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Steps in the Small,
Task-Oriented Vehicle Revolution
Stephen Metzger, Managing Director, International Market Solutions
Published in Industrial and Utility Vehicle magazine, June 2006
The booming off-road small, 4X4 market has laid the basis for
new solutions in the consumer transport and personal utility usage.
Current market development is still confined to filling niches
across a wide variety of uses from recreation to work. A driving
force behind product development and responsiveness to consumer
preferences is the fact that three industry segments with distinct
historical roots are coming together to compete in this market.
These are the recreational/ATV companies, golf car companies and
traditional utility vehicle firms. At the same time a privately-owned
market, largely devoted to personal, on-road transportation needs
is rapidly emerging and will progressively become the major target
market for golf car and NEV companies, during the next five years.
International Competitive Assessments (ICA) has recently completed
its third in a series of market studies, initiated in 2000, on
the small vehicle market in the United States. The most recent
study, published late last year, provides the basis for this article,
which explores the future for small, task-oriented vehicles.
Continued Niche Market or a New Mainstream Market?
As a general rule, new market development takes unique paths from
one product to another. However, there are also some common features
in the evolution of those products which successfully entered
into mainstream consumer markets. The on-road, conventional automobile
of today, for example, with its relatively few U.S.-based, high
volume manufacturers, featured an array of highly diverse product
offerings in its early history, and a fair number of manufacturers
right up to the mid-1950s.
The desktop computer, to cite another product rather far removed
from the transportation market, also had, in its beginnings in
the late 70s and early 80s, a large number of aspiring manufacturers,
most of whom had developed their own operating systems. By the
mid-80s, much like the automotive industry earlier, the number
of market entries had drastically declined and the technology
of the computer industry coalesced around basically two operating
systems and two processor manufacturers. The only diversity left
is in distribution systems and in the color and design of the
computer housing - not manufacturing or technology. Many other
examples could be cited.
What can we gather from this typical pattern of product and industry
development, and what we can observe of the small vehicle market
today? Can we, in fact, envision a small vehicle market in the
millions of units per year, and an evolution which ultimately
gets to the level of a high volume, mainstream market?
Given the past patterns of industry and market development of
many products, the rapidly emerging trends that we experience
today, and based on ICA's recent market research, what are the
key developments that are likely to mark the next five years?
To get a handle on this so that it is not purely speculative,
the context of the market must be described.
The Market Environment Today and Projected into the Future
Housing and population demographics combine in a number of ways
to become receptive environments for small vehicles. The on-going
move by Americans of all economic classes to gated and master
planned communities creates elements of self-sufficiency and infrastructure
that are conducive to the use of small vehicles, particularly
electric vehicles. The drawback of short driving range is offset
by shopping malls and other facilities that are close at hand.
It is not only gated and master planned communities that are providing
a friendly environment for small vehicles. In State after State
laws are being passed, which allow LSV-class vehicles access to
roadways with posted speed limits of up to 35 miles per hour.
Thirty-eight states have passed such laws at this point, most
within the past five years. It is likely that virtually all 50
States will have such laws within the next five years. Of course,
passing a law does not mean effective implementation, nor a groundswell
of consumer response. Nonetheless, a major component of the groundwork
has been laid for intracity transportation systems that accommodate
and adjust to LSV usage.
ICA's research also factors in the aging of the American population.
Older Americans, particularly active adults, are clustering in
gated communities, many of which are associated with golf courses,
as well as other facilities either within the gates or otherwise
close at hand. The mindset of an older couple, or single retiree,
is one geared to cost-consciousness and efficiency. The need for
horsepower, per se, declines rapidly over the age of 50 and many
within this age group are strong candidates for alternative fuel
vehicles in which electric vehicles are likely to play a major
role.
Skyrocketing Gasoline Prices Are a Wake-Up Call
Gasoline prices continue at high levels, and as by far the largest
share of the world's oil production originates in areas of intense
conflict or in countries hostile to U.S. interests, on-going dependence
on oil imports is a day-to-day source of anxiety. Gas prices alone
will not drive consumers to purchase small vehicles. Many consumers,
however, for the first time, will be driven to closely examine
alternative, gas-saving modes of transportation. The mainstream
automobile, particularly SUVs, will no longer be routinely accepted
as the vehicle to own.
Environmental Policy Drives Alternative Fuel Vehicles
Certainly by now it is a well-known proposition that the growing
stringency of environmental policies as regards air pollution
is driving an alternative fuel vehicle
market. Included in AFVs are electric-powered small vehicles.
Emissions policies are driving down on small gas engines as well.
Four-stroke engines are now virtually a must for recreational
vehicles, in place of noisier, more polluting two-stroke engines.
Some states and cities are even attempting to limit the use of
gas-powered lawn mowers.
Based on the trends toward more and more stringent emissions standards,
it is not unthinkable that even the four-stroke ATV and UTV will
be a thing of the past, replaced by electric-powered vehicles.
Expect to see both the growing stringency regarding emissions
and the lure of government tax breaks to push the consumer more
and more toward the electric solution.
Limitations of the Farm-Based, Estate-Owner Markets
While the small utility vehicle market - that part of it that
is dominated by offshoots of off-road ATVs - has been growing
rapidly in the recent past and has seen many new entrants, the
question is, will this segment be a springboard to a mainstream
market, or pass through a cycle of rapid development to no-growth
maturity?
 Within the next 3-to-5 years the utility vehicle market,
as targeted toward farm and estate owners and hunters/outdoorsmen,
is likely to see a much slower pace of growth and may be faced
with what the golf car industry has been contending with for the
past five years; that is, a sizeable volume of used cars that
must, one way or another, be reabsorbed into the market. The reason
for this is simply that the demographics of this market are limited
and market penetration is growing.
Offsetting these limitations is the fact that consumers continue
to find new and innovative uses for UTVs, so that these vehicles
are beginning to inch their way into suburban/rural areas that
are not farms, ranches, or hunting areas. With creative product
development, UTV manufacturers should be able to effectively appeal
to this market that has much more extensive demographics.
Merging the Strands of Future Market and Product Development
The small vehicle market is likely to remain highly diverse,
much as the mainstream automotive products are. Nonetheless, there
are at least two strands of product and market development that
have the potential for creating a new transportation paradigm:
1. Electric vehicles enjoying ever more widening acceptance in
planned communities; and
2. Off-road vehicles which are gaining footholds in suburban/rural,
non-farm markets.
The merging of these two product types may be envisioned as the
following: A vehicle with,
- A more powerful AC electric engine with an on-board charger;
- Heavier frames than the typical golf car and much closer to
UTV construction - this for purposes of safety;
- More elegant and stylish enclosures, much akin to the evolution
of barebones older pickups into the luxury versions today;
- Independent front and rear suspensions;
- Four-wheel drive;
- Price points up to $12,000, fully-accessorized.
Of course, the prototypical vehicle has head and tail lights,
turn signals, and other safety features now required by NHTSA
for low speed vehicles.
Certain Vehicles Already Target This Market
There are companies in production now that target this new market.
Three of these companies are Global Electric Motors (GEM), a division
of DaimlerChrysler, Feel Good Cars, maker of the ZENN, and EnVironmental
Transportation Solutions, maker of the EcoV (in prototype stage).
And there are other startups at various stages of development.
The advantage these companies have is that they are focused on
a mainstream, general use market, which their vehicle designs
reflect. The disadvantages that these companies have are threefold:
No customer base to speak of; under funded, particularly with
regard to promotion and advertising; and low volume production.
These disadvantages translate into advantages for golf car and
recreational vehicle manufacturers. Both have an established customer
base across a wide spectrum of uses; both have relatively high
volume production and can scale up, if required; and both do a
significant amount of promotion and advertising, translating into
considerable brand awareness. The aspect of high volume production
(for established markets) is particularly important because it
can potentially "finance" the movement into other growth
segments.
On the other hand, the key disadvantage accruing to golf car and
recreational vehicle manufacturers is that their managements don't
yet share the vision of the NEV companies. Thus, it will be a
race to see who can best define and exploit the mainstream market
for small vehicles.
Elements of a Global Market Are Emerging
Adding to the complexity of the market place is the emergence
of a global small vehicle market. Export figures for golf cars
amount to over $100 million and about 45,000 units (most of which
are remanufactured). Recreational vehicles (including UTVs) are
slightly higher in dollars and comprise approximately 28,000 units.
There is considerable product development in Europe and in Asia
and some NEV models are now being imported in small volumes and
sold through local dealers. If foreign manufacturers take the
lead in the small vehicle market, it would not be the first time
that U.S.-based companies have been left behind by more aggressive
foreign manufacturers.
Challenge to U.S.-Based Small Vehicle Companies
The challenge to small vehicle companies is to think creatively
and pay closer attention to the customer who is constantly finding
new and personalized uses for the small vehicle. As noted, demographics,
legislative action, and issues of fuel economy are driving the
consumer base toward a new transportation paradigm. It will be
up to companies to respond. Peter Drucker, the noted teacher,
advisor, and consultant to industry was right to the point when
he said:
"Because its purpose is to create a customer, the business
enterprise has two - and only two - basic functions: marketing
and innovation. Marketing and innovation produce results; all
the rest are costs."
Stephen Metzger is Managing Director of International Market Solutions
and Principal of International Competitive Assessments, a market
research/management consulting firm, located in Cortlandt Manor,
New York. His recent study of the small vehicle market, entitled
Golf Car-Type Vehicles and The Emerging Market for Small, Task-Oriented
Vehicles in the United States; Trends 2000-2005, Forecasts to
2008. Inquiries regarding the study may be directed to Mr.
Metzger at icaworld@optonline.net,
or by phone at (914) 293-7577.
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