Sales of Non-Traditional Brand ATVs Continue Rapid Growth in 2006

Editor’s note: Power Products Marketing, a Minneapolis research firm, has been tracking the non-traditional brand ATV market for nearly ten years. This market consists of distributors of ATVs manufactured in Taiwan, China and to a lesser extent South Korea who do not report sales figures to the MIC. It does not include the Youth models that MIC reporting traditional OEMs such as Arctic Cat, Polaris, Can-Am, Kawasaki and Suzuki are sourcing from Taiwanese manufacturers. This report was prepared by Matthew Camp, a powersports analyst with the firm.

U.S. retail sales of non-traditional ATVs continued to grow sharply in 2006 to nearly 400,000 units. This is about a 50% increase over 2005’s figure of approximately 260,000 units.
The increase in 2006 sales year-over-year was actually more than 2004’s final sales number of around 130,000 units. Include the approximately 750,000 ATVs sold by MIC reporting members in 2006, and the total ATV market in 2006 was around 1,150,000 units. This was up from around 1,040,000 in 2005 when combined traditional and non-traditional brand sales of ATVs breached the 1 million unit mark for the first time.

So, while the MIC reporting members saw a decline in the ATV market in 2006, the overall market continued to grow at over 10%, including Youth models.

Although there are about 200 distributors actively importing ATVs into the US, the bulk of the sales volume was driven by a handful of distributors.

The top ten distributors in 2006 were, in no particular order: Fushin USA, Goldenvale Roketa, SunL, Maxtrade, Baja Motorsports, Tierra Motorsports, BMX Powersports, Kazuma Pacific, Galaxy Motorsports and Redcat.

Many of the pioneer distributors that carried Taiwanese brands have dropped out of the market, and the changes in emissions regulations in 2006 forced some distributors to become dealers because they did not want to go through the expense of certification.
However, there were some significant new entrants into the market, notably Galaxy Motorsports based in Dallas, Texas and Tierra Motorsports from City of Industry, California. The early 2007 merger of Redcat and Tank may herald a period of increased consolidation as the market matures further and the high retail sales volumes of some distributors no longer compensates for the very low wholesale margins they are receiving.

Of the established Taiwanese brands, only KYMCO appears to be holding their own. Market share in the Taiwanese-produced segment of the non-traditional ATV market has fallen steadily since 2000 but in the last couple of years that decline has increased dramatically.
As late as 2003 Taiwanese ATVs represented 65% of the retail sales volume from the brands not reporting to the MIC. In 2006 distributors selling Taiwanese brands accounted for less than 4% of non-traditional ATV brand sales.

The situation for a number of distributors of Taiwanese products has become so serious that they are now offering cheaper Chinese-produced units to their dealers in order to provide their dealers with competitively-priced products. Although the Taiwanese have earned the reputation for better quality products, they appear to be increasingly unable to compete on price with the cheaper Chinese-produced units, especially those sold by the distributors who are aiming for large volume sales.

Distribution Channels

Drop shipping and Internet sales have characterized the non-traditional ATV market for a number of years and it still appears to be a significant proportion of sales, with most distributors who still operate this channel deriving on average between 10-15% of their sales this way.

Having said that, most of the distributors we spoke to at Indianapolis expressed a desire to reduce this channel as it conflicts with their established dealers.

Currently, the distribution model can be split into three categories: those distributors following the Japanese and U.S. model with full-service dealerships and established brand identity; those who are not yet at that level but aspire to be there, and those driven solely by a desire for huge sales volumes with a modest level of support.

It appears that in terms of sales volume over the last couple of years market leading distributors have been mainly concentrating on sales at the expense of customer support.

It also appears that the sub-150cc Youth ATV is perceived as a commodity or toy, with consumers being driven more by price than brand name or perceived quality. Many distributors have responded to this buying trend by rushing to offer the lowest price possible with 50ccs being sold to consumers for as little as $350. We have even heard reports that some dealers have asked their distributors to raise the MSRPs to make retailing the units more viable.
In the short term this ‘rush to the bottom’ may be boosting sales volumes but it raises questions about the longevity of a manufacturer or distributor who is retailing thousands of units but making minimal profit on each unit.

Larger Displacements

The non-traditional ATV market continues to shift towards the higher displacements with the 50cc and under segment slipping to 17% of sales from 27% in 2005. Much of the growth in the import ATV market occurred in the 90cc to 110cc displacement range. Approximately 46% of Chinese and Taiwanese ATVs sold in 2006 were in this category, up from 36% the previous year.

While it might be comforting for the established MIC OEMs to consider that the majority of Chinese and Taiwanese ATV sales are still below 150cc, 23% of the non-traditional ATV sales are now in the adult entry level segment of the market above 150cc and they should easily break the 100,000 unit mark in 2007.

To put this development in perspective, the Chinese and Taiwanese distributors are now selling 12% of the sales volume the MIC OEMs record in this segment, and most of the distributors we have spoken to have already been reporting significantly increased sales for 2007.

Chinese & Taiwanese distributors are continuing to climb the displacement scale with 200cc to 300cc machines becoming more popular and increasingly distributors are offering units in the 400cc to 500cc range. Utility ATVs are also growing in sales volumes with this segment of the market increasing from 15% to 20% largely due to the significant increases in the volume of 90cc and 110cc utility models sold.

Buying Trends

Consumer surveys suggest that the majority of the buyers of these ATVs are price-driven and they are either purchasing as a new entrant into the ATV market or as an additional machine. The Chinese and Taiwanese are expanding the market to reach buyers who would not have been able to participate in prior years when they did not have a cheaper option to Japanese or U.S. machines.

Moreover sources indicate the MIC reporting brands’ Youth ATV sales have declined noticeably but not collapsed. The import brands are undoubtedly taking some sales from the MIC reporting brands but there is still a significant majority of enthusiasts who want an MIC brand machine.

It will be interesting to see what the consumers who have been introduced to the experience of ATV riding through an import brand choose when they come to graduate to bigger displacement machines.

Summary

Each year it becomes more apparent that the Chinese OEMs are improving their build quality and, while we do still hear horror stories about machines failing, most consumers seem happy with their non-traditional ATV purchases.

Established OEMs are battling the influx of cheaper Chinese and Taiwanese units in a number of ways. A couple of the most visible attempts have been to expand the regulation and enforcement of safety standards as well as targeting patent and trade infringements, such as the Yamoto suit Yamaha filed in 2005.

To date, they have had some impact on slowing or deterring a few select companies but they may be fighting a losing battle. However, their efforts are having a positive impact on those distributors who want to play by the rules and become respected companies in the industry.

There has been a phenomenal explosion in imported non-traditional brand ATV sales in the last two years but the expectation for 2007 is that this level of growth is unlikely to be sustained.

The non-traditional brand ATV market will continue to grow at a considerable pace, and there is a very real possibility that import ATV sales will go over 500,000 units this year. The Adult segment of units with displacements 150cc and over will continue to grow, possibly to well over 100,000 units.

The expectation is that the Chinese and Taiwanese will continue to chip away at the consumer base at the bottom of both the Youth and Adult segments of the MIC brands in the future.