UTV Industry News Briefs

CFMoto Motor company is planning to raise about $68 million in an initial share offering on the Shanghai Stock Exchange.  Learn more:  Reuters.com

Can-Am is the official off-road vehicle for the Luke Bryan Farm Tour. There will be vehicle display booths at each tour venue. A main target customer for Can Am’s relatively new Defender product line is farmers.  Learn more:  Powersportsbusiness.com

Wells Fargo Commercial Distribution Finance extended its preferred dealer financing program with Kymco USA, a long time client. Separately, Kymco is offering a “Customer Choice” offer of customer cash or extended warranty on purchases of 2015 and 2016 year models through Sept. 30, according to its website. Learn more:  Powersportsfinance.com

Kawasaki is donating five Mule UTVs to aid recovery efforts after the destruction left by hurricane Harvey. In addition the company is matching employee donations made to non-profit organizations.  Learn more: Thedrive.com

Yamaha Motor Corp. will launch their power-assist electric bicycles in the United states beginning in 2018. While the company has been in the e-bike business for decades, the US market has not been targeted until now. Four models will be available ranging from street cruiser to more of a racing bike. Learn more: LATimes.com

Mahindra To Build UTVs in the US

The Mahindra mPact XTV 1000 L utility vehicle is one of six models previously developed by the company in partnership with Intimidator, Inc.

Mahindra is planning on launching an off-road utility vehicle targeting farmers and hunters, and will build it in the US. In an interview by Barron’s, Mahindra & Mahindra’s CEO Pawan Goenka covered a range of topics including a new manufacturing plant in Detroit. The first product produced by the plant will be off-road utility vehicles.

In April 2015 Mahindra announced a partnership with Intimidator Inc. based in Arkansas to develop and manufacture Mahindra’s current mPact lineup of six UTVs. This latest interview indicates that moving forward they will be developing and manufacturing their UTVs themselves. According to the CEO Mahindra currently has about 540 dealers in the US who sell Mahindra’s tractors. While the brand is not necessarily a household name, it is not an obscure brand either in the farming market.

Comment:  This marks a more serious commitment to the UTV market. While some companies have developed partnerships to add UTVs to their product lineup, they have not had intentions of moving into manufacturing themselves. These partnerships have been a joining of complementary competencies and assets. Usually one company has the distribution channel while the other has the expertise and resources to develop the UTVs. In Mahindra’s case they likely used their partnership with Intimidator to test the UTV market in the US before making a more substantial commitment. They will offer some more competition for companies like Kubota, John Deere, Polaris and even Can Am which has been targeting the farm/hunting market segment lately as well. The investment shows that the UTV market remains highly competitive, but companies still view it as a growth market.

Marc Cesare, Smallvehicleresource.com

How Will Textron’s Arctic Cat Acquisition Impact The STOV Market

Textron E-Z-GO Logo

Textron’s recent acquisition of Arctic Cat raises some interesting questions about the acquisition itself and how other companies in the market may react. In particular, what does the acquisition mean for Club Car.

One question is whether or not Textron will continue investing in the Bad Boy Off-Road brand. Except for the electric powered Bad Boy Off-Road UTVs the brand’s product offerings are redundant given the more popular Arctic Cat product lineup. One can argue that the dealer networks are sufficiently different that the brands can effectively reach different customer bases and not cannibalize each other’s sales.  A quick perusal of the Bad Boy dealer network indicates that most of their dealer s are golf car related with some power sports dealers. Moving forward, Bad Boy how much resources are put into product development, and what type of vehicles they develop should indicate the direction the brand will take in the context of Arctic Cat acquisition.

Another issue is the potential clash of corporate cultures between Textron Specialized Vehicles and Arctic Cat. Textron is a large conglomerate with over $13 billion in sales annually and a particular corporate culture while Arctic Cat is a much smaller company coming out of a powersports background. How well these companies will mesh will be interesting to see. Keeping Arctic Cat as a stand alone operating unit can mitigate any cultural problems to a certain degree. However, any future financial difficulties at Arctic Cat could generate more intrusion from Textron management regarding Arctic Cat operations.

Club Car is targeting the commercial market with the Carryall 700 and other vehicles.

A more intriguing question is how the acquisition of Arctic Cat might impact Club Car, which is now the only large stand alone fleet golf car manufacturer. While Yamaha Golf Cars are separate from their UTV and ATVs business, they are both part of their Power Products division. Similarly Textron has developed their Textron Specialty Vehicles division that combines a range of small, task-oriented vehicles from airport tugs, to fleet golf cars to off-road ATVs and UTVs.

Ingersoll-Rand and Club Car has taken a decidedly different approach. Rather than collecting other categories of vehicles, they have opted to focus on building out the sales of golf cars for personal/golf use and commercial oriented utility vehicles that are based off of their golf car platform. Management confirmed this approach when asked about the Arctic Cat acquisition during their recent fourth quarter earnings call.  According to recent financial results Club Car has been successful with positive growth in the commercial/utility segment while the fleet side continues to lag. However, the business is relatively small compared to the overall size of the company which had $13.5 billion in sales in 2016, and Club Car is part of their smaller Industrial segment.

This raises the possibility that Club Car may be an inviting candidate for divestiture. But who might be interested in buying Club Car? One possibility is Honda Motor. They already have a range of motorcycles, ATVs, UTVs and scooters. An acquisition of Club Car could further diversify their vehicle portfolio. In addition, golf is a popular sport in Japan so there could be some degree of personal affinity among the management towards owning a leading golf car company. Club Car would offer a premium brand and a different distribution channel that might be useful for moving other Honda products. It would also add some electric vehicle expertise to Honda as well as additional global manufacturing capabilities.

Another possibility is Polaris, which has been acquiring small vehicle brands over the past several years. Polaris tends to acquire leading brands in a particular segment and many consider Club Car to be the leading golf car brand. Besides the premium brand, Club Car would bring some other positives to the table:

  • Global brand and distribution
  • China based manufacturing facilities as well as Southeast US facilities and supplier network not far from Polaris’ new Huntsville, AL facility
  • Large volume of electric vehicle sales that can be used spread costs of new battery and electric powertrain development.
  • Entry into the golf car segment
  • Largely separate distribution channel from existing products but similar enough to cross-sell some other Polaris brands
  • Good presence in commercial small vehicle market that Polaris has been targeting

The one drawback is that, from previous presentations, Polaris management considers the golf car segment a low growth segment. In large part this is due to the stagnant fleet golf car market which is the major portion of the golf car segment. However, E-Z-GO’s recent introduction of lithium battery powered fleet golf cars represents a potentially significant shift in the market. If lithium battery golf cars can disrupt the fleet market, this might create a more appealing market to Polaris. Providing an opportunity to leverage their expertise in electric vehicles, increase electric vehicle unit volume to lower costs and find a growth avenue in an otherwise stagnant fleet market. Despite recent headwinds from recall issues, Polaris still has the financial resources for such an acquisition. It will be interesting to see if they move in this direction.

Marc Cesare, Smallvehicleresource.com

John Deere Streamlines Gator Production

Marc Cesare,, Smallvehicleresource.com

John Deere's New Four Seat XUV 825i S4

A four seat Gator utilty vehicle from John Deere, the XUV 825i S4

John Deere is close to finishing an expansion of their Horicon Works facility in Wisconsin to consolidate Gator utility operations under one roof. The 388,000 square foot expansion allows the company to add assembly and shipping to production operations at the location. Management expects the move to be completed by March 2017. As part of the expansion, 70 new assembly jobs and 10 salary positions will be added to the existing work force of about 1,000. According to management, “We’ll be able to serve our dealers and customers better, improve the overall quality of the vehicles, and make our operations more efficient.”

While the growth in the UTV market has slowed, investments like this and others from the major players indicate that they continue to expect some market growth. John Deere spent an estimated $35 million on the expansion. The work and commercial utility segment, where the Gator is popular, has been targeted by a number of companies in search of sales growth. Coupled with the lower overall UTV market growth and other factors, this has increased the competition in the UTV market.

Learn more:  Stackyard.com

Textron Acquires Arctic Cat

Marc Cesare, Smallvehicleresource.com

Textron Specialized Vehicles will now compete in the recreational side-by-side market with vehicles like the 2017 Wildcat X from Arctic Cat with RG Pro suspension.

Textron is buying Arctic Cat for $247 million. Arctic Cat will become part of Textron’s Specialized Vehicle business and Textron’s management stated that the current manufacturing, distribution and operational facilities will be maintained. Arctic Cat employs about 1,600 people in production and management facilities mostly in Minnesota. Textron management remarked that the acquisition will allow for “…more aggressive investment in product development, dealer networks, marketing and customer service.” For the full fiscal year ended March 31, 2016, Arctic Cat reported a net loss of $9.2 million on net sales of $632.9 million. Sales are roughly split between ATVs/UTVs and snowmobiles. For fiscal year 2017 they were expecting similar sales.

This acquisition by Textron makes them much more of a direct competitor with Polaris. While Polaris has been expanding into more work and transportation related products with acquisitions of GEM, Aixam, Goupil and Taylor-Dunn, which puts it in direct competition with Textron’s Cushman, TUG and E-Z-GO vehicles, Textron has been expanding with their roll-out of the Bad Boy Off-Road brand of UTVs and ATVs. This acquisition significantly adds to the products and markets where they will be competing head to head.

This deal should provide the Arctic Cat brand with a lot more financial muscle to expand their dealer network and develop new products. For Textron there are a number of benefits:

  • In Arctic Cat they acquire a well established brand.
  • They acquire a power sports dealer network which is distinctly different then what they currently have.
  • They expand their reach in the UTV market, not only in terms of sales volume and distribution, but in the pure recreational market segment
  • They add a completely new type of vehicle to their portfolio with snowmobiles
  • They add geographic diversity to their manufacturing facility portfolio

It will be interesting to see what happens with the Bad Boy Off-Road brand. There is some overlap of product lines with Arctic Cat. A quick perusal of the Bad BoyOff-Road dealer network reveals that many or even most of the dealers are golf car related dealers with some power sports dealers. They could continue to develop the brand or fold some of the products into the Arctic Cat brand. Perhaps, lower than expected success of the Bad Boy Off-Road launch was one reason for acquiring Arctic Cat. Why spend a large amount of resources building a new brand in a very crowded market with no guarantee of success when they can acquire a well established brand such as Arctic Cat.

Learn more:  Arctic Cat

Arctic Cat Reports Q2 2017 Results

By Marc Cesare, Smallvehicleresource.com

The 2017 Wildcat X from Arctic Cat with RG Pro suspension.

The 2017 Wildcat X from Arctic Cat with RG Pro suspension is expected to help drive sales in the second half of the fiscal year.

Arctic Cat reported financial results for the fiscal 2017 second quarter ended September 30, 2016. The company reported a loss of $12.8 million on sales of $164.6 million compared to net earnings of $11.2 million and sales of $211.2 million in the prior-year quarter. Management pointed to a softer powersports market, as well as lower sales volume, unfavorable product mix and heightened promotional environment as factors. Sales of ATVs and side-by-sides totaled $44.0 million for the quarter, down 37.8 percent compared to prior-year sales of $70.8 million. Year-to-date sales totaled $87.8 million, down 29 percent from $123.6 million in the prior-year first half.

The following are some highlights from the earnings call related to side-by-sides:

  • Weakness in oil, gas and agriculture sectors contributed to softer sales
  • ATV and SxS retail sales decreased approximately 4% in the second quarter versus an industry that was down low single-digits. Wholesale sales decreased further as management is trying to reduce dealer inventory levels.
  • New products including those designed with Robby Gordon have been released, and a third wave of models this fiscal year will be introduced by late February
  • The company has added 28 top-tier dealers to their network but is likely to miss their target of 75 for the fiscal year. Net dealer add is flat.
  • For the short term management anticipates continued market softness, competitiveness and foreign currency headwinds
  • ATV/SxS sales are expected to be flat to down mid-single digits for the full year but up in the second half driven by new product introductions.
  • The company announced two new strategic partnerships for developing products for adjacent markets but cannot release more details, including whether they involve SxSs.

Learn more:  Seekingalpha.com (Earnings call transcript)

UTV Maker Intimidator Plans $12M Expansion

Intimidator Classic UTV

The Intimidator brand of UTVs includes the Classic series shown here, a Crew series and a Truck series. Each series comes with several powertrain options including diesel, gas and electric depending on the series.

Utility vehicle and lawnmower manufacturer Intimidator, Inc. of Batesville, AK announced plans for a $12 million expansion to address growth in both product markets. The expansion will include a second manufacturing plant and the addition of 400 jobs over the next four years. The company makes Intimidator UTVs, Bad Dawg UTV accessories, Ground HogMax disc plow for ATVs/UTVs, Spartan zero-turn mowers and the Gourmet Guru Grill. The company is owned by Robert and Becky Foster.

As part of the expansion, the company will receive support from the state in the form a $1.5 million community development block grant, a cash rebate equal to 4.25 percent of annual payroll for the new jobs for five years, and sales tax refunds on building materials, machinery and equipment associated with the expansion.

Intimidator has partnered with Mahindra to develop Mahindra’s line of mPACT XTV utility vehicles. The expansion is tied in part to this partnership. The Intimidator line of UTVs was originally launched in 2013. The product line includes the Classic, Crew and Truck versions. There are several powertrains available depending on the version including a Kohler 1000cc diesel engine, a Kohler 750cc gas engine,  Intimidator’s own 800cc gas engine and a 48 volt AC electric motor. Learn more:  NWAonline.com

Polaris Reports 2016 2nd Quarter Earnings

2015-RZR-XP-4-1000-eps

The very large recall of RZR vehicles impacted Polaris 2nd quarter side-by-side revenue.

Polaris Industries reported fiscal year 2016 second quarter earnings with sales increasing 1% from the same quarter last year to reach $1,130.8 million. Net income was down 29% to $71.2 million, reflecting approximately $25 million in warranty, legal and recall costs. Here are some of the highlights of the earnings callrelated to small, task-oriented vehicles.

  • ORV (ATV and UTV) sales decreased 6% in the quarter with Ranger shipments flat and RZR/ATV shipments down
  • RZR retail was down significantly more than RANGER and that was anticipated given the impact from the recall
  • North American (NA) ORV inventory was down 8%
  • Demand for the new General line of UTVs is exceeding company expectations
  • The Huntsville, AL plant is ramping up Ranger and Slingshot production
  • NA retail market for side-by-sides was flat and declining for ATVs
  • Management reports losing a few points of side-by-side market share attributable more to their product lineup in the utility segment in a competitive environment
  • NA retail market for side-by-sides was flat and declining for ATVs
  • Polaris NA retail was down double digits for ORV for the quarter impacted by the large product recall as well as weakness in the oil  and ag markets with side-by-side retail down high single digits
  • Product recall costs have been approximately $27 million for the first half of the year. The company has had a 30% response rate so far and the Consumer Product Safety Commission is targeting a response rate close to 80%
  • Global adjacent market sales increased 14% in the second quarter to $91 million including PG&A, driven by market share gains in Aixam and the added sales from the Taylor-Dunn acquisition.
  • Management reports that Taylor-Dunn’s “performance out of the gate, it’s been one of our best acquisitions yet” and they like what is essentially a made to order model along with synergies for the people mover segment with other global adjacent brands
  • The defense business was up over 30% and our PG&A related sales for the global adjacent division increased 21%.
  • Defense sales were up with the DAGOR vehicle gaining traction
  • Multix early sales have been disappointing but transmission issues were fixed during the 2nd quarter and the distribution network is expanding
  • Polaris will begin transitioning their RZR and Ranger lines to their retail flow management system to improve lead times and inventory management
  • ORV and Snowmobile sales are expected to decrease mid-single digits
  • Global Adjacent markets which includes GEM, Aixam, Goupil, etc. is expected to be up mid teens for the year with strength across brands

Learn more:  Seekingalpha.com (Earnings call transcript)

Should Polaris Target Garia Next?

Garia Luxury Golf Car

Are the luxury golf cars and high-end utility vehicles of Garia appealing to Polaris?

With Polaris’ recent acquisition of Taylor-Dunn it made me wonder if Garia might make a good target as well. The European based luxury brand could be appealing to Polaris for a number of reasons.

  • Brand Value – The Garia brand has been around for ten years, not as established as the recently acquired Taylor-Dunn brand, but still a significant amount of time. More importantly though Garia is a luxury brand. Particularly with their new utility vehicle lineup, a high-end line of utility vehicles could be a nice overlay on the existing Polaris brands.
  • International Presence – With it’s strong European presence Garia would fit nicely with Polaris’ international expansion efforts. Garia could provide both expanded distribution and manufacturing options for other Polaris small vehicle brands outside the US. At the same time, Polaris manufacturing facilities could be used to reduce the cost of Garia vehicles sold in the US market.
  • Golf Segment Entry – The golf car segment is a major piece of the global small vehicle market, but Polaris does not have a presence in it except for the small portion of GEM owners using their vehicles for golf. The problem with the golf car segment is that it has been declining or stagnant in the US for several years and will likely remain that way for the foreseeable future. The golf car fleet market is also very price conscious and has its own interwoven distribution channel that funnels used fleet vehicles to golf car dealers. In the private transportation portion of the market used vehicles at various levels of refurbishment provide a range of choices in competition with new vehicles. However, what Garia has the potential to do is offer Polaris an entry into the golf car segment while remaining above the fray. They could avoid the price battles and target just the luxury end of the market which would require only a limited and targeted distribution network. Of course the question is if there is enough of a market there to interest them.
  • Complementary Vehicles – Garia vehicles would provide Polaris with golf cars and personal transportation vehicles but at the luxury end of the market that could complement the GEM brand in the personal transportation segment. Similarly the new Garia utility line could provide a higher-end vehicles sold through a complementary distribution network.
  • Electric Vehicles – Similar to Taylor-Dunn, the Garia product line would offer Polaris an opportunity to leverage their electric powertrain expertise and spread development costs among a larger array of vehicles.
  • Quality – Both companies focus on quality and the customer experience. There could be some good opportunities for knowledge transfer at many different levels for both companies.

What could be some reasons for not acquiring Garia. First, maybe Garia does not want to be acquired or their price could be too high. Second, Polaris may not see the luxury end of the small vehicle market as large enough to pursue. While luxury markets are often global, the luxury end of the small vehicle market may not be large enough even on a global scale to appeal to Polaris. Third, Polaris tends to purchase strong, established brands. Is the Garia brand strong enough and established enough to meet their needs. Fourth, Polaris may want to avoid the slow or no growth golf car segment altogether, even if the luxury end offers some growth opportunities.

Polaris Acquires Taylor-Dunn

Taylor-Dunn is known for burden carriers and other industrial vehicles like the B-150.

Taylor-Dunn is known for burden carriers and other industrial vehicles like the B-150.

Polaris Industries announced their acquisition of Taylor-Dunn, a leading manufacturer of industrial vehicles. Taylor-Dunn will become a wholly owned subsidiary of Polaris. It will continue to be a distinct brand and operate from its current headquarters and manufacturing facilities in Anaheim. Taylor-Dunn will become part of the Polaris’ Work & Transportation division along side GEM, Goupil, Mega and Aixam in the Global Adjacent Markets business.

Just last week I was telling my colleague Stephen Metzger that I thought Taylor-Dunn and perhaps even Garia would be good acquisitions for Polaris. Taylor-Dunn is an excellent fit for Polaris for the following reasons:

  • Brand Value – Similar to GEM before their acquisition by Polaris, Taylor-Dunn has a strong brand in a niche market that has not fully been exploited as innovation and product development has been relatively slow over the past decade.
  • Innovation & Knowledge – Polaris has a strong tradition of product innovation driven by customer research. This should pair well with Taylor-Dunn that can offer a deep knowledge of the industrial vehicle market.
  • Electric Powered Vehicles – The Taylor-Dunn product line provides another vehicle platform for Polaris to leverage their growing electric vehicle expertise. It provides not only revenue opportunities but more vehicles over which they can spread electric powertrain development costs.
  • Complementary Market – Polaris has been expanding into different segments of the small vehicle market, especially commercial markets, but does not have a strong presence in the burden carrier and industrial segments.
  • Distribution – Taylor-Dunn’s distribution network consists largely of material handling companies. Polaris has a limited number of dealers in this channel. This new dealer network provides an opportunity for Polaris to place their other Work & Transportation brands such as GEM into this distribution channel.
  • International Presence – Taylor-Dunn has approximately 50 distributors outside the US and Canada. Polaris has been expanding their sales and manufacturing assets internationally in the small vehicle market. In the future, they could use their international manufacturing facilities to make Taylor-Dunn vehicles more cost effective in foreign markets.
  • Efficiency – Part of the Polaris success story has been their cost efficiency in many aspects of their business. There is likely some good opportunities for knowledge transfer and some fat to be trimmed at Taylor-Dunn.

Learn more:  Polaris.com