Polaris Industries has been pleasantly surprised by the reception of its Batmobile-like three-wheeled motorcycle Slingshot, which it's now introducing to a new group of consumers through Costco's auto-buying program. Image source: Polaris Industries.
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When you can sell almost a half million cars a year, as Costco (NASDAQ: COST) does, you're a major force in the industry, considering the country's largest auto retailer, AutoNation (NYSE: AN), sold over 566,000 vehicles last year.
But Costco's auto program is more than just cars. You can also buy motorcycles, ATVs, utility vehicles, and even watercraft. In 2015, the warehouse club sold 465,000 vehicles, a 16.8% increase year over year, or some two and a half times better than AutoNation's sales increase. Partnering with Costco is a great way to get exposure for your vehicles as well as make sales.
Buying cars in bulk
That could be why powersports vehicle manufacturer Polaris Industries (NYSE: PII) is adding its three-wheeled motorcycle to the mix of vehicles it sells through the program.
You can already buy one of its big V-twin engine Victory motorcycles at Costco, as well as its popular brands of ATVs, side-by-sides, and GEM utility vehicles. But putting the Slingshot into the rotation is an indication that Polaris is looking to amp up sales of this unique vehicle.
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Motorcycle sales have increasingly become an integral component of the powersports industry leader's growth plan. Although much of it has been predicated on stealing market share from Harley-Davidson (NYSE: HOG) with its Indian Motorcycle brand, it's apparently hit paydirt with the Slingshot, too, which helped segment sales jump 23% in the second quarter as North American retail demand rose by mid-teen percentages
They're growing, trust us
Polaris is notoriously stingy when it comes to sharing data on actual units sold, usually preferring to speak in broad, sweeping terms. Where Harley-Davidson breaks down the sales individual styles of bikes, and by geography, you have to settle for nebulous comments about growth with Polaris.
Even so, Polaris has committed to boosting sales of the three-wheeler. It recently opened its new manufacturing facility in Huntsville, Ala., and began making Ranger side-by-sides there in June followed by Slingshots in July. It now has more capacity to produce these vehicles, whereas before it was operating at 107% capacity in the past at its older plants.
During its earnings conference call with analysts last month, CEO Scott Wine noted that Polaris had not only realigned its motorcycle business to include the Slingshot, but had also promoted the company's marketing director to oversee the three-wheeler's future growth. One of his first tasks was to expand awareness of the model, which is likely where Costco comes in.
A different way to sell cars
The warehouse club doesn't actually sell the cars itself but works through Affinity Auto Group, an auto-buying service, that negotiates with all the major vehicle manufacturers for the lowest prices for its members. Interestingly, Costco doesn't derive any profits from vehicle sales, instead preferring to use the benefit as a means of driving more membership sales.
Motorcycle buyers can purchase virtually any manufacturer's bike through the program. From BMW and Honda, to Kawasaki and Suzuki, you can find all manner or motorcycles there. You won't find a Harley. though, likely because Harley-Davidson doesn't like to discount its bikes. While the industry has been engaging in a lot of promotional activity to gain or at least maintain market share, Harley has refrained from doing so, meaning that although it's lost market share as a result, it's been able to preserve its profit margins. But it was important for Polaris to get the Slingshot into the program because one of its major competitors, Can-AM, sells its own three wheeled bike there, the Spyder.
This is a limited-time offer for the Slingshot, though. From Aug. 1 through Oct. 31, Costco members can purchase the Slingshot (or any of Polaris' other available powersport vehicles) and get:
- The prearranged Costco pricing guarantee.
- A $200 Costco Cash Card for completing a survey after purchase.
- Any applicable manufacturer and dealer incentives.
Polaris says when it ran a similar promotion in the spring with its other vehicles it "saw a substantial increase in vehicles sold -- significantly more than the fall 2015." Now it's looking for a similar boost for the Slingshot.
Certainly, introducing more people to the three-wheeler will help sell more of them, but Polaris, Can-Am, and other manufacturers still have to face a hodgepodge of state laws that don't quite know how to regulate them, so the rules are sometimes contradictory. In some places, helmets are required, while in others they're not. Same with seat belts or whether you need a motorcycle endorsement on your license to drive one.
According to Elio Motors, which will soon start making its own three-wheeled vehicle, 41 states either exempt drivers from having motorcycle licenses or have created a new class of vehicle: theattocycle.
Early indications suggest Polaris Industries will continue to sell lots more of these trikes, and its addition to the Costco Auto Program helps pave the way for more people to be introduced to the powersports vehicle brand.
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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale and Polaris Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.