 1 percent over 2006 when taking into consideration the final inventory sales of Polaris watercraft, which occurred in that season.
Regional Sales Mixed
Regionally, PWC sales in the Midwest have recovered somewhat from the bleak situation of last year where the depressed automotive and component sectors were affecting the market. The Chicago area and Michigan in particular have posted significant improvements. On the other hand, the Northeast is now struggling, with industry sources citing New York and New England as performing poorly.
This is partly due to the weather so far this season, but the economy also seems to be having a disproportionate impact in this region. PWC consumers, as well as powersports buyers in general, are increasingly struggling with their mortgages, and the Northeast seems particularly hard hit. California is also suffering from the same negative factors, although PWC sales there are reported to be fairly robust.
Three-passenger units still dominate the overall PWC market. Back in 1999, about 55 percent of all PWC were three-passenger. By 2002, their share had increased to 74 percent, increasing again to 79 percent in 2003, including estimated unreported Honda sales. During 2004, however, the percentage dipped slightly to around 77 percent as a result of Sea-Doo's new supercharged four-stroke RXP two-seater. In 2005 three-passenger sales extended their dominance over the market to over 80 percent of all sales, and for 2006 this segment of the market rose to 84 percent.
May year-to-date sales of three-passenger PWC have dropped slightly, though the estimated market share is now at 83 percent, up slightly from the 82 percent recorded at the same time last year. This indicates that the three-passenger segment should continue to increase its dominance during the remainder of the watercraft season.
Four-stroke units continue their usurpation of the market, accounting for just under 92 percent of sales. Only three years ago they accounted for about 57 percent, including estimates for Honda's models. For the '02 model year, four-stroke model sales represented less than 20 percent of total U.S. PWC sales.
The consensus is that in a few years all PWC will likely be four-stroke-driven, displacing all today's remaining two-strokes, including DI, FI and EFI models. Currently two-stroke carbureted models have dropped to about 4 percent of all U.S. PWC sales compared to about 5 percent for the '06 model year, 17 percent for the '05 model year and 25 percent for the '04 model year.
The introductory four-stroke models continue to be one of the fastest-growing segments. About 43 percent of sales through May have been models with an MSRP below $9,000, compared with around 35 percent at the same time last year. This does not take into account the effect of discounting.
Highlights of the 2007 Season
One of the big stories of the '07 season has been the successful introduction of Kawasaki's Ultra 250X. This model is doing extremely well and is one of the main reasons for Kawasaki's sales increases so far this season, with the STX-12F also performing well.
Yamaha is continuing a trend of the past few years by increasing its market share at the expense of Sea-Doo and Honda. Six Yamaha units now make the top 10 list of best-selling models. The VX110 Deluxe and Sport models continue to have a large impact on the market with their competitive pricing, and now have been joined by the slightly more expensive VX Cruiser.
It appears that Honda's advances in the market have slowed somewhat, possibly a reflection that it has ceased providing the heavy discounts that had been artificially boosting its sales volumes.
Sea-Doo is expected to supply fewer products in 2007 than in 2006 as it attempts to return its inventory situation back to where it was at the beginning of the 2006 season. This will inevitably mean that it surrenders some market share, although RXT sales are still performing well.
According to our calculations, if sales for the final four months of the season average a 5 percent growth rate, given the near 1 percent growth through May, we could expect to see the year finish at around 3 percent over 2006, including estimates for Honda's activity.
This could put '07 U.S. sales at just over 90,000 units with some possibility in 2008 of getting within striking range of the elusive 100,000-unit barrier. The last time that mark was surpassed was back in the '99 season (106,000 units).
Matthew Camp is a powersports analyst with Power Products Marketing, a Minneapolis research firm that has been tracking the PWC market for nearly 10 years. Send comments to Camp via email@example.com.