Economy Appears to be Prompting Customers to Curtail Recreational Spending…

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. Manufacturers 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.

Take a look at the plans theses marquees have for dealing with the slowing market.

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.”

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 Â¥403.70 billion, up from Â¥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.”

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 Â¥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.”