Over the past 10 years, the ATV Industry has quickly matured into a
multi-faceted, highly competitive business. First regarded as a younger
sibling of the motorcycle industry, ATVs have now grown to surpass 2 wheeled
motorbikes in annual North American sales. The industry has several key
driving elements that are shaping it as we head into the next period of the
history of ATVs.

Technology advancements have really helped the ATV industry and ATV
buyer. The lasted in a long string of firsts includes power steering. Honda
and Yamaha both announced that they would have power steering available on
some 2007 ATV models. Fortunately for ATV enthusiasts there is no end in
sight to this engineering binge. The age of the sparsely equipped 4-wheeler
is over. To compete in the ATV market today a manufacturer must offeradvanced, value-added features that address common consumer needs while still setting their models apart from the competitions.

A few more recent technological advances on ATV include electronic fuel
injection, LED tail lights, automatic transmissions, fluid shear brakes, and
electronic instrument panels that include GPS systems.

The ATVs of today are becoming more and more feature-ladden every year.
If ATVs continue to follow the same trend as pick trucks, 4-wheeled quads
loaded with advanced features costing $10,000 or more will be available.
Another driving force behind the ATV market is something not many US
manufacturers want to acknowledge. There is another ³Asian Invasion² coming.

Asian companies had been attempting to market low-cost, simple ATVs in
the U.S. for years. The Big Seven ATV manufacturers took notice back in the
1990s by offering youth ATVs in the 50 and 90cc class. The Big Seven tapped
into inexpensive tooling and manufacturing by having these ATVs produced in
China, Taiwan and South Korean and utilized their own testing facilities and
personnel to validate that the designs met their performance and reliability
standards. The result was annual unit sales in the tens of thousands with
relatively minimal investment.

The end result was that certain manufacturers in southeast Asia have
become more proficient at making ATVs. Not long after this, some
enterprising American importers recognized that these Asian ATVs were
getting better and they could still sell them at very low prices. Thus you
we began to see ATVs sold under some new names. These factors have awakened a sleeping giant.

On the surface, the Big 7 do not acknowledge the plethora of new
challengers in the ATV business. But importers of Asian ATVs are hungry and
working hard to deliver a good product at a super price. Consequently,
everyone in the ATV business is now operating in a hyper-competitive
environment.

Some of the possible results of this environment might be:

1) Cost reduction pressure. While it is true that prices for high-end ATVs
are creeping upward, there is heavy pressure is coming from Chinese and
Taiwanese manufacturers to keep costs down across the board especially on
models less than 500cc. Cost reduction pressure is causing all of the Big 7
to source more and more of their products in Southeast Asia or other lower
cost manufacturing regions such as Eastern Europe .

2) There could be an industry-wide dilution of quality. Quality in this
context refers to both product quality and service quality. Dilution of
quality has only partially to do with where ATVs are being manufactured; it
is also a simple law of averages. In any business with an overload of
players there will inevitably be companies who put out sub-quality fare.
Most Asian importers are truly striving to distribute a quality product and
some of their offerings are very impressive.

On the other side of the coin, the Asian newcomers are not party to the
design standards that the Big 7 comply with. However they do recognize that
few consumers would buy an adult-sized ATV that, for example, doesn't have a
brake light or has archaic cable-operated brakes--so the lack of a 'consent
decree' for Asian brands is only part of the product quality issue.
Perhaps even more significant than a dilution of product quality is the
dilution, or dissolution, of dealer and service quality. When a "Big-box"
retailer in a given area starts selling low-cost ATVs "the handwriting is on
the wall" for local dealerships. That handwriting reads: "Be Big And Be
Better Or Be Forced Out". The phenomenon happening here is "commoditization" and it is putting the squeeze on sales and profit margins on every player in the ATV business from manufacturers to dealerships.

When something becomes a commodity market there seem to be 2
options a 'premium' product and service experience. The cost-reduction approach will always be a vital part of doing business in the ATV world but relying on it alone means offering only 'me-too' ATVs with minimal profit margins and that is risky business. However the Big 7, and therefore their dealer base, clearly have an advantage in premium features. These and brand loyalty are the two major advantages enjoyed by the major OEMs over Asian imports.

3) There could also be a 'weeding out' of ATV manufacturers that takes
place very soon. As overall ATV sales flatten out or decline, the increased
pressure will force some out of the ATV marketplace. It might be surprising
to see which companies ³say Uncle² as the shakeout unfolds.

4) Expect the Big 7 to push for Asian importers to be held to design and
validation standards. The most recent ATV design standards were developed in
the late 1990s. Look for this to be done again with the Big 7 also pushing
for Asian importers to be included whether they want to or not.

The final trend seen in the ATV market is to offer them as a 'tool
platform'. Approximately a third of the current ATV market is considered
farm/ranch/construction. Trail closures limit the growth of trail riding
opportunities but there will always be a demand for food, new homes and
infrastructure. Therefore it only makes sense that vehicles of all types are
being developed by ATV manufacturers that can be customized for specific
utility applications in everything from land surveying to golf course
maintenance.

"Modularization" is a word that can describe what is happening with off
highway vehicles and ATV designs. Arctic Cat developed their speed-rack
system to enable multiple accessory attachments. This development shows one tip of the modularization iceberg. The advantage of a modular accessory
platform is that one vehicle can be used for many different tasks. Each of
the Big 7 recognizes the growing demand for accessory use on ATVs and they
are all developing modular accessory attachments to meet this need.
The Big 7 and new ATV manufacturing companies like Bobcat and Kubota are
also marketing entirely new vehicles platforms--to provide new sources of sales into the industrial market.

With the engineering capabilities of larger manufacturers and great software
development tools available even to small enterprises, the possibilities for
utility use of OHVs and ATVs are literally endless. Look for more and more
modular tool and accessory capabilities on ATVs and OHVs in the future.