Interesting larger-displacement units from CFMoto, Hsun, and Linhai were seen at Dealer Expo, while the new Xi 500cc from Tank may have some potential when it eventually reaches the marketplace. To date, the KYMCO MXU 500 probably has been the most successful large-displacement unit sold by a nontraditional brand.
Consumers Buy on Price
Consumer surveys conducted by Power Products Marketing continue to suggest that most buyers of nontraditional ATVs are price-driven. These buyers are new entrants into the market, as well as ATV owners buying an additional machine. The Chinese are expanding the market to reach buyers who would not have been able to participate in prior years when they didn't have cheaper options to Japanese or U.S. machines.
Chinese units have trained consumers to view the small-displacement ATV as more of a disposable commodity than a unit for life. Some people argue that the inevitable failing of these "low-quality" units will permanently sour their owners to the powersports industry in general. This may be happening in some instances, but according to many of consumer surveys by PPM, on the whole buyers are satisfied with their ATV, even if it breaks down in a couple of months and they have difficulty finding replacement parts. PPM asserts that customers are much savvier than many people in the industry give them credit for being. Customers know when they buy a $400 unit that it is not going to be as durable as a $1,600 unit.
A time will come when young riders brought up on Chinese ATVs (the majority of young riders) — and more important, the parents who bought these ATVs — will have to choose between a larger-displacement Chinese machine and a unit of a traditional brand. It will be interesting to see whether, given the choice to spend $4,000 on a Chinese unit or $7,000 on a traditional brand, people will be willing to gamble that the cheaper unit will last as long, or be supported as well.
Improved Quality
It becomes more and more apparent to PPM, after looking around at Dealer Expo every year, that the Chinese OEMs are generally improving their build quality and are certainly making a concerted effort to break out of the youth segment of the market. Many distributors and manufacturers bring their biggest units to the show, even though more than 85 percent of their sales are in the under-151cc category. Driving their market are the smaller units tucked away at the back of the booth, or left in the warehouse.
The sales growth of nontraditional ATVs has slowed somewhat in 2007, and this trend is likely to continue, particularly given the perceived state of the economy and the lack of consumer confidence. However, Power Products Marketing expects sales will continue to rise this year, and cross the 500,000-unit mark by year-end. Conceivably, if the MIC manufacturers continue to experience declines in ATV sales, by the end of 2008 nontraditional brands could account for 50 percent of ATV sales in the U.S.
But some concerns are on the horizon for the nontraditional brands. Their distributors will find it challenging in the coming year to adapt to the rising labor, energy and raw material costs in China. Inflation in China was running at 8.7 percent in February 2008 compared to just 2 percent the year before, but the Chinese government will respond carefully to prevent a slowdown just when the Olympics are scheduled.
The reduction of subsidies, which the Chinese assemblers and manufacturers have long enjoyed to boost their profits, could also signal increased price pressures for the nontraditional distributors. If they raise their prices to accommodate higher costs, will people notice the diminishing price gap and stretch their wallets to buy the name brand? As we go into a recession in the U.S. and disposable incomes diminish, will even spending $1,000 on an ATV seem too much? Will the enthusiast who can't get financing for a new Japanese or American machine opt for a second-hand unit or buy a nontraditional ATV? It's going to be a fascinating market ride.
Editor's note: Power Products Marketing, a Minneapolis research firm, has been tracking the nontraditional ATV market for more than 10 years. The nontraditional market consists of distributors of ATVs manufactured in Taiwan, China and, to a lesser extent, South Korea that do not report sales figures to the Motorcycle Industry Council. This market does not include the youth models that MIC reporting members such as Arctic Cat, Polaris, Can-Am, Kawasaki and Suzuki are sourcing from Taiwanese manufacturers. Matthew Camp is a powersports analyst with the firm, and prepared this article exclusively for Dealernews.
