RESEARCH: UTV sales climb 7 percent, say PPM analysts

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Retail sales of UTVs in the U.S. and Canada grew about 7 percent in 2010, climbing 16,000 units to about 239,200 units, but still more than 30,000 units short of the record 270,190 units sold in 2008. Assuming modest growth of the U.S. economy at about 3 percent, the same level as this year, sales next year could climb another 7 percent to a record 274,000 units, according to research developed by Power Products Marketing, a Minneapolis research firm that tracks retail sales and production activities of powersports companies. This analysis was prepared by the firm’s staff.

Retail sales for the UTV market rebounded nicely in 2010 after the sharp drop of 18,281 units, or 17 percent, in 2009, following the 2008 recession. Last year’s sales were driven by increased customer demand for the hot new products from Polaris, BRP, John Deere, Bobcat, Case IH and New Holland.

Power Products Marketing has been tracking this segment for 15 years by regularly talking with dealers, components suppliers and OEMs, as well as industry analysts. We also study government data, registration data from R.L. Polk and UCC filings from EDA.

The big winner last year was Polaris with its very popular RZR lineup, driven in large part by the introduction early in 2010 of its four-seater model, the RZR-4. We estimate that Polaris sold about 85,000 UTVs at retail last year, up more than 23,000 from the year before. The 37 percent increase was far and away the biggest gain made by any OEM last year. The sales increase helped Polaris grab an extra 8 percent in market share, moving from 28 percent in 2009 to 36 percent last year.

Kawasaki continued to hold its second position with sales of about 26,000 units retail. That’s down about 3,000 units from the prior year. Kawasaki maintained its hold on second place in market share with 11 percent, down 2 percent from 2009.

Rounding out the top five sales and market share leaders for 2010 were John Deere (25,000 units and 10 percent market share), Kubota (24,000 units and 10 percent), and Club Car, with 12,000 units and 5 percent market share. Perhaps the biggest surprise of the year was the success of the BRP Commander, which sold about 3,100 units at retail following its fourth quarter 2010 launch. BRP could sell as many as 10,000 Commanders in the U.S. this year and another 1,500 or so in Canada. This could push BRP into the top 10 sellers and give it close to a 5 percent market share for 2011.

The big loser, not surprisingly, was Yamaha’s Rhino and golf car business. We estimate retail sales were off nearly 7,000, dropping from about 16,000 units in 2009 to slightly more than 9,000 units last year. Yamaha’s market share for its golf car and Rhino business skidded from about 9 percent in 2009 to about 5 percent last year.

TRENDS
We identified several trends and shifts in sales last year, many of which we think will continue through this year and beyond. Here are several, in no particular order:

ELECTRIC VEHICLES. In 2010 sales of electric vehicles increased by about 2,000 units, or 10 percent, as several new OEMs entered the market. Sales of electric UTVs climbed to nearly 9 percent of total UTV sales, or about 20,000 units. However, this trails the record years of 2006 and 2007 when nearly 22,000 units were sold. We see this growth of electric UTVs continuing as sales to government units, hunters, environmentalists and commercial buyers continues.

As a percentage of total sales, electric units have held fairly steady since 2006 when they represented 9 percent of total UTV sales. This figure dropped to 8 percent in 2007, and about 7.5 percent in 2006. It rebounded slightly to about 8 percent in 2009 and last year.

SEGMENTATION. The shift from commercial to consumer sales that began in 2003 continued in 2010, although this shift could slow as industrial sales pick up following the recession that began in 2008. We define consumer applications as including farmers and ranchers; homeowners, including large estate and hobby farms; hunters and recreational riders. Last year, consumer sales accounted for about 77 percent of total UTV sales, up from about 74 percent in 2009 and 72 percent in 2008. The hottest segment is the sport/recreation segment, and we see this continuing for some time.

APPLICATIONS. Farmers were the largest segment at about 25 percent, followed by recreational riders at 22 percent. After that, there was a sharp drop off to estate owners at 17 percent and hunters at 13 percent.

REGULATION. The Consumer Product Safety Commission continued to play a major role in sales of UTVs in 2010, a situation that is continuing this year. The CPSC has expressed concern about the number of lawsuits involving accidents of UTVs and has moved to develop new regulations covering vehicle design and driver training for off-road vehicles. The powersports industry, led by the MIC, is working with the CPSC to avoid government regulation, but the CPSC’s stance appears to have a dampening effect on some OEMs who may be holding back new designs until the CPSC decides how to handle the regulations it is considering.

COMPANIES TO WATCH
On the corporate level, which are the OEMs to watch during the next five years? We’re going to keep an eye on Polaris, BRP, Kawasaki, Honda, Yamaha, John Deere and Club Car.

We like Polaris’s continued aggressive R&D efforts, and we expect them to continue to bring out new models that will raise the bar. At the same time, Polaris has enough cash, and desire, to shop for acquisitions.

Look for Polaris Industries to bring out new products and enter new segments through development and through acquisitions. Polaris will continue to take market share from those manufacturers that sit back and fail to bring new products to market.

BRP operates very much like Polaris: it runs a tight ship, it emphasizes R&D to improve products and create new segments (look at its Spyder) and it has the resources to buy a company it wants. We see BRP’s success with its Commander lineup continuing.

Club Car’s deal with Case and New Holland will help all three companies, and with their huge dealer networks, Case and New Holland provide plenty of additional sales points for new products.

If John Deere is serious about playing in the recreational market, it has the cash, the dealer network and the reputation to become a major player. It remains to be seen if Deere can shift enough resources from its Ag operation to expand its Gator lineup from the work segment to the recreational business.

Unfortunately the Japanese — Honda, Kawasaki and Yamaha — have been losing ground and could continue to do so if they don’t crank up their R&D efforts and stop sitting on the sidelines. What will they do during the next several years? It could have a major impact — perhaps it’s the single biggest factor — on the UTV segment here and internationally.

LOOKING AHEAD
While our crystal ball is somewhat clouded by the federal government’s actions and the economy, we see the UTV segment growing by almost 7 percent again next year and reaching retail sales of about 257,000 units.


Here is what we see for the next five years. If these numbers hold true, we could reach record sales next year or at least by 2013.

There are several important factors that we considered in developing this forecast. Here are the major factors that we see affecting UTV sales and market shares over the next five years:

OLDER ATV RIDERS. As ATV riders reach 50 years of age, they are much more likely to switch to a UTV for reasons of comfort and companionship. We see this happening more and more as the population continues to age. We see UTV sales more and more taking sales from ATVs. Not only are UTVs more comfortable to ride, they’re safer, and it’s easier to bring along a companion such as another hunter, a friend or a child.
U.S. ECONOMY. We’re forecasting only modest increases in sales because of the possibility that we’ll see a so-called “double-dip” recession; inflation; increased unemployment, or at least sustained unemployment at levels of 9 percent or more, and an increase in gas prices. We’re also seeing increased financial problems for state and local governments. Our own state, Minnesota, has been shutdown for 10 days as we write this, the longest government shut down in U.S. history. More than 22,000 state employees are temporarily out of work as the governor and legislators struggle to address a multi-billion dollar shortfall. And Minnesota isn’t alone in facing this type of problem.
THE 2012 ELECTIONS. Our forecasts are based on the assumption that President Obama will win re-election. However, if the Republicans defeat Obama and retain control of Congress, we see an uptick in the economy and consumer confidence with a reduction in unemployment. Given this scenario, we would likely have to increase our forecasts.

This story originally appeared in the Dealernews August 2011 issue.