Over Priced Chinese UTVs in the USA Market. Will They Survive?
The popularity of the sit down, and drive like a car, UTV or Side-by-Side vehicle market is big in the USA. It has been growing at a very fast pace for several years now, and shows no sign of slowing down. We are a 12 Year old Chinese Only motorcycle/ATV/go-kart dealership in Sacramento California, and have never sold UTVs in the past.
So, we felt it may be time to look into several Chinese brands, and possibly cash in on this new wave. My son and I sat down and began contacting Hisun, CFMoto, ODES and others, to begin understanding price, parts availability, options, colors, dealer support, and more. One thing we noticed since 4-5 years ago when we first looked at them is that the Chinese companies are learning and growing. They now have technical dealers support by phone, many parts here in the USA, and better owners manuals. But they still have a long way to go.
We began comparing the base prices of the Chinese models compared to Honda, and the other well established Japanese and American brands, and were shocked. We could not believe our eyes, as the price of most Chinese UTVs and big 4×4 ATVs were the same as, or within a few % the same as the Japanese vehicle prices. We thought something must be wrong with how we were searching, and price comparing. In talking to a Hisun rep, the profit margin for us as a dealer was very small as well. I make better profit on many 2 wheel drive 200cc go karts. This fact alone was enough to stop me from wanting to sell their line of vehicles.
The next day, we began calling the manufacturers offices here in the USA, and speaking to their dealer sales staff to try and figure out what we were not understanding. All had the same story. “Yes, you are right” referring to the prices being so high. Some even told us that they know the prices are way too high for a Chinese vehicle, but there is nothing they can do about that. The factory sets the prices, not them. They just come to work for the paychecks, but do not feel good about their own pricing, and know it’s a major problem stopping them from growing.
Let’s just make this a bit more factually clear to fully understand the situation:
Keep in mind; Americans want to buy American products as often as they can. 2nd choice would be to buy Canadian, Japanese or European. The big American Polaris brand is always the best seller. There are other smaller American brands of UTVs that also have good prices, and are built in America like John Deere, BRP, Arctic Cat, Bobcat, Bush Hog, Club Car, and many, many others. So, with all these high quality American Made UTVs on the market, why would anyone want to buy a Chinese made vehicle at the same price?
Another fact that Chinese manufacturers need to always remember is, China still does not have a good reputation for quality, not just in America, but all over the world. China is well known for building cheap quality products, for cheap prices. So, until that basic poor consumer perception is gone, or a Chinese UTV manufacturer works very-very hard for many years to gain a reputation for being super high quality…… I just don’t see how a high priced Chinese UTV maker can expect to survive in this competitive UTV market. Not to say they will not sell, but for prices equal to Japanese or American UTVs, NO WAY!! This is not just my opinion, but I have talked to many other dealership owner friends, and they all said the same thing. They will never sell the Chinese UTVs at these high prices.
We have done well with smaller Chinese 2 wheel drive ATVs, Go-karts, Scooters, Motorcycles, and Dirt Bikes, as the prices are very low compared to the Japanese or European models on the market. 50-60% lowers in most cases. But these new Chinese UTV companies with No history in the USA, No consumer reputation, only 100 dealerships or less across the country, and a few added cheap options, are asking the same price as the Japanese. This seems like business suicide. Can this business model survive? I don’t see how. The American consumer is pretty savvy at shopping online these days. They know how to compare when they are thinking of spending big $$$.
When we sell our Chinese ATVs, Motorcycles and more at 1/2 or 1/3 of the Japanese prices, we sell more units than our Japanese dealership neighbors per week, and per year by far. Come into our dealership around the last 3 weeks leading up to Christmas, and watch us sell 20-25 new vehicles per day, every day. Other times of the year, 2-10 per day is normal.
I called several dealerships that sell these big Chinese UTVs and asked how often they sell one. Most told us 1 a month. Some good ones sell 2 or 3. I called Yamaha and Honda, to speak with friends of mine there, and asked, how many UTVs they sell per month. 7-25. Some of the top dealerships sell 30-100 per month. See a difference? Price. It’s all about reputation, and price. A No-Name company with Honda Prices….. NO WAY!!! Why would any educated consumer buy it?
You know, there are plenty of business school studies done on maximizing profits through a mathematical set of rules, and a graph of Price vs Demand. Charts seen in the photos here are made showing this equation.
1: The rise in retail price, and the rise in profits. But, with the rises in prices also comes a slowing of units sold. Profits can fall from less unit sales.
2: The lowering of retail price and lowering of the profit per unit is another way. But, with the lower price, sales go way up, and even though you are making less profit per unit, you could be making more profit overall.
3: Make a chart showing the 2 ways of selling, and find the happy spot where profits are highest. Price not too high and mass sales for max profits.
Keep in mind, the more vehicles you sell the more people own and break them. More broken units means more people will be back to the original dealerships for parts and service. That too means more profit. Don’t look at today, but the future for that slow, and steady growth. No one will get rich overnight. Greed will not breed success in this situation.
Price is derived by the interaction of supply and demand. The resultant market price is dependant upon both of these fundamental components of a market. An exchange of goods or services will occur whenever buyers and sellers can agree on a price. When an exchange occurs, the agreed upon price is called the “equilibrium price”, or a “market clearing price”. This can be graphically illustrated as follows:
A market price is not a fair price to all participants in the marketplace. It does not guarantee total satisfaction on the part of both buyer and seller or all buyers and all sellers. This will depend on their individual competitive positions within the market. Buyers will attempt to maximize their individual well being within certain competitive constraints. Too low a price will result in excess profits for the buyer attracting competition. Likewise sellers are also considered to be profit maximizers. Too high a price will likewise attract additional producer competition within the market. Therefore, there will exist different price levels where individual buyers and sellers are satisfied and the sum total will create a market or equilibrium price.
When either demand or supply changes, the equilibrium price will change. For example, good weather normally increases the supply of grains and oilseeds, with more products being made available over a range of prices. With no increase in the quantity of product demanded, there will be movement along the demand curve to a new equilibrium price in order to clear the excess supplies off the market. Consumers will buy more but only at a lower price. This can be illustrated graphically as follows:
I am not saying the Chinese units are bad quality. I am not saying they will not sell. What I am saying is, A: these Chinese companies must keep prices low at first, B: work hard for years to build a reputation in the USA, and then C: increase prices slowly in the years to come. Then the dealer network grows naturally and with health. 2 old sayings that come to mind for this: 1, you must crawl before you walk. 2, Don’t put the Cart before the horse. There are correct steps that must be made first in any intelligent business that plans to succeed. I love my Chinese friends, like the Chinese products, and I genuinely want to see them succeed. (Any comments: Fairoaksdoug@yahoo.com)