Editor's note: Power Products Marketing, a Minneapolis research firm, has been tracking the nontraditional ATV market for more than 12 years. This market consists of distributors of ATVs manufactured in Taiwan, China and, to a lesser extent, South Korea that don't report sales figures to the MIC. It does not include the youth models that the traditional OEMs such as Arctic Cat, Polaris, Can-Am, Kawasaki and Suzuki source from Taiwanese manufacturers. Matthew Camp, a powersports analyst with the firm, prepared this report.
LAST YEAR WE wondered whether spending even $1,000 on an ATV seemed out of the question given the deepening recession and the drop in disposable income. Now that we've been able to study the entire 2008 ATV market it looks as if the answer is yes. According to our research, sales of Chinese and Taiwanese ATVs plummeted from 465,000 units in 2007 to an estimated 235,000 units in 2008, nearly a 50 percent fall.
The current recession is the first big test for the nontraditional ATV market. It hasn't been through such bad economic conditions since the Chinese began to enter the market in strength. We expected that as credit markets tightened last year and the more expensive name-brand ATVs became unaffordable, a proportion of consumers would still buy Taiwanese or Chinese alternatives. Broadly speaking, this doesn't appear to have happened. Consumers just stopped buying. This shift has caused inventories to pile up in warehouses and on dealer's floors.
It appears that the nontraditional brands' reliance on buyers who couldn't afford a name-brand ATV has been detrimental in tough economic times. These are the most price-sensitive consumers and are the least likely to have disposable cash. Retail sales took a double hit when the awful economic news of October and November 2008 coincided with the annual sales surge in the run-up to Christmas. Sales figures may also be lower than expected for some distributors because many channeled their buying power into the red-hot scooter market and effectively gave up on ATVs and motorcycles for the short term, thereby sacrificing potential sales.
TRADITIONAL BRANDS GAIN MARKET SHARE
With the sharp decline in the nontraditionals, the traditional brands gained market share, despite their own decline of 30 percent. The MIC-reporting OEMs were able to post sales figures of about 454,000. Power Products Marketing estimates that the total ATV market was around 689,000 units last year, down from the 1,105,000 units retailed in 2007. Chinese and Taiwanese brands now represent 34 percent of the market, down from 42 percent in 2007, according to our research.
More than 100 distributors actively import into the U.S. Chinese and Taiwanese ATVs, but many of these are now retailing only a few containers a year, and the bulk of the sales volume continues to be driven by a handful of distributors. However, we expect a number of the more established distributors and many small operations to exit the market in 2009/2010. The top 10 distributors in 2008 were AIM EX, Baja Motorsports, BMX Powersports, Galaxy Motorsports, Goldenvale (aka Roketa), KMD Motorsports, Maxtrade, Motobravo, Moto Dealer Import and SunL.
In 2007, distributors selling Taiwanese brands accounted for just over 2 percent of nontraditional ATV brand sales, but they were able to increase that to over 3 percent in 2008. When the economy finally recovers, Taiwanese companies may be better positioned than the Chinese to increase their sales, due to their perceived better build quality, more sophisticated understanding of marketing, experience of working with traditional OEMs and ability to meet the new U.S. ATV certification standards.
NO REPLACEMENT FOR DISPLACEMENT
The nontraditional ATV market continues to shift toward higher displacement. In the Y6 category, ATVs under 70cc represent fewer than 10 percent of sales compared to 16 percent the previous year. Sales of units between 70 and 90ccs were only 16 percent, down from 20 percent in 2007. It appears that the bulk of sales in the import ATV market continue to be in the 91cc-to-150cc-range, otherwise known as Y14-16. About 64 percent of Chinese and Taiwanese ATVs sold in 2008 were in this category, up from 49 percent the year prior. In 2007 the nontraditional brands represented a little more than 87 percent of all ATVs sold in the Y6-16 categories when their sales were combined with those of the traditional brands, but it fell back to 83 percent of sales in 2008.
In the last few years the nontraditional brands have made inroads into the adult ATV market. In 2007 they represented about 10 percent of total ATV sales above 150cc. But weak sales in 2008 meant that they now represent less than 6 percent. The popularity of large-displacement utility ATV brands in Europe such as CFMOTO and TGB hasn't translated to the U.S. market, but the potential is there if they can get the branding and supply issues right. We are also hearing much more anecdotal evidence from distributors that they are finding it difficult to get consumers to buy large-displacement Chinese and Taiwanese machines in general. Compounding this problem is that many financing companies are no longer willing to work with the Chinese and Taiwanese distributors.
CHINESE GOVERNMENT ACTS
I visited China and Taiwan last October and toured numerous factories. Some companies such as CFMOTO, Hsun and Zongshen had capabilities at least on par with U.S. and Japanese factories, and only a few resembled the stereotypical Chinese factory many U.S. consumers envision.
The Chinese government is acting to improve quality, close down marginal operations, and adopt and enforce its own safety standards. Some Chinese manufacturers are working closely with their distributors to meet or exceed U.S. tolerances, and while level of build quality is still a negotiable feature in Chinese manufacturing, standards seem to be improving.
Falling export orders and increased Chinese governmental regulation are affecting some of the Chinese manufacturers, particularly those that are more assemblers than manufacturers. With such companies going out of business or being closed, many U.S.-based distributors whose strategy is to shop suppliers for the best deal each year are having limited options.
The Consumer Product Safety Improvement Act (CPSIA) requirements will hamper some Chinese manufacturers and distributors, but the majority should be able to modify their units to comply if given time. Distributors are already obtaining certifications from suppliers detailing the levels of lead content in components, shielding questionable parts and ensuring that noncompliant components are inaccessible. They're also raising suggested age limits on their units so they no longer fall under the law. Just as important for the nontraditional brands is the CPSIA provision requiring distributors and manufacturers to have an action plan that details their dealer monitoring and training programs.
For many distributors, 2009 is going to be a challenge. The environment for distributing ATVs has changed dramatically from a few years ago. The economy, of course, is the largest factor in the gloomy outlook.However, stricter regulations, certification requirements, and safety and emissions standards are also cost barriers. If Congress amends the lead law and the economy at least shows signs of recovery before distributors have to place their fourth-quarter orders, then the nontraditional brands may have a chance of a decent Christmas season. Expectations aren't high for 2009 and distributors are going to be tested in ways they've never been in the past.