Signs of the Times

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Kawasaki, Harley-Davidson, Polaris, Feb. 10 CPSC Deadline

One of the strengths of the Internet is its flexibility. You can put up a story or an ad today and take it down or change an hour later. But, as some web site operators are finding out, there’s a downside, too. Advertisers can pull out on a moment’s notice, unlike their commitments to print publications that require lengthy production lead times. And that’s what Kawasaki is doing.

In a cost cutting measure, Kawi canceled its entire online media program effective, Jan. 21, 2009. The move was caused by “severe economic conditions,” the company said in an email announcement sent to its web site partners. Kawi’s motorcycle and associated product sales in the U.S. are down “over 33%,” the company said in its notice. No telling how long Kawi’s Internet cutback will last.

Harley-Davidson announced its 2008 earnings today and they were about as bad as expected: Revenue for the year was down 2.3 percent, dropping from $5.73 billion in 2007 to $5.59 last year. Earnings were down a whopping $279.1 million, or 29.8 percent, to $654.7 million. The fourth quarter, ended Dec. 31, 2008, was brutal. Net income for the quarter was $77.8 million, down from $186.1 million in the same period of 2007. Wholesale shipments for the year were off 8.2 percent, dropping from 330,619 in 2007 to 303,479 last year.

See the complete report at www.dealernews.com.

H-D said it’s going to push its marketing efforts to strengthen its brand; it’s going to seeking additional funding for HD Financial Services, and it’s going to cut costs. Cutting costs means dropping 1,100 jobs over the next two years. The Milwaukee folks are hoping the additional funding comes from sources like you—they’ve already approached Washington for a piece of the bailout money. That’s certainly an unpleasant scenario. And pushing the brand? That’s not clear, but it will be interesting to talk with Harley dealers when they come back from the company’s current dealer meeting in Washington.

Investors obviously are unhappy. One analyst, Joe Hovorka of Raymond James, dropped his 2009 estimate of earnings per share to less than a buck—98 cents, down from $1.65. He gives HOG an Underperform rating, which means he expects it to do worse than the S&P 500 or its sector over the next six to 12 months and says investors should sell. In mid-day trading today, HOG was off 81 cents at $11.59.

Polaris Industries said it’s cutting its workforce by 460 positions, including some 160 employees and 300 contractors. The cutback includes a reduction in the build of the company’s popular Ranger side by side (SSV) vehicle in Roseau, Minn.

This ties in with recent research by a leading security analyst who follows the powersports industry. Tim Conder, and analyst with Wachovia Capital Markets, said a recent survey of Polaris dealers indicates that the Polaris SSV segment is beginning to slow down. He sees industry wide SSV sales finishing down 5%—10% for 2008 and dropping 10% 20% this year.

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If you’re a dealer and carry kid’s machines, ATVs and/or dirt bikes, you know that the OEMs are in an uproar over the latest regulatory move by the Consumer Product Safety Commission.

A provision in the Consumer Product Safety Improvement Act that became law last year limits the amount of lead (600 parts per million) in manufactured products for children. Under the law, products exceeding this limit cannot lawfully be sold in the U.S. after Feb. 10, 2009. That’s like two weeks from now. Manufacturers will need to test and certify to those levels.

But here’s the real kicker: the new Feb. 10 lead limit applies to TOTAL lead content in the product, not just in the paint. That COULD include lead in metal parts, such as brakes and engine parts that are ACCESSIBLE to a child. Unfortunately, no one is quite sure what “accessible” means.

Any dealer machine inventory contains several different types of products: Current (2009), non-current, older/discontinued models, and used stuff. Some of the current models of some of the OEMs will be certified by Feb. 10, but some won’t. Many non-currents won’t be certified, and none of the discontinued and used machines will be certified for sale.

That’s why OEMs are telling their dealers to dump as much of the old stuff as possible by the Feb. 10 deadline.

Oh, and one more thing: The lead restriction applies to lots of other things being sold in dealerships: toys, apparel, etc. It’s causing a lot of anguish among OEMs and dealers.

We’ll have more about the Polaris and the CPSC stories next week. JD

Contact me with news tips and story ideas
at 952/893-6876 or joe@powersportsupdate.com. Thanks

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