Final Analysis: ATV Inventories Recovering

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Most dealers seem to be in better shape with ATV inventories this year than at the same time last year, based on surveys conducted by two investment firms that track the stocks of Polaris Industries and Arctic Cat.

Unfortunately, these surveys give a limited picture of the overall ATV inventory situation because they focus on the two public companies.

Even while dealers tried to sell down inventory, first-quarter retail sales of large-displacement ATVs were down about 5 percent compared to the same period last year.

By my first-quarter estimates, however, overall sales of adult and youth ATVs and side-by-side vehicles produced by MIC reporting members and others climbed about 2 percent, to more than 300,000 units.

Raymond James surveyed 52 Polaris dealers and 12 Arctic Cat dealers in 23 states, and AG Edwards talked with 35 dealers across the country. They conducted the surveys in the first quarter.

"Polaris and Arctic Cat sales appear to have performed similarly," says Joseph Hovorka, securities analyst at Raymond James. "Dealer inventories remain high for both companies," he says. But he notes that there has been an improvement in Polaris dealer inventories.

"Polaris appears to be taking a more lenient stance in regards to dealer inventories than in previous quarters," he adds.

Polaris has allowed many dealers to "retain all or part of their retail incentives despite ordering less Polaris product during the February order cycle."

Polaris dealers in 2006 were upset about order programs that tied retail promotions to order levels. Dealers argued that high inventory levels prevented them from ordering. Dealers who failed to order at required levels couldn't participate in retail incentive programs.

Polaris appears to have adjusted these rules.

Hovorka doesn't see the same improvement at Arctic Cat. "Inventory remains high at the dealer level," he says. "Several dealers continue to state that Arctic Cat's retail incentive programs are still inadequate to move excess inventory."

Overall incentive levels for both companies and the industry are "modestly higher" than at this time last year, notes Hovorka.

Interestingly, 48 percent of Polaris dealers participating in the survey said they were comfortable with the current inventory level. That's up sharply from about the 27 percent average that prevailed in July and October 2006 and this past January.

By comparison, only 8 percent of participating Arctic Cat dealers were pleased with inventory levels.

Almost Normal

Tim Conder, analyst with AG Edwards, had similar results with a survey concentrating on Polaris. Nine of his 35 participants sold only Polaris products, 24 were multiline, and two sold competing brands, but not Polaris.

Conder says that ATV inventories remain high at about 100 days (in early April) but expects them to drop to "normal" levels of 60 to 90 days. Polaris CEO Tom Tiller says he expects ATV inventories to be balanced with demand this summer.

Conder's survey suggests that the largest slump in ATV sales is in the Midwest (down 9 percent) and the East (down 7 percent), two areas affected by the downturn in the auto industry.

Based on the first-quarter performance and several related factors, Conder predicts that traditional U.S. ATV sales will be down about 6 percent this year. He's concerned about two possibilities: Stepped-up incentives to clear the channel could pull from future ATV sales; and economic factors such as the housing slump could affect consumer spending in general.

The UTV segment, however, continues to perform well and should remain strong through the year, with several new models generating consumer interest.

Contributing editor Joe Delmont is editor and publisher of The Delmont Report newsletter and B2B website, www.powersportsupdate.com. Contact him at joe@powersportsupdate.com.