OEMs Prepare For 2008 and Beyond

Vehicle manufacturers suggest the future doesn't look particularly good for the U.S. powersports industry as increases in gasoline prices, higher interest rates, and concerns about the economy appear to be prompting customers to curtail recreational spending.

OEMs say they're aware of ongoing changes negatively influencing the industry and plan to enter 2008 cautiously yet with tactics they hope will overcome any such detrimental factors. For instance, while some brands appear to be throwing increased funding at product development, others are striving for cost savings, and still others are implementing both tactics while hedging their operations against fluctuating currencies.

To help you, the dealer, get a better picture of how your suppliers plan to operate in these changing times, Dealernews researched what many of the major manufacturers plan to do to prepare their operations for 2008 and beyond.

Arctic Cat
Arctic says it expects to end its fiscal year March 31, 2008, with net sales in the range of $645 million to $665 million, down from sales of $782.4 million in fiscal 2007. Earnings per diluted share for the 2008 fiscal year are now estimated to be between $0.01 and $0.07 versus year-ago diluted earnings per share of $1.15. The company previously estimated net sales for the current fiscal year to be in the range of $710 million to $736 million, with full-year diluted earnings per share in the range of $0.89 to $0.95.

Responding to a slowdown in sales, Arctic Cat is taking steps to produce fewer ATV units in its March quarter. The company plans to cut its annual ATV production by approximately 10 percent during the fiscal fourth quarter ending March 31, 2008.

"This action is in keeping with our aim to vigilantly align production and inventory with consumer demand," says Arctic Cat Chairman and Chief Executive Officer Christopher Twomey, adding that Arctic also has spent the past year working on a five-prong plan designed to better prepare for the future.

Twomey says Arctic: 1) reduced its workforce by 4 percent in February 2007 in an effort to lower its cost structure and align resources with the current market conditions, particularly for snow-related products; 2) carried out a 30 percent reduction in snowmobile production to help dealers lower inventories; and 3) increased focus on generating greater savings from global, low-cost sourcing.

"This procurement effort is being led by cross-functional teams from operations, engineering and quality," Twomey says. "Our goal is to improve the company's profitability through increased global sourcing, while maintaining our high quality standards. As a result of this initiative, we already have identified opportunities to reduce our costs by more than $8 million in fiscal 2009, with additional opportunities in fiscal 2010."

The fourth and fifth initiatives, both designed to better align the company for lean manufacturing and strategic sourcing capabilities, are to be completed during the next three months. They include:

  • the reorganization of the ATV, snowmobile, and parts, garments and accessories product lines into three separate business units, to be led by general managers focused on expanding each business; and
  • the relocation of the company's headquarters, certain corporate executives, general managers, and sales and marketing personnel to the Minneapolis area.
BMW Motorrad has outlined three areas to be cornerstones for continued growth in sales and profits: 1) a continuation of BMW's offensive in product development; 2) the development of a two-brand strategy as it pertains to the company's Husqvarna acquisition; and 3) an increase in profitability through the development of a broader global supplier system.

BMW sold 102,467 motorcycles worldwide in 2007, up 2.4 percent from sales of 100,064 units in 2006. The OEM says it sold 21,504 motorcycles in Germany, 14,424 units in Italy, 12,094 units in the U.S. and 10,382 units in Spain.

As part of a 'strategic realignment,' the BMW Group created two new divisions in October. The first of the new divisions, Corporate and Brand Development, will be headed by former director of corporate planning, Dr. Friedrich Eichiner, and will be home to BMW Motorrad, Financial Services, Softlab, and any other new business units that are created. Diess now heads up the second new division, Purchasing and Supplier Network, and will be primarily responsible for lowering material costs.

How will BMW Motorrad further its market share in the future? "Our goals are no doubt large, particularly considering the sales climate for motorcycles in Europe and North America," BMW Motorrad Director Herbert Diess said prior to his reassignment. "The model offensive we began in 2004 will continue. We plan to continue the product offensive we started in 2004 because we realize that it is the new product that will attract the new customers."

And how will Husqvarna fit that plan? "If we want long-term gains, we have to diversify," Diess says. "We're confident Husqvarna has the potential to become a leading off-road brand. And, with this second brand, we now can grow in a segment that we previously were not in."

Last year Ducati gained a MotoGP World Championship, sold more units than it did in 2006, and made enough improvements to its business operation to achieve a return to profitability. Ducati CEO and Managing Director Gabriele Del Torchio says the plan to continue that success through to 2010 centers on two main topics: 1) new product, and 2) the dealer network.

Regarding new product, Ducati plans to launch three versions of one new model in each of the next three years, for a total of 11 new bikes by 2011. Del Torchio says he feels new product is a major influence to keeping consumer excitement high, and sales continuing.

Regarding the dealer network, Del Torchio says Ducati isn't necessarily thinking of expansion of the network as much as it is focusing on working more efficiently and thus more profitably with existing dealers. "In particular the return to a positive net financial position permits us to proceed with the development of new product and an enhanced dealer network with new determination," Enrico D'Onofrio, Ducati CFO, further explains.

Ducati's strategic objectives for 2010 include:
  • strengthening its position in the premium sportbike segment;
  • focusing on the development and management of a product's life cycle;
  • focusing on pricing, margins and internal efficiencies to improve financial results;
  • further developing the distribution network and expanding the customer base;
  • exploiting the brand?s potential to increase its accessories and apparel businesses and licensing revenue.

  • Harley-Davidson
    Harley-Davidson ended 2007 with worldwide retail sales of motorcycles down 1.8 percent compared to the prior year. In the U.S., Harley-Davidson dealer retail sales decreased 6.2 percent; international retail sales increased by 13.7 percent.

    "Harley-Davidson managed through a weak U.S. economy during 2007," says Jim Ziemer, CEO of Harley-Davidson, Inc., adding that he anticipates a continued "challenging" U.S. retail motorcycle environment in 2008. The company expects moderate revenue growth, lower operating margin, and an earnings per share growth rate of 4 to 7 percent compared to 2007.

    The company also once again plans to ship fewer Harley-Davidson motorcycles than it expects its worldwide dealer network to sell. For the first quarter, it expects to ship between 68,000 and 72,000 Harley-Davidson motorcycles, which compares to 67,761 units in the first quarter of 2007.

    Honda Motor Co. Ltd. says sales of motorcycles and ATVs rose seven percent to a record 13,476,000 units in 2007, helping the OEM continue its status as the world's largest powersports vehicle manufacturer.

    The company says it sold 470,000 motorcycles and ATVs in North America (Canada, the U.S. and Mexico) last year, down 13.6 percent from 544,000 units sold in 2006.

    Honda's standout sales regions in ?07 included Asia/Oceania, where sales rose 4 percent to 9,596,000 units; in China, where sales grew 29 percent to 1,166,000 units; and in South America, up 25 percent to 1,534,000 units.

    Honda says it feels the U.S. economy is showing signs of a "moderate" downturn while European economies are recovering and Asian economies are continuing to expand. Still, the company says it expects its global operating environment to remain "difficult" and "severe" because of political and economic uncertainties, fluctuations in oil and raw material prices and currency movements.

    Honda's multi-pronged plan for overcoming those hurdles includes enhancements to research and development, product quality, production efficiency and sales efficiency.

    Research and Development — Honda plans to continue its efforts to research future technologies, and says it wants to swiftly introduce new value-added products that meet specific needs in various markets around the world.

    Product Quality — Responding to increasing consumer demand, Honda will seek to upgrade its quality control through enhancing the functions of and coordination among the development, purchasing, production, sales and service departments.

    Production Efficiency — Honda plans to further expand production capacity at its global production bases with the aim of better supplying products where they are needed, when they are needed.

    Sales Efficiency — Honda says it will be proactive in its efforts to upgrade its sales and service structure. What that means for the company's Powerhouse program remains unclear.

    The fiscal year ends March 31 for Japan's Kawasaki Heavy Industries (KHI). In 2007, Kawasaki's Consumer Products division — the business unit responsible for the parent company's powersports vehicle sales — posted sales of ¥403.70 billion, up from ¥366.96 billion in 2006.

    Kawasaki's worldwide sales of motorcycles, ATVs, utility vehicles, and personal watercraft totaled 502,000 units in fiscal 2007. By geographical area, sales in North America rose 14,000 units, or 5.8 percent, to 254,000 units, and sales in Europe were up 9,000 units, or 10.2 percent, to 97,000 units.

    "To move to the next stage in growth and development, we have prepared a new medium-term business plan, 'Global K,' which began in fiscal 2007 and will extend through fiscal 2011," says Tadaharu Ohashi, president, KHI. "With the previously mentioned corporate missions in mind, we are working to make the leap to a highly profitable global enterprise based on the three management concepts of 'quality followed by quantity,' 'selectivity and concentration,' and 'stronger non-price competitiveness.'

    "In the Consumer Products segment, our area of highest priority will be motorcycles for markets in the industrialized countries, and we are strengthening our development and production systems at the global level to expand the scale of this business, increase profitability, and improve product competitiveness."

    KTM Power Sports AG says revenue for its fiscal year ended Aug. 31, 2007, totaled €566.1 million (about $838.83 million), up from €496.8 million ($736.13 million). For KTM's first quarter, ended Nov. 30, revenue totaled €149.4 million ($219.1 million) up 15.3 percent from €129.5 million ($189.9 million) in the same three-month period of the previous fiscal year.

    KTM sold 90,306 units in its fiscal year ended Aug. 31, 2007, up from 84,421 units in the prior year.

    KTM CEO Stefan Pierer says success in the past year came primarily from product expansion in the street segment as well as further development of the sales network. "The macroeconomic imbalance in the American economy had a detrimental effect on business growth and exchange rate trends," he explains. "The U.S. dollar continuously lost against the Euro, and given the negative developments on the property market and the mortgage business situation, consumption in private households constantly fell. Economic expansion was therefore also weakened as a result."

    The Austrian company's plan for 2008 is to expand its two- and four-wheel production facilities and generate further growth by entering additional foreign markets and offering vehicles in new segments.

    KTM plans annual sales of 10,000 ATVs and 1,000 automobiles. This level of production far exceeds the capacity of the production line at KTM's existing facilities in Mattighofen, Austria, so the creation of a new assembly plant is essential. The acquisition of an appropriate facility is already under way. KTM says it hopes to begin series production of the X-Bow in the first half of 2008. Assembly of the new sport quads will begin at the plant in the summer of 2008.

    "Expanding the product range and developing new niches are the cornerstones for future growth at KTM," Pierer says. "The strategic focus (for the future) therefore lies in research and development, a further extension of the distribution network, capacity expansion and our organization."

    He says dealers also are a big part of the company's future — especially since many KTM dealers who specialize in off-road product now are being asked to carry on-road units. "Our dealers play a significant role in our success. A good, trusting partnership with our dealers is very important to us. We therefore will continuously work on fostering these relationships in the long-term."

    Piaggio & Co.
    Piaggio & C. S.p.A., owner of the Piaggio, Vespa, Aprilia, Moto Guzzi, Gilera and Derbi brands, projects a compound annual growth rate of nearly 7 percent in net sales over the next three-years (2007-2009), with an EBITDA margin of around 14 percent of net sales in 2009.

    Piaggio Chairman and Chief Executive Officer Roberto Colaninno says the Piaggio Group's business plan for 2007 through 2009 focuses on:
  • extending penetration of the Indian and North American markets
  • consolidating its European leadership in the scooter and light transport vehicles businesses
  • growing its international motorcycle business
  • introducing further innovations in its product range and engines
  • expanding its Chinese joint venture
  • building the new diesel engine factory in India
  • planning entry on to new international markets.

  • Colaninno says the Piaggio Group?s plan for North America specifically includes expanding the consumer awareness of the Vespa, Piaggio, Aprilia and Moto Guzzi brands while further building the operation to provide increased comprehensive customer services. Action will be taken to boost market penetration, improve after sales and service, and raise consumer awareness of the benefits of two-wheel light transport (traffic, fuel consumption, environmental impact).

    The main focus for the Piaggio Group?s motorcycle business will be on broadening the product lineup for each brand and repositioning those brands to have each contain their own brand identity.

    Thus Derbi will focus on the small and medium displacements, Aprilia on the medium- and top-end with high-performance vehicles, while Moto Guzzi will expand its range of products featuring "unique design and historic brand values."

    Colaninno says intra-group synergies among the Piaggio brands will continue, with special attention given to the in-house development and production of new medium and large displacement engine solutions for the new range of bikes, an improved after-sale service and an expansion of each brand?s parts and accessories operations.

    In the scooter business, the Piaggio Group intends to consolidate its European market leadership through continuous enhancements to its product ranges and the introduction of models featuring "innovative solutions" (three-wheel scooters, hybrid engines). It also plans to strengthen the identity of each brand (Piaggio, Vespa, Gilera, Aprilia and Derbi), with a view to segmenting the customer base according to market demand.

    The plan also envisages improvements in the after-sales service, expansion of the distribution network and start-up of sales channels in developing countries. Sales volumes will be augmented on the North American market and production in China will be expanded to meet the growing demand for products.

    Polaris Industries Inc. had net income of $112.6 million, or $3.10 per diluted share, for the year ended Dec. 31, 2007, down slightly from income of $112.8 million, or $2.72 per diluted share, for the year ended Dec. 31, 2006. Sales for the full year 2007 totaled $1.780 billion, up seven percent compared to sales of $1.656 billion for the full year 2006.

    Polaris' plan for the next three years includes the following three goals, all to be achieved by 2009: 1) sales of $2.2 billion; 2) net income of $150 million; and 3) earnings per share of $4.25.

    "While the recent macroeconomic environment has caused some concern within the overall markets in which we compete, we are continuously monitoring consumer spending and industry trends and are making adjustments as appropriate," says Polaris CEO Tom Tiller.

    Taking into account the current economic and industry conditions, the uncertainty in the retail credit markets, dealer inventory levels and anticipated new product introductions, Polaris expects full year 2008 sales to increase in the range of three to five percent from 2007 levels, resulting in full year 2008 earnings in the range of $3.28 to $3.40 per diluted share and representing six to ten percent growth in diluted earnings per share.

    "We anticipate that many of the overall external challenges we experienced throughout 2007 will continue into 2008, as North American ATV retail sales for the industry are expected to decrease again in 2008 and the overall economic outlook is less than optimistic," Tiller says.

    Still, he says the company "is well positioned to weather the economic storm."

    "Our focus in 2008 remains consistent. We expect to win in the core with market share gains in ATVs and snowmobiles, and deliver further improvements in our operational excellence initiatives, which will result in further core ATV inventory reductions and company wide improvements in quality, costs and speed. Additionally, we have multiple opportunities to grow the company in 2008 particularly in our RANGER side-by-side vehicles, international operations and military sales."

    Japan's Suzuki Motor Corp. (SMC) expects sales of about 3,602,000 motorcycles, ATVs and scooters in fiscal 2008, up 11 percent from 3,249,000 units in fiscal 2007. However, visions of growth are being reserved for blossoming markets in Asia and India — the company, which ends its fiscal year March 31, expects its motorcycle, scooter and ATV sales in North America to dip 17 percent to 163,000 units.

    In the U.S., the company's standout products are performers like the GSX-R bikes and the M109R. As a result, the company's plan for 2008 is to continue the brand image of being "sporty, young and unique" despite an "increasingly tougher" business environment.

    Suzuki has been operating under a five-year business plan. Established in April 2005, it is intended to lead the company's actions to March 2010. Suzuki says the plan hinges on increased investment for product development and facilities, as well as the development of its employee base to better manage the business.

    "The business environment surrounding the company is extremely unclear due to the fluctuation of exchange rates and the increase in competition among companies," says Hiroshi Tsuda, president and COO, SMC. "It is possible that a prolonged sluggish economy and the reduced purchasing by consumers could drastically decrease demand for products and adversely affect the business performances of the Suzuki Group. "Considering these circumstances, the business environment surrounding the company has become increasingly tougher."

    Yamaha Motor Co. Ltd. ended 2007 with net sales up 11 percent to ¥1.756 trillion ($16.42 billion). The company sold 4,997,000 motorcycles worldwide, up 13.1 percent from 4,419,000 units sold in 2006. In the U.S., the company retailed 301,000 motorcycles and ATVs, down 7.96 percent from 327,000 units sold in 2006.

    The year 2007 marked the final year of Yamaha's three-year medium-term management plan, NEXT50-Phase II, which had the company working to 1) create value that differentiates Yamaha; 2) continue a profit-oriented approach; and 3) maximize opportunities for business growth.

    "To create distinctive value that sets Yamaha apart from the competition, we are stressing the unparalleled technology, products, and marketing that define the Yamaha identity," says Takashi Kajikawa, president, Yamaha Motor Co., Ltd.

    While Kajikawa says Yamaha has successfully implemented such brand distinction in various markets, "I do not believe we have achieved comparable results in Europe and the United States," he says. "Because the environment in these mature markets makes it more difficult to differentiate Yamaha, we need to redouble our efforts to enhance the brand image."

    Yamaha's new medium-term management plan for the three-year period from 2008 through 2010 calls for the manufacturer to achieve ¥2.1 trillion in net revenue and sales of 7.78 million motorcycles for the fiscal year ending December 2010. In North America, the plan is to strengthen competitiveness in mature markets and improve profitability.

    "We need to improve profitability at every step in the operation — product planning, development, purchasing, production and sales — by deploying our system-supplier system groupwide," Kajikawa says. "We are resolved to become more cost-conscious, reviewing once again all product processes from a comprehensive, upstream perspective."