Weathering a Recession, or - Little Things Mean A Lot

Weathering a Recession, or - Little Things Mean A Lot

By Stephen Metzger, PhD, Senior Editorial Advisor, IUV Magazine

In roaming the exhibition floors of the PGA and Golf Industry Shows in late January and early February I was struck by the number and kinds of product improvements featured in the utility vehicle exhibits.  Many, and indeed most of these improvements are, so to speak, under-the-hood.  Which means you don’t see them right away and, in fact, are not aware of them until you ask questions or read the literature.

While it is great to get a breakthrough in technology or significant recognition in the market as reflected in a jump in sales, the accumulation of “little” things, i.e., incremental improvements of one form or another are every bit as important—and more predictable—in building commercial success.

An example would be Toro’s redesign of the rear portion of the vehicle frame on its Workman HDX and the incorporation of de Dion suspension technology emanating from the automotive industry.  The new design allows a better distribution of overall weight of the vehicle and increases load capacity by a couple of hundred pounds, while the de Dion suspension offers advantages of better traction and greater wheel stability. Another advance seen on several brands in the shows is the inclusion of four-wheel hydraulic disk brakes.

These kinds of improvements go on despite the bad economic news, and, specifically, in the face of the downturn in utility vehicle markets.  Thus, there is clear evidence of companies looking beyond the recession with a much broader, if not fully articulated vision of growth in the future market place.  Is there some correlation between product improvement and strategy renewal and the doldrums of a business downturn?  I’ll return to this theme below, but first lets get more specific about the dimensions of the slump we have experienced over the past two years.

International Market Solutions (IMS) a management consulting and market research firm, of which I am a Managing Director, is about to publish its latest report on the small, task-oriented vehicle (STOV) industry, and it will put numbers to the decrease in sales that have been experienced throughout the major markets that make up the industry.  The report will also present a wide range of forecasts to include a much more finely segregated utility market

Golf car-type vehicles decline by as much as 24% in 2009

Sales of golf car-type vehicles which include golf cars, privately-owned derivatives and utility versions declined by approximately 10% from 2007 to 2008 and by 20-24% from 2008 to 2009.  The figures lend further impetus to the need to diversify products and markets away from the fleet market which makes up the largest sub segment of this category.  The development of the low-speed segment of the privately-owned market was a welcome contrast to trends in other sectors.  The issue here, however, is whether the market, which exploded with aid of what many in the media called overgenerous (probably the least derogatory description) government subsidies, can sustain a significant fraction of the sales recorded in 2009.

Heavy duty utility vehicles take a hit as well

In the category of heavy duty utility vehicles which include burden carriers, turf and grounds maintenance vehicles, and off-road vehicles, significant declines were evident as well.  IMS compilations reveal an 6% decrease 2007-2008 and about 8%-12% 2008-2009.  Nonetheless, there were bright spots within the overall category and on-going product and market development offer the promise of a brighter tomorrow.

Some of the significant developments in the heavy duty segment have been in the off-road sector, where we are seeing the introduction of more electric power and on-going improvements in suspensions, brakes, and enclosures.  The side-by-sides have now become the dominant vehicle type for companies like Polaris, Kawasaki, and others (including a host of newcomers).  This has come at some cost, however, as growth in the side-by-side sub segment has taken away sales from the straddle-type vehicles.  Nor has the off-road segment fully differentiated itself from recreational power sports, despite the multi-purpose capabilities of these vehicles.

Benefits of the recession:  Are there any?

 Recessions can have positive repercussions.  One of them is that they almost always impose the need to evaluate current business practices, products, and approaches to the market.  It does not mean that you necessarily go into deep meditation and find that the downturn (in your own business) is all your fault.  No, what it does mean is that whether it’s your fault or the fault of trends entirely beyond your control, you are forced to take a new direction to survive and grow.

As a result of what may be an involuntary process of business soul-searching, new approaches may well lead to long term growth.  Want an example?  My observation of STOV products is that they are outrunning their usual market niches.  What do I mean by “usual market niches”?  It’s a theme that has been enunciated in this column and in other venues more than once—and that is, that industry participants whose historical markets are in golf, commercial/industrial, agriculture, and recreation have been slow to move out of their traditional sectors.  At the same time the vehicles they are producing are becoming more refined, more robust, and can easily be adapted across much wider areas of application.

It could well be the case that emergence from the current slump will see companies aggressively pursue non-traditional markets in a new competitive context that may threaten positions in historically reliable markets but, overall, lead to substantial new growth for all.

Government markets may show the way forward

We complain quite a bit about government and government controls.  I know I do, but all of a sudden an RFP floats in over the transom and attitudes suddenly change.  Aside from sales and profit gains, however, the evolving government market may have a somewhat different and equally important benefit that may spark a much wider acceptance of utility vehicles, and, for that matter, more robust electric powered vehicles. 

The government market, a large portion of which includes the military or defense market, is large enough and its demands diverse enough (everything from garden variety utility vehicles replacing pickups to combat ready types) to elicit bids from a wide variety of competitors that normally see themselves in quite separate market niches.  That, in turn, is likely to encourage a wave of new product upgrades that will help build the generic STOV industry.

The STOV industry will never evolve toward a one-size-fits-all format.  It will  have many more models and types than what, for example, are defined as light vehicles and trucks in the automotive market.  On the other hand, the basic drive trains and key components such as brakes and steering systems are likely to fall into, and refined or upgraded in, relatively few categories.  The variety will come in the accessories and in the access to a greater number of applications.  The government market, and perhaps the military segment in particular, will be a driver in this direction.  A further benefit, already being observed, is the that even in its incipient stages the government market has spurred new companies to enter the market and small, relatively unknown companies, to expand.

Thus, when all is said and done, we may look back on this worst of all recessions as period of essential and innovative product development, as well as a period of reaching out to new markets (in order, in some cases, to simply survive) and that these efforts lay the basis for substantial growth.

About the Author:

Stephen Metzger, PhD, is Managing Director of International Market Solutions, LLC, an internationally based market research firm. He is also Principal of International Competitive Assessments, the market research arm of IMS. ICA has produced four major studies of the small, task-oriented vehicle market since 2000. Mr. Metzger is Senior Editorial Advisor for Industrial/Utility Vehicle Magazine.