OPE Industry Forecasts: What experts predict will happen in 2011 (Part II)

Following is the last of a two-part series:


Outdoor Power Equipment recently asked several OPE industry leaders to shed some light on the state of the industry entering 2011.


Specifically, we asked the following thought-provoking questions:

What is new and exciting about your company?
How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?
How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?
What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?
What is your overall outlook for the OPE industry in 2011?

OPE received the following written responses, in order, Dec. 14, 2010, to Jan. 19, 2011:


MARK VINING


PRESIDENT


ROBERTS SUPPLY, INC.


(WINTER PARK, FLA.) &


PRESIDENT


OUTDOOR POWER EQUIPMENT AND


ENGINE SERVICE ASSOCIATION (OPEESA)


1. What is new and exciting about your company?


MV: As the current president of the Outdoor Power Equipment and Engine Service Association (OPEESA), I can say that the association is growing; we will be celebrating our 10th anniversary this coming year and feel that we have made great strides in representing wholesale distributors in the marketplace. OPEESA has always been very cautious, and after a couple of lean years, we are seeing growth again — both in our membership and in our members’ businesses.

OPEESA has continued to expand our educational offerings, and we strive to keep our Members Only section of the Web site (www.opeesa.com) updated and pertinent. We continue to offer products and services that help strengthen our members and the industry.


There are many manufacturers that are introducing new and exciting products into the marketplace, and we have shown them that going to market through distribution is often a savings for them and provides the dealers with better service. After a couple of years of mergers and acquisitions, the industry has stabilized.


2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


MV: The recent midterm elections sent a message to Washington that can’t be ignored by those currently holding office. I believe that they will have to begin to enact legislation that is favorable to small business, which will be favorable to the majority of OPE dealers and distributors. With many dealers and distributors being small, family-owned businesses, favorable legislation could go a long way in helping them prosper and let them invest back into their businesses and possibly hire more help if demand rises.

3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


MV: The E15 gas is going to be very confusing to the average person. Dealers should be prepared to service even more fuel-related issues on small engines. It creates a problem with the consumer who I believe won’t keep up with what is going on, and if they use E15 in a small engine, it can cause problems. Unfortunately, when fuel sits for a period of time, water separates out and causes damage that is not a warranty situation. When a consumer tries to fire up an engine that has been sitting for 2 months with fuel in it and it will not start, they don’t understand that it is not a manufacturing defect and that they are responsible for the cost to repair the engine. The industry is going to have to keep the average consumer informed about the potential damage of leaving untreated fuel in a small engine.

4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


MV: One of the biggest challenges to face dealers could be lack of inventory. The consumers are looking for new product and the professional landscapers, who have repaired for the past couple of years instead of replaced, could also be looking for new product. The dealers need to be ready for business. But they also need to be prepared for the fact that manufacturers might not be able to keep up with demand for certain popular models of equipment.

With the cautious purchasing the past few years, which has allowed dealers to clean up their equipment in stock, inventory is quite light. Every segment of the OPE industry needs to do a better job of forecasting going forward if they want to be able to keep up with demand.


Another challenge will be financing of the landscaper. Financial scores, that just a few years ago were a guaranteed “yes,” are now being turned down by finance companies. Dealers need to have multiple avenues of retail financing available for the consumer to purchase their products.


5. What is your overall outlook for the OPE industry in 2011?


MV: I am cautiously optimistic and believe that the OPE industry will continue to grow as the economy recovers.

According to sources I’ve read, the industry is predicting a 15-percent increase, in part, from underlying demand. We see that the dealer pipeline is completely clean, which will help with sales going forward. Financing and approval rates have held steady for the past couple of months and are consistently in the 70-percent range and above, according to OPEI.


These factors help provide support for the double-digit increase that many in the industry are predicting for 2011.



JIM GRAFFT


PRESIDENT & CEO


CERTIFIED PARTS


CORPORATION


(JANESVILLE, WIS.)


1. What is new and exciting about your company?


JG: Starting production of the TecumsehPower carburetors and the Comet clutches has been more than exciting. Simultaneously resurrecting a clutch company that had fallen on hard times and bringing back manufacturing jobs to the U.S. from central Europe has caused many late nights and a steep learning curve for many of us at CPC. Both of these tasks seem to buck the trend of exporting jobs out of the U.S. by many companies. We see new opportunities every day as to how we can improve ourselves as a company and have identified more products that we can bring to the market.

During the past year, we had been seeking a partner to help us re-enter the engine business using many of the original TecumsehPower engine designs and have selected LCT (Liquid Combustion Technology) engine company. This new partnership will help both companies move ahead further and faster than trying to do it alone. The combination of proven TecumsehPower engine designs and state-of-the-art Chinese production facilities with USA-based engineering, quality control and production oversight will allow us to offer summer and winter, horizontal-shaft engines from 136 cc to 414 cc. We also plan to offer customers the option of several models that will be made in the United States under the Lauson brand, America’s oldest engine company (1895). We also established a new Master parts and warranty distributor in Europe (Euro Garden) to provide technical and parts support for our products. Our partnership with LCT will allow access to a state-of-the-art electronic warranty system available through www.LausonPower.com. This completes the consolidation of our global distribution, service, warranty and manufacturing under one roof in Wisconsin.


2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


JG: As of today (Dec. 16, 2010), it looks like we will keep the tax rates the same for this year and unemployment benefits will be extended again. In my mind, the best way to get America back to work is to stop paying people to stay home. Once we get people back to work and people have money, this will be a change for the better for the OPE industry and the rest of the country.

I hope under the Republican leadership we can get incentives as a country to hire employees and buy new equipment to help us become more competitive with the rest of the world. We need to think and work harder, so we can regain our top stature in the world as a great manufacturing country.


3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


JG: This is a big one that is only starting to get worse. The industry as a whole tried to stop this implementation to protect engines from more extensive damage beyond those currently caused at current ethanol levels. The number of units in the U.S. harmed by current levels of ethanol fuel is staggering. We are seeing increases in damages early in the engine’s use from old/stale fuel, as well as water in the fuel. These problems are occurring at a much higher frequency than with pre-ethanol fuels. We believe that the unfortunate effect of more ethanol will be increased fuel-related problems that the customer ends up paying for. As an industry, we need to double our efforts to get the word out that fuel can’t be used after extended storage. We also need to let the customer know that the fuel system should be run dry after the season is over for the safest storage of the engine. We as an industry can’t let this fuel make us look bad. We do expect increased sales of additives and fuel stabilizers such as our Ultra-Fresh Powder product to continue. We also decided we needed to re-evaluate our warranty policy regarding fuel-related problems within the warranty period and have recently issued new requirements for the filing of claims related to carburetors.

4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


JG: Staying in good financial shape is probably at the top of the list. Keeping on good terms with your bank is a close second. Credit from the factory, bank and floor plans is only getting harder. It’s hard to sell from an empty wagon! Keeping up with inventory needs is a must. We need to remember that people have lots of choices of stores to buy from. Dealers must keep up good service. The best way to keep a customer happy is by keeping his equipment operating. The dealer that can keep a customer coming back for service will have a perfect chance to sell an upgrade or at least get over-the-counter sales of parts and fuel products.

Keeping the customer informed can only help in keeping a good customer, and keeping a good customer can only help the dealer’s business. We are all part of this downturn, and it is anybody’s guess when it will end. We have all lost good customers to the economy, and we don’t know if we will get them back. We all should stay focused on our own jobs, and try and stay ahead of the game.


5. What is your overall outlook for the OPE industry in 2011?


JG: I would like to say “great,” but we all know that is not the truth. We are going to start a new year of uncertainty. This new year will be like last year in that lots of things will happen. Some will be good and some bad. As long as we can keep our companies going at least as good as last year, we will make it.

All industries, including the OPE industry, need to stay focused on the job at hand. As I said last year, there will be lots of new opportunities out there if you are looking. This is the time to win better market share if you are on top of your game.


 


FRED J. WHYTE


PRESIDENT


STIHL INC.


(VIRGINIA BEACH, VA.)


& CHAIRMAN OF THE


BOARD OF DIRECTORS


OUTDOOR POWER


EQUIPMENT INSTITUTE (OPEI)


1. What is new and exciting about your company?


FJW: I’m pleased to say that in the face of one of the most challenging economic environments in recent history, STIHL Inc. enjoyed record sales [in 2010] in no small part due to the efforts or our network of servicing dealers. The year also ushered in two first-time achievements for STIHL and STIHL dealers. More specifically, STIHL Inc. achieved recognition as the number one selling brand of handheld outdoor power equipment in America* and produced its 40-millionth unit here in Virginia Beach. Each of these milestones required 36 years of dedication, discipline and the combined efforts of STIHL, our branches, distributors and independent STIHL dealers.

On the product front, the new HSA 65 STIHL Lithium-Ion battery-powered hedge trimmer was well received in the market, even winning a prestigious Popular Mechanics Breakthrough Award. This market reception bodes well for the four additional STIHL Lithium-Ion products that will be launched in 2011.

Finally, we also announced our support of the “Independent We Stand” movement, encouraging consumers to make a conscientious decision to direct a certain portion of their spending in support of locally owned, independent businesses. We encourage all independent, locally owned dealers to register their businesses at IndependentWeStand.org.

* “Number one selling brand” is based on syndicated Irwin Broh Research (commercial landscapers), as well as independent consumer research of 2009 U.S. sales and market share data for the gasoline-powered handheld outdoor power equipment category combined sales to consumers and commercial landscapers.


2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


FJW: We’ve already seen some recent positive movement, and it is my sincere hope that both the House and Senate will take seriously the needs of small businesses that make up the Green Industry, including OPE dealers. It is difficult to say how quickly additional positive changes will be realized in the form of revised lending practices, reducing wasteful earmarks, etc.; however, the revitalization of America’s small businesses and job creation are essential to any sort of sustainable economic recovery.

The extension of the Bush Era Tax Cuts should help successful business owners reinvest in their businesses and make them stronger. But of course, that’s only one piece of the puzzle, and we will need to monitor all actions of the newly formed Congress to see what they can and cannot agree on relative to our industry in 2011.


3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


FJW: First, it’s important to understand that the EPA waiver does not approve E15 fuel use in non-road product, including all outdoor power equipment. The EPA’s recent fuel waiver allows E15 for use in 2007 and newer-duty motor vehicles, which includes passenger cars, light-duty trucks and sport utility vehicles (SUV) only. While the EPA is currently evaluating expanding the on-road vehicle allowance to include 2001 through 2006 vehicles, it is not expected to make a decision until early 2011. The Outdoor Power Equipment Institute (OPEI) estimates that with the 2001-and-newer models included, the waiver will encompass approximately 50 percent of the automobile fleet and will therefore present significant challenges to OPE manufacturers, dealers and users.

Due to the limited scope of the intended use for E15, the EPA will require a warning label on all E15-dispensing fuel pumps to alert consumers not to use this fuel in vehicles or engines not specified. Engine manufacturers’ concerns about the adverse effects of E15 when used in current production and older engines are well documented. Fuels exceeding 10-percent ethanol, such as E15, are likely to cause unstable engine operation, power loss and increased heat and exhaust temperatures — and some engines may simply quit running altogether. It is critical to educate equipment users about the fuel and its potential adverse effects on products as customers may not understand that costly repairs are the direct result of using an unapproved fuel. For this reason, questions of liability, warranty and manufacturer/dealer responsibility to the end user are areas the industry must address.


For STIHL, our approach will be to educate our channel and end users to complement OPEI educational efforts, as well as modify our warranty provisions to reflect the detrimental effects of E15 on small engines.


4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


FJW: The economy will continue to be the biggest challenge for dealers in 2011. The job market remains tepid and, despite some recent encouraging indicators, building sustainable consumer confidence will take time. The industry will also have to keep an eye on the availability of credit both for dealers and their customers. Exercising a conservative approach to credit and avoiding digging a deeper hole are successful strategies for bouncing back from the credit crunch. And if dealers have not already developed a relationship with their local banker, I encourage them to do so now to prepare for long term. Other challenges will include a housing and construction industry that will most likely continue to be sluggish.

Overall, I would say that while pent-up demand and rebuilding inventories helped our industry in 2010, dealers can’t rely on that for 2011. Offering a dependable, quality product; delivering superior customer service that mass merchants can’t duplicate; and ultimately providing the best value for the customers’ dollar remains paramount. Dealers will also have to evaluate their relationships with their business partners. Manufacturer- and distributor-subsidized marketing programs that offer a turn-key approach (and a successful track record) for increasing share of voice remain vital to sustained dealer visibility in a crowded marketplace.


The industry as a whole learned some valuable lessons in 2010. What we do with that information in 2011 will be a key driver to our success in 2011.


5. What is your overall outlook for the OPE industry in 2011?


FJW: Last year, the OPE industry as a whole experienced its first boost in several years with most categories increasing shipments. And in keeping with current economic forecasts for 2011, I would expect to see continued growth, albeit at a relatively slow pace. As mentioned previously, consumer confidence will be an important factor in 2011. Growing sales without “motivated” consumers will be extremely difficult as the industry faces continued high unemployment and a slow housing market. Realistically, 2012 and beyond will hold greater promise for more significant growth.


PETER ARIENS


PRESIDENT


STENS CORP.


(JASPER, IND.)


1. What is new and exciting about your company?


PA: Along with the New Year comes exciting news from new product additions and a new catalog to a mind-boggling expansion of the applications of our fits model database. Stens is ringing in a year that will prove to be as eventful as any in our history and as noteworthy.

Fits Model Applications Expansion:

2011 marks the 300,000th milestone, and we’re still counting! This means with the Stens product offering, you have access to parts that fit more than 300,000 applications in the outdoor power equipment industry. This allows customers to find parts easier and to service an even broader array of equipment.


New Product Additions:

To streamline the trimmer line selection process for our customers, the all-new Silver Streak collection features three new and distinctive brand choices, each with its own unique benefit: The Core, The Fire and The Edge. Each trimmer line features new labeling and packaging, which will display the main benefits so the selection process is easier, plus a recommendation on what line to use based on what type of equipment is used.


For those servicing the commercial market or residential homeowner, our TruStripe kits provide a manicured finish and enable the appearance of a striped lawn. Not only will this kit provide customers with a “TruStripe” manicured appearance, but the design also feathers the clippings into the turf with every pass.


Exclusively available through Stens, K&N maintenance kits for the outdoor power equipment industry are a great tool for increasing engine performance and efficiency. Each maintenance kit is environmentally friendly and offers an optimal blend of high airflow with excellent filtration, and is designed to increase horsepower and acceleration.


As ethanol-blended fuels continue to cause issues in outdoor power equipment, Stens has partnered with Star Tron, whose products help treat the most common problems caused by using ethanol fuel blends. With the help of Star Tron, customers will experience increased fuel efficiency, reduced emissions, lower fuel system maintenance and eliminated carbon build-up.


With the needs of dealers and other professionals related to the Green Industry in mind, Stens has added Kenda tires to its product lineup. Each Kenda tire, designed to meet the demands of the outdoor power equipment industry, has a tread designed for a variety of terrain and provides the greatest amount of traction with the least amount of turf damage.


2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


PA: The midterm elections will only matter if the overall government takes serious the concerns of the American citizen. All too often, people are sent to Washington to do “the peoples’ work” only to be inculcated into a culture that promises to only do the work of re-election or whatever the parties’ agenda is that term. The House of Representatives is going to have to get a backbone and stop the reckless spending. All that spending will bring is higher taxes and greater dismemberment of our whole economy. We cannot continue to sustain the current pace of spending, and it has to stop. The hope is that John Boehner will contain some of this with his new found power as Speaker of the House.

3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


PA: Time will tell on the E15 ruling, but it will create difficulties not only in our industry as a whole, but also many others. While the attempt to look at alternative fuel options as they relate to green energy is commendable, as always, there is a very political reason that this is getting pushed to the top. Efforts are being made by the Outdoor Power Equipment Institute (OPEI) to review this and other recommendations, and offer alternative solutions. Hopefully, the EPA will take all of this into consideration as they continue to move ethanol forward.

4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


PA: Dealers continue to face the ever-uncertain consumer as a moving target. While the slow economy is still holding many consumers from making the big-ticket purchase, many just cannot wait any longer. The hope is that this is the breakout year for dealer sales to grow after tough times in 2008, 2009 and 2010. Consumers are feeling better about where they are financially, and I think that their discretionary dollars are getting better. It is up to the dealers to work hard to earn some of those dollars. Dealers need to press their value to consumers as they start to open those pocketbooks.

5. What is your overall outlook for the OPE industry in 2011?


PA: I think the overall outlook for the OPE industry in 2011 is going to be pretty good. As I said earlier, I think that consumers just cannot wait any longer on buying items for their homes, lawns and gardens. This will put the dealers and our industry in a good position, which in turn puts all manufacturers and sellers of products to the industry in a better position. While I think 2012 will be a better breakout year for the industry, I think 2011 will be the precursor to that with good upside.


STAN GUYER


PRESIDENT


THE GRASSHOPPER COMPANY


(MOUNDRIDGE, KAN.)


1. What is new and exciting about your company?


SG: We’ve introduced a major series of “under the hood” developments and improvements over the past few years, culminating with a new look for our equipment that’s very exciting. The new color balance and sculpted silhouette subtly updates the whole line while remaining unmistakably Grasshopper. The new winter cab enclosure illustrates our operator-centered philosophy. It’s easy to install, easy to enter and exit, and has plug-in accessories for additional comfort and extended use. New controls for the winter implements make snow removal even quicker and more comfortable for the operator than ever before. Our patented T-drive provides direct power transfer from engine to implements and is so smooth it’s nearly effortless to control.

2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


SG: This remains to be seen. If it boosts consumer confidence and results in a rising economy, then the OPE industry will benefit as the retail sector improves.

3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


SG: Fuel variability is already creating service issues because equipment owners are confused about which fuel to use or are unable to verify the makeup of the fuel they are using. Wide availability of E15 will just compound the problem and will create challenges for repair by making it more difficult for the tech to determine whether a failure is equipment or fuel related. Many end users are not going to be able to obtain a different fuel for their small engines than they use in their vehicles. They can avoid some problems by making a point of using fresh fuel for their small engines.

4.What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


SG: Aside from the weather, which is always #1 in our industry, dealers

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