ATV Market Continues to Climb

As some jobbers look to diversify, there is growing evidence that they should consider increasing their exposure to the powersports marketplace. New developments in the design, power, and particularly pricing of ATVs have made them appealing to a greater proportion of the North American population.

While ATVs are most prevalent in outlying regions and those frequented by vacation travellers, opportunities are growing in other areas. Most jobbers already have access to some service items from current suppliers; lighting, belts, tires, and ignition parts are just a few examples of parts available from the existing automotive supply base.

Observers of recreational products and activities believe that ATV riding is the fastest-growing recreational activity in North America today. The majority of products included in the personal motorized recreational vehicle market are still in the development phase. The innovative nature of the category has drawn a number of new participants, in turn altering the distribution picture. The competitive landscape is forcing many participants to choose a primary market penetration strategy.

A Frost & Sullivan study has revealed that ATVs and electric powered recreational vehicles are predicted to grow at a compound annual growth rate in excess of 5% between the base years of 2004 and 2011.

Analysis from Frost & Sullivan states that the North American personal motorized recreational vehicle market earned revenues in excess of $3.8 billion US in 2004 and is estimated to reach $5.2 billion in 2011.

The study says that ATV sales of units and revenues continue to grow due to four key reasons:

* Increased availability of low cost models are opening up the hobby to many more enthusiasts;

* Additional accessories and an emphasis on durability are driving the growth of high-end model sales to repeat buyers;

* Availability of youth models is stimulating interest amongst younger buyers;

* A high level of functionality is creating a strong value proposition for the products in comparison to other recreational vehicle alternatives.

This all combines to strengthen the market for ATVs.

“Two initiatives by manufacturers are responsible for the strong growth trends in the personal motorized recreational vehicle market,” explains consulting analyst Mary-Beth Kellenberger. “The expansion of entry-level products has been instrumental in driving unit shipment demands, whereas new technological developments that have enhanced value are instrumental to the overall rise in pricing, margins, and customer satisfaction.”

Because the market for motorized personal recreational vehicles is expanding rapidly, there is plenty of room for the variety of products that the market is currently supporting. The looming challenge for this industry is to avoid commoditization that will erode prices and profit margins. Considering the growing popularity of the machines, this may be no small challenge.

The research firm estimates that 1.12 million new units will be sold in North America in 2007, with much of the new unit sales coming in from the low-cost adult and youth categories being sold through automotive retailers and mass merchants.

On a total market revenue basis, the historical market participants such as Honda, Polaris Industries, Yamaha, Kawasaki, and Bombardier are key players and dominate the industry in revenue market share.

However, when it comes to the emerging market segments, new offshore manufacturer brands are well represented. New participants, including Aeon Motor Co., Her Chee Industrial, Dini, and E-Ton are challenging traditional segment leaders.

According to Frost & Sullivan, established, major brand manufacturers aren’t completely opposed to the influx of low-cost participants, because those brands provide an economical entry point for new consumers who can later progress to high-end units when they become more committed to the activity.

The statistics seem to bear this out. In 2004, more than 77% of new ATVs were purchased by first-time buyers. Once riders really get into the hobby, enthusiasts look to the quality manufacturer brands for durability, power, and accessories that allow the rider to maximize the vehicle’s potential.

Aside from price, there are some distinct subdivisions within the market.

Key segments, identified as early as 2004, are:

Youth: Machines designated as youth or those less than 120cc;

Adult Small: Adult designated machines less than 450cc;

Adult Mid: Adult designated machines between 451cc and 700cc;

Adult Large: Adult designated machines over 751cc.

Growth in youth units is strong; however, over the next eight years the expectation is that their popularity will taper dramatically.

Like many other children’s recreational products (jogging strollers, bikes, skis) there is a strong used product market because of the short usage period.

And revenues are already being driven by the sale of the much more costly and profitable Adult Mid and high-quality Adult Small machines. (Youth units drive 17% of the units, but only 4% of revenues.)

To combat negative impressions among the public at large, over the past 10 years manufacturers, lawmakers, and responsible enthusiast organizations have put a great deal of emphasis on improving safety. Rider error continues to be the largest contributing factor in ATV-related accidents, with much of the controversy revolving around youth drivers.

According to US government statistics, riders under 16 years of age represented approximately 14% of total riders, but accounted for 27% of ATV-related fatalities and approximately 30% of injuries.

Historically, safety concerns resulted in the decision to no longer produce three-wheeled ATVs around 1987, the so-called “consent decree”–a decision, it should be noted, that is still without universal support. One notable website, 3Wheeler.org, blatantly proclaims, “Three wheels are better than four.” An online “Death Ride” game accessible from the site is much less charitable in its mocking of the decision.

However, even with three-wheeled ATVs in the distant past, observers of the industry continue to be concerned about other elements of the product’s current development path.

The availability and marketing of low-cost ATVs encourages participation by youths, while licensing and enforcement of compliance with rider education programs fail to meet the demands of today’s riding population.

ATVs should not be singled out, however.

Safety issues overshadow virtually all of the personal motorized recreational vehicle categories. By far, the majority of deaths and injuries associated with these vehicles are due to improper use of the product by the driver.

As the number of vehicles and concentration of users increase, there will be mounting concerns about public safety. “The challenge for the industry is to improve rider safety as the number of customer touchpoints increases,” says Kellenberger.

In 2004 the majority of owners purchased ATVs for recreational activities. ATV manufacturers who have invested in accessories for their machines that enhance recreational riding as well as the functionality of the machines are being rewarded as accessory sales (trailers, ploughs, hitches, carriers) rise.

And that too is a potential area of interest for those in the automotive aftermarket.