Power Products Perspectives

Predominantly confined to commercial use, diesel-powered zero-turn radius (ZTR) mowers have represented about 5% of the total ZTR market in each of the past five years.  But that could change when the Environmental Protection Agency’s final Tier 4 emissions standard (Tier 4F) for 25 to 74 hp diesel engines takes effect in 2013. The standard requires emissions of particulate matter (PM) and nitrogen oxides (NOx) be reduced by a further 90%.

Whereas previous emissions reduction solutions were focused on the engine alone, the technology required to achieve Tier 4F standards in NOx and PM impacts the entire machine, from air intake to post-exhaust. Recent conversations Power Products Marketing had with four engine suppliers, seven original equipment manufacturers, enlightened retailers and industry observers indicate the already relatively high price of diesel-powered equipment in the 25 to 74 hp category is sure to be exacerbated by the Tier 4F standard and will force manufacturers to redesign and retool their product lines at a cost so severe it will undoubtedly result in even higher end prices for the consumer.

So what are suppliers doing/going to do to prepare their 25 to 74 hp diesel-powered mowers and compact tractors for Tier 4F? Can engine suppliers offer a competitively priced powerplant? Will OEMs continue to carry a selection of diesel products despite skyrocketing costs? How do dealers plan to handle what may be a drastic change in the market? How will consumers respond?

The conversations PPM had with engine suppliers, OEMs, industry observers and retailers at the close of 2011 suggest the forthcoming Tier 4F standard could be a real game-changer for the market, but also revealed confusing testimony regarding the current state of preparation for the standard’s implementation.

A surprising number of OEM representatives charged with working alongside engine suppliers said they still have no concrete knowledge of what their engine supplier plans to offer, and most said they will make a decision on the future of their diesel-powered line-up once they are presented with final options from their suppliers.

Engine suppliers PPM talked with all said they are working on their Tier 4F compliant engine offerings but declined to go into specifics regarding their powerplant(s). Those suppliers that have shown prototypes were equally reticent to discuss the communications they have been having with OEM customers.

But design implementation between OEM and engine supplier is in fact already underway, according to our industry observers, who said they believe OEMs with current diesel models to sell don’t want consumers focused on the future and thus won’t reveal their product plans for Tier 4F.

This may explain the lack of subject knowledge retailers displayed in communications with PPM. Incredibly, more than half of the 115 retailers surveyed had little to no knowledge of Tier 4F requirements as pertaining to the 25 to 74hp turf equipment market.

MANUFACTURERS

As mentioned earlier, PPM’s conversations with OEMs revealed that many of the brands, as of the fourth quarter of fiscal 2011, they were still undecided as to the fate of their diesel-powered 25 to 74 hp offerings in 2013. Most of those PPM talked with said they would make a decision on the future of their diesel-powered line-up once they are presented with options from their engine suppliers. The most important considerations, the OEMs said, concern engine cost, size and output.

A couple of the OEMs surveyed have produced websites to help explain the Tier 4 issue to customers, but much of those marketing materials tend to explain the current Tier 4 interim standards rather than what can be expected for Tier 4F and and what the company is doing to prepare for that standard.

It is important to note that the EPA regulates the transition from one tier to the next at the engine manufacturer level. As previous tier engines (and equipment containing those engines) are depleted from the supply chain, the new tier product will be released. All turf equipment manufacturers will have to transition to Tier 4F compliant product, but each equipment manufacturer’s launch date of the new tier will depend on conversion schedules and the use of a voluntary “Transition Program for Equipment Manufacturers” (TPEM) – aka engine “flex” credits.

ENGINE SUPPLIERS

It comes as no surprise that engine suppliers are staying largely mum about their R&D processes and business strategies in relation to Tier 4F. However, according to what PPM learned in its research, it is somewhat surprising that engine suppliers have also largely declined to keep customer OEMs informed.

A representative example can be found in an answer to the question, ‘What are you doing to meet the upcoming Tier 4F standards for your engines?’

“The exact engineering and design specifications have not yet been finalized at this time,” a representative of one significant diesel engine supplier told PPM in late 2011.

Of the companies PPM talked with, only three have shown at least one prototype engine within the 25 to 74 hp range, giving the industry a miniscule peek at the technology they hope to use in attaining Tier 4F compliance.

RETAILERS

While retailers are often thought to be the most educated source to help consumers understand current regulations and those that may be on the horizon, PPM’s survey of 115 dealers found an incredible 42% of the dealer representatives could not recall the Tier 4F issue while 38% said they had some knowledge of Tier 4F.

The remaining 20% of dealers surveyed deflected Tier 4-related communications to the OEM.

INDUSTRY OBSERVER

Intrigued by the apparent lack of communication between engine suppliers and OEMs, PPM talked with a longtime diesel industry observer unaffiliated with any one company for his view of the Tier 4F issue as it pertains to the turf market.

“I’m sure all of the engine suppliers know what they are doing for Tier 4 Final,” the diesel industry specialist told PPM. “It’s too late in the game to still be wondering what they’re going to do. They are all global companies and they understand what it takes. However, we’re still in the Tier 4 Interim stage, and so they have engines to sell and don’t want to get people too focused on what’s ahead. Plus, these engines are going to be more expensive and nobody wants to be the first to share that bad news.

“What most of the manufacturers have done is told their customers that the Tier 4 pathway they’ve chosen is basically going to allow it to be a drop-in solution from Tier 4 Interim.

“So I think the engine manufacturers have a pretty good idea and I think the OEMs probably have a pretty good idea (of what they plan to do). I think it’s the people who buy the machines that don’t know what’s coming.

“(Consumers) may have heard machines are going to be more expensive, but I think there is going to be a lot of sticker shock. You can warn people and warn people, but it doesn’t do much until they actually see the price. And, at that point, I think it’s going to cause a lot of jaws to drop. It’s inevitable.”

Guido Ebert has served as a powersports industry press representative, speaker, analyst and consultant for businesses in the U.S., Europe and Asia. A former editor at two trade publications serving the U.S. powersports industry, he now serves as a consultant working with Power Products Marketing, a market research firm that provides detailed market share data and research services to the global power equipment industry. Power Products Marketing is at 7525 Mitchell Road, Suite 203, Minneapolis, MN 55344. Phone: (952) 893-6870.

Facing a world financial crisis and the risk of food shortages, some Latin American countries have skillfully dodged this fragile economic situation, boosting agriculture, producing more commodities and avoiding a large increase in their prices. Although an influx of technology alone is not enough to achieve the desired results, progress in mechanization has been one of the major areas of investment in these Latin American countries that desire an increase not only in agricultural production but also in the capital goods sector.

This is the case of Brazil, which raised its level of food production throughout the country by introducing efficient credit policies which defer much of the up-front costs farmers face such as rural land development, planting, and mechanization. Recently the government has launched several specific financing programs as part of its plan to continue to stimulate the agriculture market. For example, the program “Mais Alimentos” provides financing for the purchase of agricultural machinery at only a 2% annual interest rate with a three-year grace period and 10-year payoff schedule. Another program “Safra 2011-12″ provides farmers with financing specifically for when they are going to harvest their crops, including a credit line of up to $200,000 per farmer, with annual interest rates on the loan of 5.5%.

Because of these government programs the agricultural machinery market in Brazil is experiencing steady growth. According to a study conducted by Power Products Marketing in 2010, about 11,000 planters were sold in Brazil in 2009 alone, as well as some 51,000 new tractors. That is with the Asian OEMs that are increasingly present in the market. Moreover, according to ANFAVEA in 2009 Brazil exported 13,000 tractors – 15% of these went to Morocco, another 12% to Argentina, and 10% to Venezuela. Brazil’s tractor exports alone surpass the whole retail sales market for tractors in Mexico.

Mexico, like Brazil, is a country that is also attempting to stimulate the sale of agricultural machinery and boost its agriculture. In 2010 approximately 11,700 new tractors were sold in the country.  Approximately 30% were imported (mostly from India, Italy and the USA), 26% were imported in pieces and assembled in Mexico (mainly fromChina andBrazil) and the other 44% were manufactured inMexico. The majority of sales last year were due to subsidies from SAGARPA (Mexico’s Secretary of Agriculture) to increase the country’s agricultural production.

But according to Jacobo Catillo Pacheco, leader of the UCD (Union Democratica Campesina) in the state of Veracruz (which had some of the highest tractor sales in 2010), many farmers who received financial benefits from SAGARPA sold their tractors to pay off high-interest loans, buy food, or even gather funds to migrate to the U.S. Many farmers question what good a tractor is to them if they don’t have proper irrigation systems and enough resources to buy seeds and fertilizer for planting. Pacheco also said that despite being in the 21st century the agricultural technology being used in the fields of his state is still only 19th century technology.

Another study conducted by Power Products Marketing quantified the planter market in Chile, Colombia, Peru, and Ecuador. PPM determined there is a large market for used planters, most of which come from Europe and are at least seven years old, which is considered out of date by European farmers. In Ecuador and Peru it is still a common practice to farm using animals. Farms are usually small (less than 10 hectares), with few natural resources, poor soil, and a lack of financial resources for investment.

In other words, Latin America is moving in slow steps towards agricultural mechanization. Many of its countries are actually only still crawling, others don’t even seem aware of the benefits that mechanization can bring.

Mariette Thibaudeau is a Latin American Project Manger & International Business Analyst with Power Products Marketing. She can be reached at mthibaudeau@powerprods.com

Sales of Utility Terrain Vehicles (UTVs) – also commonly referred to as Side-by-Side Vehicles (SSVs) – more than sextupled during the past 20 years, from 37,000 units sold in 1990 to 240,000 units sold in 2010. Think of these vehicles as something more capable than a golf cart but easier to operate than a standard All-Terrain Vehicle (ATV).

Available in two- and four-wheel drive configurations and powered by internal combustion engines – or increasingly, electric motors – UTVs typically have bench seats for one or more occupants, feature long-travel suspensions capable of traversing a variety of terrain, are often outfitted with roll cages and seat belts for occupant safety and usually offer some sort of rear dump bed or cargo platform. These help classify the vehicles as light-duty (1200 lb. and under capacity), medium-duty (1201 to 1800 lb. capacity) or heavy-duty (over 1800 lbs. capacity).

The UTV market can most simply be split between commercial and consumer users. While recreational UTVs, led by the Yamaha Rhino, Polaris Rangers and RZRs, Arctic Cat Prowler, Kawasaki Teryx and the more recent Can-Am Commander, have been responsible for a great deal of the market’s growth in recent years, cannibalizing the consumer market for large displacement utility ATVs. Studies suggest an even larger percentage of UTV buyers use the vehicles for commercial utility purposes, whether for farming, use on large tracts of land such as ranches or for industrial applications (i.e. manufacturing and warehouse applications, railroads, mines, oil fields and pipelines, chemical plants, contractors, site & survey crews, logging, etc.).

Power Products Marketing (PPM) has been studying the UTV market in depth for over 10 years by annually identifying unit sales of all types of UTVs by OEM and model. Our findings suggest farmers, ranchers, estate and golf course groundskeepers, industrial applications and government purchases account for a full 67% of UTV sales (with the remainder split between recreation and the hunting market).

Diesel-powered models make up a small but growing share of the UTV market destined for commercial utilization. Of the 240,000 UTVs sold in the United States in 2010, PPM found that 29,000 units (12%), were diesel-powered – a big jump from the 7000 to 8000 diesel units sold in 2004.

Diesel UTVs are generally used for utility applications, and there is an increasing potential for sales of diesel UTVs in the overseas markets, with Deere’s diesel Gator, Toro’s diesel Workman, Kubota’s diesel RTV, and Kawasaki’s diesel Mule all selling in significant numbers overseas. In fact, leading diesel UTV suppliers include names you likely know: Kubota, Deere, Kawasaki and Bobcat. Lets take a look at how each of these companies arrived at where they are today with their diesel UTV offerings.

Kubota manufactures its UTVs in Gainesville, Ga., where some sub-compact tractors and ZTR mower products are produced.

Looking to capitalize on its huge compact tractor and mower products customer base, Kubota offered its first entry into the UTV market with the RTV900 4×4 diesel vehicle featuring a hydrostatic drive as an early-release 2004 model, in 2008 introduced a new RTV 1100 integral cab model to complement the lone RTV900 model, and in the spring of 2009 introduced the RTV 1140-CPX 4-passenger vehicle.

Kubota’s lineup of seven models of UTV for 2010 included six diesel-powered models, the RTV900 ($12,470) and 900 Camo ($14,220), RTV1100 ($18,750) and 1100 Camo ($19,500), and RTV 1140 CPX ($15,995) and 1140 CPX Camo ($16,470). PPM research suggests Kubota accounted for 62% of the total diesel UTV market in 2010.

Deere’s current UTV line-up consists of two Gator HPX 4×4 models, five T Series models, three XUV models and the CX 4×2. The genesis of these vehicles dates to 1992 with the introduction of the six- and four-wheel Gators. In 2003, after more than three years in development, a new Gator program culminated with the introduction of two new series – two compact UTV models with payloads of 800 lb. and a five-model HPX series consisting of 4×2 and 4×4 gas and diesel engine models.

In 2004 a third series made its debut, the Traditional-series, or T-series, consisting of four models. Then, in 2007, the company began selling its XUV series consisting of two units, the Kawasaki-powered XUV 620i and the Yanmar diesel-powered XUV 850D. Those two XUVs were joined by a third model for 2011: the company’s first true recreational machine, the 50 hp gasoline-powered XUV 825i.

Although Deere manufactured at other locations in the past, the UTVs are now exclusively designed and built in Horicon, Wis. Deere built its 500,000th unit there in September 2010.

Deere’s line of 11 models of all-terrain UTVs for 2010 included three diesel-powered models, the XUV 850D ($11,239), Gator TH 6×4 Diesel ($11,439) and HPX Diesel 4×4 ($10,599). PPM suggests Deere accounted for 8% of the total diesel UTV market in 2010.

Kawasaki introduced the Mule (Multi-Use Lightweight Equipment Vehicle) to market in 1988 with the Mule 1000. Initially designed for turf and light-duty industrial applications, the vehicle family later became influenced by automotive styling cues and performance features to attract a larger audience in the recreational market.

The first diesel model – the Mule 2510 Diesel, powered by a 953 cc three-cylinder liquid-cooled engine – was added to the line-up in 1999. A second vehicle, the newly-designed Mule 3010 Diesel, powered by the same engine as the previous model, was introduced in 2003.

The introduction of the Mule 3010 Trans4x4 Diesel in 2006 heralded new designs and a flagship model that could convert from a two-passenger unit to a four-passenger unit that is also capable of carrying cargo. It became an immediate hit in the utility market and with recreational users such as hunters. That best-selling model was then followed by the Mule 4010 4×4 Diesel in 2008 and the Mule 4010 Trans4x4 Diesel in 2009.

Kawasaki builds its Mule product alongside Jet Skis and ATVs at the company’s factory in Lincoln, Neb. Kawasaki’s lineup of 15 models of UTV for 2010 included two diesel-powered models, the Mule 4010 Trans 4×4 Diesel ($12,199) and the Mule 4010 4×4 Diesel ($11,199). PPM suggests Kawasaki accounted for 8% of the total diesel UTV market in 2010.

Bobcat, a major manufacturer of skid-steer loaders (SSLs) and mini excavators, supplies a customer base of construction contractors, farmers and rental companies. During 2002, Bobcat introduced its Workmate 2100 UV, which was manufactured by Club Car, another Ingersoll-Rand subsidiary. It was a clone of the XRT 1200 with the same drivetrain but sporting a white front cowl.

In the second half of 2007, Ingersoll-Rand sold Bobcat to Doosan Infracore, formerly known as Daewoo, a large Korean conglomerate that manufactures light construction equipment. Then, in early March 2009, Polaris announced a strategic alliance with Bobcat for the two companies to penetrate commercial market segments globally. The partnership would center on co-development of a new series of UTVs that were targeted for the second half of 2010.

 Today that four-model line features the 3200 4×2, 3400 4×4, 3400XL 4×4 and 3450 4×4. Three of the four models feature diesel engines – the 3400 Diesel ($12,109), 3400 XL Diesel ($14,071) and 3450 4×4 Diesel ($15,313). PPM figures suggest Bobcat accounted for 2% of the total diesel UTV market in 2010.

Guido Ebert has served as a powersports industry press representative, speaker, analyst and consultant for businesses in the U.S., Europe and Asia. A former editor at two trade publications serving the U.S. powersports industry, he now spends time as a consultant working with Power Products Marketing, a market research firm that provides detailed market share data and research services to the global power equipment industry. Power Products Marketing is at 7525 Mitchell Road, Suite 203, Minneapolis, MN 55344. Phone: (952) 893-6870

For nearly 10 years Power Products Marketing has been annually tracking the North American diesel powerboat market based upon production estimates provided by some 200 builders.  Our analysis represents boats from about 25 ft. all the up to the large super yachts 80 ft. and longer and exclude auxiliary powered sailboats and motor sailors. 

It has been shocking to see the extent of the decline since the 2005 peak production of 5500 boats to less than 1100 in 2009, with the most drastic falloff (63%) occurring in 2009 of. But just as dramatic is what we’re seeing in the European diesel powerboat market, where production appears to be lagging the North American market in terms of decline.  Moreover, early indications are that 2010 North American production may have been down by yet another third from 2009’s already anemic numbers.

Unlike North American diesel powerboat production that began to decline after 2005, European production appeared to continue growing until late spring of 2008 when the world economy began to show signs of the impending collapse that would ultimately strike during the fourth quarter.  According to our analysis, which was compiled over the previous two years by surveying nearly 350 builders, European diesel powerboat production declined about 35%, from about 12,300 boats in 2008 to about 8000 in 2009.  These numbers represent our best estimates including those for a small number of builders who refused to report their numbers.  We’ve every reason to believe that production for 2010 was also down for Europe as it was for North America, although retail sales appear to have recovered in both regions last year.

Based upon our analysis of the 21 countries we included in our European region, Italy led all, accounting for about 26 to 27% of total European diesel powerboat production.  Second was France with an estimated 16% of production in 2008, although that percentage is believed to have declined sharply to about 12% in 2009.  Finland and the U.K. are believed to be about equal each with an estimated 10 to 11% share.  Norway is estimated to be fifth, representing about 9 to 10% of European production. Then comes Germany with an estimated 7% followed by Spain and Sweden, each estimated to comprise about 5 to 6% of European production.  There are 13 other miscellaneous European countries we determined that account for the remaining 10%.  

According to our analysis, only about 12 to 13% of all European-built diesel powerboats were exported outside Europe during 2008 and 2009.  Many of these are super yachts mostly built in Italy that are exported to other world regions and not just the U.S. market.  Other countries we’ve heard mentioned are the Middle East, Russia and include numerous Far East businessmen. 

About 42 to 43% of all diesel powerboats produced throughout Europe during 2008 and 2009 were twin inboard configurations while another 17 to 19% of the boats were single inboard.  About 5 to 6% of all production was the new IPS and Zeus pod-drive systems, which appears to be growing annually in all the world regions.  Diesel sterndrive, or I/O, configurations comprised 31% of production, although that artificially increased to 36% in 2009 with the market decline. Nearly two-thirds of I/O applications were single engine.  Jet propulsion only accounted for a handful of boats in each year, based upon our tabulation. 

We categorized all the diesel powerboats we compiled that were produced in Europe during 2008 and 2009 by boat type.  According to our analysis, over half of all the boats produced in 2009 were sport cruisers compared to 43% in 2008.  The second largest group was motor yachts up to 80 ft. long that accounted for about 21% of European production in 2009, down from 25% in 2008.  Sport fishing boats appears was a distant third amounting to about 9% of all builds in 2009, declining from about 11% in 2008.  Trawlers as a category also declined in 2009 to 5% from what was 8% the previous year as did launches (small runabouts and RHIBs), 3% in 2009 versus 4% in 2008. Canal boats are a unique category indigenous to Northern Europe and the U.K. and amounted to 1% of annual European production.

The remaining group is super yachts or mega yachts that are custom luxury yachts 80 ft. and longer and typically source twin engines, each often exceeding 1000 hp.  By our count they numbered over 500 yachts each in 2008 and 2009 in which we determined the engines were actually laid, which represents about 5% of annual European diesel powerboat production.  Italy alone accounted for 70 to 75% of all European super yacht production in 2008 and 2009 and well over half of all the world super yacht production.

As indicated earlier, we called nearly 350 European builders for our 2008 and 2009 surveys.  According to our analysis, the top 13 builders represented about half of the total diesel powerboats produced in each year.  These were Bavaria Yachtbau (DE), Bella Oy (FI), Beneteau Group (FR), Cranchi (IT), Fairline (UK), Ferretti Group (IT), Finn Marin (FI), Nimbus (NO), Princess (UK), Sealine (UK), Starfisher (ES), Sunseeker (UK) and Windy (SE).  The top five builders accounted for about 31 to 32% of total production. 

Of the nearly 8000 boats produced during 2009 in Europe, we determined that there were about 12,500 diesel propulsion engines sourced compared to nearly 20,000 in 2008, a 37% decline.

According to our calculations, about 16 to 17% of all engines sourced in 2009 were 200 hp and under, which compares with 22 to 23% in 2008.  Approximately 37% was between 201 and 349 hp for both 2009 and 2008.  Another 21 to 22% was between 350 to 500 hp for both 2009 and 2008.  About 11% of all engines were between 501 and 1000 hp in 2009, up slightly from 9% in 2008.  The remaining 14 to 15% was over 1000 hp in 2009, up significantly from 10% in 2008.  It’s not surprising that the significant decline in the lower category and big pickup in the upper category is reflective of the overall decline in production which would have affected smaller boats relative to the larger yachts. 

IPS and Zeus Pod drive configurations, which we earlier indicated accounted for nearly 5 to 6% of all applications in 2008 and 2009, were nearly all Volvo Penta (IPS) with a small number of the CMD Zeus Pod drives coming from captive Sealine, a Brunswick company.  The Zeus Pod drive is a system developed between Cummins MerCruiser Diesel (CMD) and Mercury Marine with ZF chosen as a partner to build the Zeus Pod transmission.  Under a joint supply agreement between CMD and ZF, ZF is licensed to sell Zeus Pods to other engine manufacturers including the CMD/Mercury Marine SmartCraft control system.

Based upon our analysis, the leading suppliers of diesel propulsion engines sold into new European-produced powerboats between 2008 and 2009 appear to be as follows:

• Volvo Penta -  58.5% in 2009 vs. 61.5% in 2008.
• Cummins Mercruiser – 8.5% in 2009 vs. 7.5 in 2008.
• Yanmar – 8% in 2009 vs.  9% in 2008.
• MAN – 7.5% in 2009 vs. 6.5% in 2008.
• Caterpillar – 6 in 2009 vs. 4.5 in 2008.
• MTU- 5.5% in 2009 vs. 4% in 2008.
• Others (15) – 6% in 2009 vs. 7% in 2008.
• Total engines – 12,500 in 2009 vs. 20,000 in 2008.

As previously noted, one has to take into consideration some of the shifts in market shares that occurred in 2009 as somewhat distorted given the overall sharp decline in diesel powerboat production and resulting engines sourced due to deteriorating economic conditions worldwide.  More importantly, production of the larger motor yachts that source engines 1000 hp and over, although this niche declined 7.5% in 2009, the decline was much less severe than in the other smaller boats that source engines under 1000 hp where the collective decline during 2009 was about 40%.          

Not surprising, because of this MAN, Caterpillar and MTU all artificially gained shares during 2009 while Volvo Penta and Yanmar each lost shares because of the drastic decline in engines sourced 200 hp and under, which fell by over 50%, based upon our analysis.  Cummins Mercruiser gained share because of its product line focus in the mid-hp ranges.  One can expect the opposite trend to occur when the market ultimately recovers.

Carmen Adams and Nabil Pruscini contributed to this report

David Crocker is a senior partner with Power Products Marketing, a market research firm that provides detailed market share data and research services to the global power equipment industry. Power Products Marketing is at 7525 Mitchell Road, Suite 203, Minneapolis, MN 55344. Phone: (952) 893-6870, E-mail: dcrocker@powerprods.com.