NEWSWORTHY - Powersports Off-Road Racing Business Outlook

By Scot Harden

The Powersports industry is in the process of navigating through one of the most interesting, complicated, nerve-racking, confusing, and ultimately most successful business cycles since the Great Recession of 2008. One year ago, as COVID-19 turned our nation into one giant slumber party, the impact it would have on Powersports, racing, and outdoor recreation overall was hard to forecast. Most industry analysts predicted tough times, and rightfully so. With record unemployment and industry after industry (e.g., entertainment, restaurants, travel, etc.) being shut down, the natural tendency was to forecast a huge downturn in Powersports as well. After all, Powersports is a luxury. With economic uncertainty and large-scale unemployment the order of the day, it would be easy to envision plummeting demand and desperate times ahead for all of Powersports, including off-road racing and the companies that support it. However, flash a year forwards, and it’s clear that Powersports as a whole came through COVID with flying colors.

Photo by Daniel Schenkelberg

By all accounts, Powersports OEMs, including off-road UTV, motorcycle, and car/truck manufacturers, all had record years in 2020 with demand and consumer confidence driving sales to new heights, not only for new vehicles but also for new vehicle aftermarket products as well.

To understand the situation better, we reached out to some of Powersports’ leading companies and corporate executives to get their input on where the industry currently stands and the challenges for the future. We spoke with Polaris VP ORV Marketing/Chief Customer Engagement and Growth Officer, Pam Kermisch to get her perspective on the UTV market. We also talked to off-road racing icon and Jimco Racing owner, Robbie Pierce, and Method Race Wheels Chief Marketing Officer, Brian Godfrey. Last but not least, Greg Cottrell, President/ Founder of Rugged Radio shared his thoughts as well. Collectively their perspectives helped shed some light on what these companies are doing in response to the market and how they manage their businesses moving forward.

SCOT HARDEN: First, thank you for taking time from your busy schedule to talk with us and share a bit of what is going on inside your respective companies. To say that 2020 was quite a challenge would be an understatement. Despite the global lockdown, ensuing economic downturn with rising unemployment, and entire industries shuttered, it proved to be a fantastic year for Powersports business. Everything from new models to aftermarket product sales and racing was way up. From your perspective, what do you think drove this activity during such a challenging period?

PAM KERMISCH: Powersports provided an opportunity to be outside and socialize with others safely even during a pandemic, right? You could socially distance, go out with a group of friends or family and have an incredible shared experience and yet be safe, while taking all the necessary precautions. After all, restaurants were closed and travel wasn’t happening. People looked for things to do with their friends and family, and off-road recreation provided something that people loved doing. And I’ll tell you; it wasn’t just our regular customer base that saw it this way. In addition to overall volume being up across the industry, more importantly, we saw 700,000 new customers join the Polaris family in some way, shape, or form. We brought many new people into the tent, and the fact that it wasn’t just people who already loved Powersports, was the icing on the cake. Now it’s our job to make sure these new customers stick with the Sport, which is a responsibility that we take very seriously at Polaris. It falls on us to ensure that they get acclimated to the category and have a great experience so that when the world returns to normal, they don’t go back to doing whatever they were doing before COVID hit.

ROBBIE PIERCE: Well, it’s kind of hard to judge the rest of the world by Southern California, but people weren’t about to sit still. I think you saw an increase of people wanting to get outdoors because they couldn’t go to the movies, couldn’t go to ball games, and couldn’t go to events and shows. So I think you saw a rise in all forms of outdoor recreation with a keen eye for people to do something special with their families whether it be UTVs, bicycles, jet skis, you know, anything like that. And don’t forget about motor home sales! Those went through the roof, from my understanding, as well. I have a friend back in Alabama, not necessarily involved in the off-road racing market; his sales went through the roof for anything related to off-road.

Everybody I know who caters to the market from Jeeps to UTVs, you know, the entire recreational market, sales were up, which was good for the industry and helped offset some

Photo by UTV Sports / Brandon Bunch

of the downturns other sectors experienced. As all this played out, we focused on our core strengths, the products Jimco Racing is known for; stateof-the-art race trucks, cars, and buggies. As a result, our business was solid last year despite the pandemic.

GREG COTTRELL: Interestingly the lockdown impacted some businesses quite a bit, others not so much. You know, some people were locked down in their homes, but there were a lot of other people who went out and socially distanced out in the deserts. When people couldn’t do certain things, or their kids were doing homeschooling (which they soon realized they could do from anywhere), they hopped in the RV and headed out to the desert. They could learn, go out and play, and socially distance at the same time.

I think this reality sparked our industry. Also, people usually plan big vacations each year or go out to dinner and go to the movies. Take movies, for example. Just to go to the movies, it’s going DirtVenture 29

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to cost you and one other person $100 by time you buy a $20 bucket of popcorn, tickets, things like that. A nice dinner, maybe even more. A lot of discretionary income was freed up as a result.

We were locked down in some respects, opened up in others.

BRIAN GODFREY: Our industry, our Sport, is special. I think two things factored into our success. First, even with the restrictions put in place this time last year, we were still in a position to operate. You know, we weren’t in the restaurant, travel, or live entertainment business. We could still operate.

Second, people wanted to get out and recreate; they wanted to get away. Since many were forced to stay home, it provided an excellent opportunity to work on their equipment and get things prepped. There were no excuses. If you wanted to fix up that old Jeep in your backyard or put that race car that’s been apart back together in your garage, you know, this was the opportunity to do that. It also helped that many industries connected to off-road also prospered. People are spending money on construction/ home improvement, which then filtered into people building off-road cars or going out and recreating. So it positively impacted those businesses, and they are connected to people who spend their money within our space. Off-road is primarily a blue-collar sport. Everyone from plumbers to contractors to materials makers to hard part manufacturers were kicking ass, you know? And that money all trickles back into offroad and the off-road aftermarket.

No question about it. And then there’s the

Photo by UTV Sports / Tom Leigh

nature of the Sport; I mean, we were told to socially distance and stay away from each other, and there was no better way than to get in your UTV or off-road truck or car and grab the family and take off. So we were all looking to get out and get away to do those things. So I think that what we did, along with the extra money we may have had because we couldn’t take the family out for dinner, go to the movies or pay for that big summer vacation had an effect. Those who didn’t lose their jobs only made more money, which meant they had more money to spend and fewer places to spend it. And, of course, the government was sending even more money on top of that—sort of a perfect storm.

SCOT HARDEN: With many OEMs and aftermarket companies reporting record sales, or at least positive sales in 2020, how has this impacted your outlook for the future? Do you believe this is a trend that will continue or an anomaly that will be sorted over time? How has this impacted your view towards the market and sales forecasting moving forward?

PAM KERMISCH: Absolutely. We track sales closely. We’re continuing to see strong growth in Q1 2021, at record levels, with growth coming from new and repeat customers. As mentioned, we grew our customer base by 40% with over 700,000 new Polaris customers in 2020. And while this is excellent news, we don’t take it for granted.

We’ve taken a hard look at how we get current customers to come back and buy again while continuing to bring more new customers in. There is one ne area I’ll point to regarding new customers coming into the Sport. We want to address those customers who haven’t been exposed to the category previously and figure out how to make the experience as positive as possible. We know this requires training and education. To that end, we’ve created a new YouTube series called Trail Talk, you can watch them on our Polaris Off-Road YouTube channel.

I think we have five episodes up right now, and the first episode starts with the basics of Side By Side ownership. We’ve tried to fill in the blanks for what seasoned enthusiasts take for granted. We need to assume that new users don’t know a lot. Think about what a terrible experience it could be for new users just based on lack of knowledge. What things do they need to bring along, how to prepare, how to dress, where to go? Even very basics things like, how do you load your UTV on a trailer?

What about passengers? What do they need to know about the size of those passengers? How do you tie down a cooler? How do we best communicate things that are common knowledge for seasoned off-roaders? We see it as a huge opportunity for us and something I’m proud that Polaris is addressing. How do you maintain your vehicle? What are the things you need to know about the different seasons of the year to ensure that you’re on top of everything?

And racing is undoubtedly one of those educational opportunities. That’s another huge area we can explore; we can discuss those specific elements. For people who haven’t been involved in racing that are not even aware racing exists, video content and social media play a huge role in helping bring them in, getting them comfortable. If we do this right, I’m confident we can keep them coming back long-term as customers and further expand our base as an industry.

ROBBIE PIERCE: My concerns may be a little different than others. Because you’re seeing more and more people getting into off-road racing, it has potential downsides. You have more people going to Mexico and more people using public lands, who that are new to it, they don’t quite know the rules, how to respect the land and the people that live in these remote areas. The landowners down there used to only have to deal with us a few times a year. Now, they have to deal with it every weekend. So I’m concerned that it’s going to become a big issue if it already hasn’t. I have some real concerns about this, especially on

Photo by 4DIRTMEDIA

the business side of it. We’ve seen much change in just the last couple of years.

People start with a stock UTV, move up to an Unlimited UTV, and then maybe into a Class 10 car and eventually into a Trick Truck. We’ve got some talented kids out there who will ultimately be driving Trick Trucks that are amazingly talented. So, while I think it’s all good, we need to be careful.

Do I think it’s a trend that’s going away anytime soon? Absolutely not. I think it’s going to stay and is why we are remaining focused strictly on Trick Trucks, cars, and buggies. If I was in my 30s or 40s, I might have a different approach to this. I’ve been approached over and over about expanding the Jimco brand. You know, let’s do Jimco Raptor suspensions; let’s exploit the Jimco brand. It’s very tempting. It would be easy to cave in, but it’s not what I want to do right now. You know, I’ve chased that bunny and have been there in the past. I just want to build the best possible race trucks and cars that we can and have this be a fun business for me. But, you know, when I’m done five, seven, ten years from now, I want to leave the Jimco brand in great shape for the next person to go after that market. Right now, despite all the growth that is going on right now, it’s about balance. I want to focus on balance.

GREG COTTRELL: The challenge for 2020 was you had to navigate through business alongside your employees in a whole new way. So there were a lot of changes that had to happen. As far as sales, yes, we had an influx of people who were all out there wanting to outfit their UTV’s, their Jeeps, and their other vehicles to go out to the desert. Then, of course, there was the opportunity for increased product sales, so we shifted to adapt to the new realities.

If you did business as usual, you might not have done as well. But, if you adapted to the new working environment, you could experience growth and capitalize on the opportunity. I always look for opportunities in business. I always look at how I can be better, stronger, faster, and offer a better product, a better service, a better buying experience. I focused on my core principles.

From the start, I had teams working on Saturday and Sunday. So that way, if you called on Saturday, you had a live person to answer the phone. Same thing on Sunday. We were calling every single order and thanking the person. I wanted to give the best buying experience I absolutely could in product and personal service, even tech support on the backside. So, I think that’s what made us successful.

BRIAN GODFREY: It all depends on how much the lifestyle changes we experienced in 2020 stick around. For example, because many folks rediscovered they’d rather spend money fixing up their off-road vehicle, going off-roading, or going camping with family, and hopefully, found it to be more enjoyable, I think that they’ll stick around. Some will bleed off for sure at some point, as more things open up and things go back to the previous normal.

As for Method Race Wheels and all our brands, we switched on, took an aggressive approach, and got moving as soon as things turned off. During the initial downturn, for a short period, we started mapping out our plans. We saw it as an opportunity to gain market share over our competitors. We started aggressively advertising, not backing off when things looked down but trying to do more from an engagement content development and brand building perspective. Luckily, we started immediately when we saw the shift, and by the time things came back around, and other companies were beginning to think about starting back up, we were already full swing and charging forward. We were ready to rock and roll and gain market share.

We’re going to reap that benefit for a while and continue to grow upon that. So I do think the demand that was created by the COVID situation will subside at some point. But it’s not going to be a sharp decline but more a leveling or tapering off.

SCOT HARDEN: We hear that supply chain and logistics issues are becoming an increasingly nagging problem for the industry. How has DirtVenture 35

this impacted your business, and if so, what steps are you taking to mitigate the problem? What timetable do you forecast for the issues to be resolved? What advice can you give your customers?

PAM KERMISCH: No question that we have a big challenge with supplier constraints and logistics. Supply chain issues are a big focus for us, and we are working through all available options to ease that pain as quickly as possible. Operations are doing a tremendous job of ensuring that product keeps flowing to fulfill the demand. We are using expedited shipping and every means possible.

We work directly with suppliers on their staffing and their supply base. We are making sure we’re rebalancing Insource and Outsource manufacturing alternatives, logistics to try to shorten lead time, you name it. We are looking under every rock we possibly can. The reality is that demand has stayed so high, and we expect it will remain high, and we expect that the supply chain constraints may not improve significantly until late in 2021. As a result, it will likely take until sometime in 2022 to return dealer inventory to the targeted levels that we like to have. And that said, we have best-in-class supply chain and operations teams at Polaris, all working incredibly smart and hard to position us for success. We do expect that it will return to normal at some point. It is just going to take a little longer to sort it all out. In the meantime, customers should know that if they see product available for purchase and the dealer tells them to act quickly, they aren’t kidding. It’s not just a sales ploy by the dealer. Inventory levels are lower than they’ve been in years.

ROBBIE PIERCE: We’ve had supply chain challenges, especially the first four to six weeks coming back.

But, we’re still building cars and trucks, people are racing, we are getting product out the door. Some series had their events canceled

Photo by Dirt Nation

Photo by Dirt Nation

which took some pressure off, but others like Best In The Desert were going full steam. Over the last year, our main suppliers, all suppliers in general, have been hedging their bets a little bit. First off, they’re down on their workforce because of COVID-19 as well as raw materials. They’re also not wanting to invest as much in on-shelf inventory. So, I think we’re starting to see that trend now.

Now that manufacturing is coming back online, you know, you’re starting to see shortages because everybody wants to ramp up smartly without going overboard on inventory. So managers are reluctant to put a lot of products on those shelves. I see the same thing here as Impact Racing’s number two distributor, and we see how availability is being monitored closely. So, as a result, I don’t have as much in stock as I used to because I don’t know how long the demand will remain.

I’m not overly concerned right now. We are taking care of our customers. I think you’re going to start seeing improvement over time, some of it will take a little longer than others, but I think a minimum of six months to a year. It may also change the fundamental dynamics of inventory stocking a little bit while everyone gets a little better handle on what the future holds. I think many industry veterans will be a little hesitant to put a lot of product on the shelves to start with. I believe that the entire manufacturing industry is suffering from a bit of Covid Hangover.

Until we get used to the new environment, it’ll take a little while for that sense of urgency to come back. Everyone’s trying to find what the new normal is and how that applies to the business cycle and business climate as well. So, where do we go from here? How aggressively do we get? Where does demand ultimately lie?

GREG COTTRELL: We are very fortunate in that we produce almost 100% of everything in-house. As a result, we pretty much have not had backorder issues. If it’s within our control, we haven’t backordered it or had very few problems, while other companies that rely on outsourcing are struggling. So I’m sure that it’s been challenging for many.

The beauty for us is owning the manufacturing facility. It allows us to shift, move and plan further out. We can forecast out product demand and production so we don’t run out. This past year also allowed us to finish our new business

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complex at Rugged Radios. We have a brandnew complex. It’s a state-of-the-art facility, in almost every way, not just in production.

We do in-house prototyping; we have a plasma laser and a full production facility, including powder coating. So, now, I can prototype something within hours. Something that previously took me four to six weeks to do, I can now do it within hours. So, navigating the new business reality can be tough. It can be difficult, but it can be done. Absolutely can be done, but it’s got to be done in a new way, a new way of thinking. That’s what we’re always striving for. But luckily for Rugged, we just never turned off.

We’re always thinking and continually moving. I recommend every business do the same.

BRIAN GODFREY: Anything manufactured or raw materials, microchip shortages, for example, are all real issues. Same thing with aluminum, right? Heck, look at two-by-fours; they are $12 now. They used to be two dollars, so you know, that part is scary. Price increases will be a reality, but we are doing our best to hold them to a minimum. It’s a part of the equation right now; trying to keep price increases low and react to the realities of the marketplace—everybody’s kind of readjusting to that. Lucky for us, we can get a lot of products in a container. Our products are priced at a price point that the shipping cost can be divided out between many units. So it isn’t as big of a hit versus somebody who’s making products that aren’t volumetrically efficient. We are keeping a close eye on what transpires over the remainder of 2021. Rarely do companies lower their prices once they’ve achieved a certain level? We just don’t know what the answer is there. I think everybody’s kind of waiting to see where it all ends up.

SCOT HARDEN: Racing has been a big part of your company’s overall go-to-market strategy. If you could wave a magic wand, what would you change that would make the Sport better? (Please keep in mind I am referring to off-road racing, such as the type of racing we do at BITD) Is it cost factors, the number of races, class structures, etc.? Please expand.

PAM KERMISCH: The first suggestion I would have is the idea of making it more accessible to more people. That would be great. If you think about

Photo by Dirt Nation

Photo by Daniel Nobel Photography

it, at one end, you’ve got the tricked-out race vehicles that are just amazing and impressive, but they’re also expensive and intimidating. It makes for a very competitive landscape for the manufacturers and top teams, but it’s fairly alienating to people just starting out.

On the other end, you need more people to enter and participate and grow the Sport. I think it makes it attractive for the manufacturers to talk about the capabilities of their factory production vehicles. It creates a different level of connection with everyday people.

So maybe it’s not just about the top end, the aspirational end of the Sport; maybe the bottom end is just as important as well. The term “elite’ can apply to both ends.

Many people, especially with all the new people coming in, who didn’t grow up on racing and don’t know much about it, can find it intimidating to jump in and learn. It’s something where everyone else seems to know all the insider language and the culture. So it can be challenging, and therefore I think we have opportunities to educate.

So let’s develop content, including live streaming the races and storytelling behind the scenes about the drivers. How did they get into it? What training and preparation did they do to prepare for it? Share a bit more of the humaninterest story to help broaden the appeal. And once they are invited in, show them a path forward that is accessible to them.

SCOT HARDEN: That’s something that we’ve been thinking about for a while as well. It’s great to hear it. It reinforces that we take a lot for granted, having grown up in the Sport. We need to put ourselves on the other side of the fence and look in. I’ll bet it’s pretty intimidating. We need to break those barriers down. And obviously, one way is through our race class structures.

PAM KERMISCH: Go to our YouTube channel and watch those Trails Talk videos. We should be doing the same for racing. Create something for people who aren’t as familiar with racing. It’s about meeting them where they’re at.

ROBBIE PIERCE: For as long as I can remember, people have always talked about the golden days of off-road and off-road racing, and is it all in the past? I’ve had this conversation with people before; I’m not so sure that that’s true. I’m not so sure that now aren’t the golden years of off-road racing. And people say, well, how do we take desert racing to the next level? What if it’s already there, right? I mean, we’ve accomplished a lot. Maybe it’s just about changing your perspective and seeing the world more positively.

If I could change anything, I want to slow it down just a little bit so that we can preserve and enjoy what we already have. Enjoy the spirit of camaraderie, pre-running together, the shared experience of the pits and the other teams. Too much of a good thing isn’t necessarily a good thing. It’s always been a recreational sport. You know, we’re all recreational racers.

I don’t know if that’s limiting, you know, it seems all forms of motorsports want to grow; I don’t care if it’s Top Fuel or NASCAR or Off-Road, but it seems there needs to be a balance there. GREG COTTRELL: To make the sport better, I think events could be shorter, and more local where there is adequate lodging, not out in the middle of nowhere. We do 92 events a year. We have a lot of support trailers traveling all across the country doing events. Our team works very hard. They need basic accommodations.

Event coordinators and promoters need to take into consideration that we need infrastructure out there to function properly. On the other side of things, when we come down to the financial aspect as a company, we are always looking for more exposure.

We need more racing televised. We need more spectators. Yes, you have the race clientele in front of you. That’s great. They’re important. You have the race clientele, of course, but they want sponsorship, which is fine, but you can’t give everything away for free. I understand that. Okay, on the other side, though, you have to balance it out for it to make business sense. Now, what makes sense? I love venues that offer racing and spectators.

Currently, it’s very small as far as the

expansion of people outside our industry. We love off-road racing. I’ve been off-road racing since my dad first raced the Baja 1000 in the late 70s. So I’ve been in it to win it from day one. And the thing is this I’d love more exposure. I’d love an opportunity to get more people involved, to experience what we experienced. That’s where television comes in; I’ll never forget growing up with Wide World of Sports.

When they had the television coverage of Baja, I watched that. When they covered racing at Riverside Raceway, I watched. Oh my gosh. That was so much fun. It was just incredible as a kid. Those were some of the highlights of my time. How do we get that back? No question about it, we need to televise more events.

One group of people that is amazing is Desert Vets Racing. They are an incredible group. It’s just an awesome program, and it’s so exciting. Every time they put another vet in that car, we have a new member of the off-road racing community. They want to do it again and again. How can we expand that? I don’t know what that magic answer is or how to do that, but I guarantee if we had more groups like Desert Vets racing out there, we’d be home free.

BRIAN GODFREY: We make specific products for offroad racing and off-road racers. We have a whole group of dedicated people to service, support, and sell to that market. And we offer, as you know, racer programs, including supporting quite a few athletes who are helping us drive our brand.

We intend to continue to do that. Our efforts to expand outside of traditional off-road desert racing into International racing are our focus. This impacts everything we do, including the type of product we make. We invest quite a bit in R&D through racing. Our goal is to leverage everything we do through racing to support the brand. And from what I can see, off-road racing is doing very well right now. I would imagine the interest level is at an all-time high. The only issue right now negatively impacting racing is that the experience has been altered due to COVID. I just did the NORRA race, for example, and it just wasn’t as fun not having the parties and not having you know everybody in the same space for a driver’s meeting and all that. Like me, I think most people look forward to those activities as much as the race itself. These are people with the same interests as you, and I wanted to be near them and share my passion. I think that’s something all promoters need to consider as they emerge from COVID regulations, putting a considerable effort into getting everyone back together. Make it as much fun for the people who aren’t behind the wheel as the people who are behind the wheel.

Editor’s Note: The information shared by these industry experts in this article is greatly appreciated by Best In the Desert and DirtVenture Magazine. We hope it helps provide a little more insight into the off-road industry as a whole. We sincerely appreciate the time they spent sharing their views.

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