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ֳ Wire

U.S. Powersports Demand Recovery Stalled by Tariff Uncertainties

Fri 16 May, 2025 - 12:18 PM ET

ֳ-Toronto/Chicago/New York-16 May 2025: Weak consumer sentiment, driven by tariff-induced uncertainties, is likely to extend the cyclical downturn in the U.S. powersports market, says ֳ. However, the direct cost impact and operational disruptions from tariffs are expected to be limited. Sluggish demand recovery raises downgrade risks for issuers whose ratings are already under pressure amid broad-based sector underperformance.

Demand for powersports vehicles is highly discretionary and can be adversely affected by macroeconomic uncertainties and high interest rates, due to customers’ frequent reliance on financing. Following a pandemic-driven surge in demand and supply chain issues that led dealers to overstock inventories in 2021-2022, powersports original equipment manufacturers (OEM) have adjusted production levels to reduce dealer inventories and maintain pricing power amid rising consumer financing costs and weakened retail demand.

Rating Outlooks for Brunswick Corporation (BBB/Negative) and Polaris, Inc. (BBB/Negative) were revised to Negative in March 2025, driven by weak operating performance that led to lower margins and EBITDA leverage exceeding ֳ’s sensitivities for the upcoming years. While both companies possess meaningful financial flexibility and cash flow generation, along with a prudent capital allocation policy committed to debt reduction, the prospects of a prolonged retail demand downturn may keep leverage metrics above downgrade triggers for an extended period.



Harley-Davidson, Inc. (BBB+/Stable) is well-positioned to weather the downturn as it benefits from solid cash generation, partially supported by dividends received from Harley-Davidson Financial Services, Inc. and its conservatively capitalized balance sheet. However, recent governance concerns, precipitated by an activist former board member and the CEO’s pending retirement, cloud the company’s intermediate-term outlook.

ֳ expects Patrick Industries, Inc. (BB/Stable), a supplier to the recreational vehicle, boat, powersports and manufactured home industries, to be largely resilient to tariffs, supported by its highly variable cost structure and ability to flex operations to adjust output based on demand fluctuations. ֳ expects this flexibility to help the company maintain its margins.

Tariff-related costs and operational challenges in the powersports industry are generally manageable, as the manufacturers typically source more than 70%-80% of COGS domestically. To mitigate the impact of tariffs, companies are establishing alternative sourcing channels, efficiently managing working capital and conservative capital allocation policies to preserve liquidity and limit downside risk to their credit profiles.

Powersports OEMs’ reliance on imports from China is relatively low, as they have reduced their exposure to China to less than 5%-10% of cost of goods sold since the first Trump administration. Most imports from Canada and Mexico are compliant with the United States-Mexico-Canada Agreement (USMCA). Retaliation by U.S. trade partners is a risk, though export generally account for a small portion of total sales.

Harley-Davidson sells a larger proportion of its products outside the U.S. compared to Brunswick and Polaris. A large proportion of Harley’s non-U.S. sales are produced at its Thailand factory, which could help lessen the impact of retaliatory tariffs. However, a 2024 ruling by the EU Court of Justice allowed the EU to place duties on the company’s European imports of Thai-made motorcycles.

The weak demand environment will make it challenging for powersports OEMs to pass along higher tariff costs through price increases, squeezing margins. However, ֳ expects price discounting to ebb as dealer inventories are rightsized. Brands and products that cater to a more loyal customer base, which are the core focus of Harley, Brunswick and Polaris, will have better pricing power compared to those aimed at value-oriented customers. These companies will be the first to benefit when demand recovers.



Contacts:

Hugh Shim, CFA
Director, North America Corporates
+1 646 582 4494
hugh.shim@fitchratings.com
ֳ, Inc.
33 Whitehall Street New York, NY 10004

Abhirit Kanti
Senior Analyst, North America Corporates
Primary Rating Analyst
+1 647 933 0247
abhirit.kanti@fitchratings.com

Stephen Brown
Senior Director, North America Corporates
+1 312 368 3139
stephen.brown@fitchratings.com

Yee Man Chin, CFA
Senior Director, Credit Commentary & Research
+1 647 800 9142
yeeman.chin@fitchratings.com




Media Relations: Eleis Brennan, New York, Tel: +1 646 582 3666, Email: eleis.brennan@thefitchgroup.com

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