Revolution Motorsport Scott Chaffee, Jonathan … Motorsport Scott Chaffee, Jonathan Jackson, Adil Nurgozhin Jon Jackson (406) 599-3572 jacksonmontana@gmai!.colll Scott Chaffee (253)

cornpeunon The brand has established a reputation for reliability Overall we feel that the Lifan product is a greater value than anything on the market (Sec the appendix B Business strategy templates)

Hyosung is not as differentiated as the competition but has two powerful selling poinst price and warranty Hyosung offers all of the options and warranty as the established branded competitors but offers a price that the contenders cannot compete with We feel that the average 35 percent difference in price between a Hyosung and a Yamaha is enough to make a sport bike buyer consider trying the new brand To gain extra credibility Hyosung is offering the best warranty in the motorcycle industry a two-year unlimited mileage tire to tire warranty

44 Precedent the Datsun (Nissan) 240Z

In 1969 Datsun motor company (now Nissan) introduced its 240Z (later called the 280Z) to the United States Instead of offering the typical high displacement (V8) motor Datsun offered a small light car with a 150 horse power V6 The 240Z was geared to compete with the Corvette ($4781 new base price) and the Mustang ($3500 base price) but only cost $3526 fully equipped 14 Because it offered such a value it went on to become the greatest selling sports car of all time By offering a fully loaded sports car for the price of an entry level mustang (with the smallest engine and no options) Datsun was able to steal a significant piece of the market share

In 1969 Americans were not fond of the idea of Japanese cars or engineering However by offering the best value Datsun prevailed Datsun is like Lifan because it targets consumers who want a sport bike (motorcycle) but cannot afford to buy one new People are reluctant to purchase a motorcycle from China but like the Datsun case the value of the item will be the determining factor for purchasing the product Lifan can offer a sport bike for a quarter of the price of the majority of the competition that serves the same function

45 Precedent Hyundai Compared to Hyosung

In February of 1986 Hyundai introduced its first line of automobile the Hyundai Excel to the United States At the time of Hyundais introduction the American car market had been focusing all of its resources on building high-priced high-end vehicles which left a major gap in the market for buyers who were recent graduates young couples or high school students 10 At this opportune time Hyundai was able to gain traction offering a low cost alternative

I ~ httpzhyosunguscom 14 httpwwwniosanneviscom 15 httpwwwnissannewscom Ifgt httpzwwwhrnmausacom

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Figure 41 This how the entry level Hyundai Excel compared to the entry level competitors in 19~7 In 1987 none of these vehicles had ~andud warranties llyundui gailltlJ its market share on price ulonc

At the time of its introduction the Hyundai Excel cost about 22 percent less than its direct competitors the similar Toyota corolla and the Honda Civic (see figure 41) This price difference was enough to establish a major market share selling 1431 units per dealer in its first year in the United States a record for a new entry to the market Later Hyundai stepped its sales up again by offering the best warranty in the market Basically Hyundai gained its market share in the United States by offering a comparable product at a 22 percent discount and later offering the best warranty in the business Hyosung motorcycles entered the market in 2005 offering both of these advantages the best warranty on the motorcycle market (two-year unlimited miles) and selling the bikes 35 percent discount to the competition Yamaha Suzuki Honda and Kawasaki

Figure 42 This chart compares the lowest priced (600ce) sport brke From Yamaha Honda and Hyosung All of these hikes have comparable -pecs engine vizes and features Hyosung has [he be-t warranty The prices and warranty information come directly from [he Yamaha Honda and Hyosung company webvites

50 Competitive Advantage

51 Barriers to Entry

To sell the Hyosung line in Sacramento exclusively Revolution Motorsport must obtain a motorcycle dealers license a physical retail location and a service department To obtain a dealership license one must first have an agreement with a motorcycle manufacturer Mr Jackson has a written agreement to carry Lifan and a verbal agreement to sell Hyosung with the contact pending Mr Jackson will sign a contract with Hyosung when he visits with the rep in Sacramento on Tuesday March 27h To maintain exclusivity a dealership must sell a minimum number of units per year based

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on the population and region of the country However if the minimum is not reached Revolution Motorsport will not succeed based on not covering overhead costs As long as RM stays in business it will have exclusivity selling Hyosung Establishing exclusivity with Lifan is currently under negotiation

The barriers to entry are more of an opportunity than a threat to RM Because exclusivity is granted by area (defined by a 10 mile radius in the State of California) once we obtain the rights to sell a product other dealers cannot cannibalize Revolution Motorsports sales in our market Therefore because of these monopolistic rights getting the rights to sell Lifan and Hyosung is actually a competitive advantage

52 High Profit Margins as compared to industry norm

Typically motorcycle dealerships like to maintain a 15 percent margin on new Motorcycle sales However because Hyosung and Lifan are relatively new players in the United States market they offer a better margin to entice established motorcycle dealerships to carry a new line Hyosung has a 22 percent margin and Lifans is 35 percent Assuming that half of our sales come from Lifan and half come from Hyosung our average margin will be 285 percent on new motorcycles If one were to charge the manufacturer-suggested retail for a Lifan LF200 of $2499 on a bike that costs the dealership $960 including shipping the margin would be more than 150 percent However the price reflects what these models are actually selling for nationwide Our calculated margins are based on true United States market value

Our margins are two times that of an established brand This will help compensate for the fact that our product is not as established in the United States market as some of our competitors

53 High Fuel Costs

All Lifan motorcycles 200 and under get more than 100 miles per gallon and can be purchased for less than $2000 19

bull Hyosung motorcycles also boast incredible fuel efficiency and are extremely price competitive with respect to the competition The competition - Honda Yamaha Suzuki and Kawasaki - generally sell street bikes starting at more than three times the price of a Lifan and are thirty five percent more expensive to comparable Hyosung models The gas mileage of the competitor motorcycles is comparable to that of a Honda Civic not even close to 100 miles per gallon RMs biggest challenge will be to locally brand the motorcycle as being exciting high quality dependable and affordable

IS Answerscorn motorcycle dealership analysis iltJ Arnericanlifancom

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60 Market Research

In 2005 the motorcycle and moped market claimed $91 billion in sales in the United States ln 2005 It million motorcycle units were sold The market is expected to grow to 16 million units per year by 2010 an increase 01435 percent Between 1985 and 1998 the median age of a motorcycle buyer rose from 27 to 41 years of age Part of the reason for this is that the average age in the United States has grown from 34 to 36 between 2000 and 2005 22 We believe another part the average age of motorcycle buyers is rising is due to the increasing costs of a new motorcycle The average cost for a new motorcycle or scooter was $8200 in 2003 B Revolution Motorsport is reaching for the niche market of young men who cant afford a motorcycle this expensive

Typically when one thinks about a motorcycle owner one thinks of a young man However we feel that high priced motorcycles have been driving up the average age for a motorcycle buyer More expensive bikes have a higher markup and yield a higher return for dealership owners Because of the incentives for dealerships to sell expensive bikes and the fact that young men do not generally speaking have as much disposable income there is an enormous segment of the market whose needs have not yet been satisfied or targeted Lifan offers a perfect value curve for these consumers given its low cost and great economy

The motorcycle industry as a whole is growing at 77 percent a year far faster than the automobile industry 24 percenr We are seeking to not only tap into this growing industry hut to grow the motorcycle industry in Sacramento as a whole Revolution Motorsport will do this by offering a product that is diversified enough to tap a segment of consumers whose needs are currently not being met

61 Sacramento Market

Sacramento has heavy traffic mild winters and high gas prices (over $300 per gallon as of March 14 2007) These factors make Sacramento a great environment for selling motorcycles In 2002 the average dealership in Sacramento did $6780000 in sales compared to the national average of $3200000 per dealership (see figure 62) Since

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then the industry has grown more than 39 percent Because the number of dealerships has not changed the average dealership did approximately $9400000 in sales in 2006

Figure 61 These figures are taken from the United States Census website The figures arc from 2002 which was last time the census did a detailed annual report From 200 to 2006 the industry has grown by 391 in the United S(J[es~7

Although the average salary for a Sacramento motorcycle dealership employee is greater than the average in the United States the labor costs as a percentage of sales are less than half of the national average (see figure 61) This is assumed to be attributed to volume of sales

62 Market Sustainability

Revolution Motorsport will see growth in the future as more people search for fun and inexpensive means of transportation The price of gas is rising and environmental concerns are increasing The result is that more and more people are looking for ways to travel with less gas consumption The forecasted market growth for the motorcycle market in the Market Opportunity section shows that opportunity will grow from the $91 billion a year industry in 2005 to a projected $128 billion in 20 10 (409 percent projected growth over five years)

Trends are showing that United States consumers are finally looking at gas prices and modifying their lifestyles to avoid superfluous spending (appendix a rnicro-envirornental forces) This can be seen in the reduction in sales of SUVs and the increase in sales for gas-lean products such as small sedans and hybrid vehicles To assure that our business is sustainable we will keep on the cutting edge of new entrants to the market Once the market realizes that there is money in selling smaller-engine highly efficient motorcycles and scooters other brands will introduce more efficient models To remain competitive Revolution Motorsport will acquire the rights to sell other Motorcycle brands Research shows that 73 of the top 100 best performing dealerships in the United States carry multiple product lines29

Revolution Motorsport will first and foremost be in the business of motorcycle sales not just selling Lifan and Hyosung

26 DATAMONITER 2006 Motorcycles in the United States industry profile 27 DATAMONITER 2006 Motorcycles in the United States industry profile DATAMONITER 2006 Motorcycles in the United States industry profile 2c) Advanstar Communications What this years top ]00 (motorcycle dealerships) look like

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70 Competitors and Substitutes

Revolution Motorsports direct competitors are inexpensive bikes and scooters Currently in the United States only one major product is positioned to compete with the Lifans unique value curve the Kawasaki Ninja 250 The bike has a slightly bigger engine and top speed However it costs two times more than our competing product There are other Chinese companies that manufacture motorcycles but no other Chinese brand is available in the United States The other Chinese motorcycles arc basically a commodity They are difficult to service find parts for insure register and so on If another good Chinese brand makes it to the United States market Revolution Motorsport will be prepared to take appropriate measures such as purchasing the dealership rights in the cities where the proposed company has a presence The acquisition option is better than facing potential price competition

In 2005 Honda controlled 302 percent of the United States motorcycle and moped market Harley Davidson controlled 233 percent and Yamaha controlled 168 percenr The remaining percentage is classified as the other category Other brands in this other category include BMW Suzuki Ducati Buell Triumph Big Dog American Ironhorse and the no-name brands The top three motorcycle companies Honda Harley and Yamaha sell high-end and quite expensive motorcycles Revolution Mororsports Lifan line is not poised to compete head to head with any of the above motorcycle manufacturers Rather it would like to grow the pie as a whole selling motorcycles to an under-serviced facet of the market However Hyosung is capable of competing with the major brands based a superior price and warranty

71 External Threats

Revolution Motorsports main threat would be competition from a similar product or product line Currently no other brands exist that offers the same value curve as Lifan in the United States Hyosung has many other competitors however none can compete on its price

Another company introducing a similar product line for the same or less cost is potentially Revolution Motorsports largest threat Until that happens Lifan guarantees Revolution Motorsport exclusivity To combat this threat of new entrants Revolution Motorsport will follow the trends of new entrants and carry the lines that would compete with our current line of product

I DATAMONITER 2006 United States motorcycle industry profile 11 Advan tar Communications What this years top 100 (motorcycle dealership) look like

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72 External Forces

Revolution Motorsport must consider the power of its supplier China has an immense manufacturing ability However we depend on the right sized shipments to keep our dealership some 5000 miles away in inventory The Lifan supplier alsu has exclusive rights to monitor prices and is able to raise or lower prices as they see fit Because American Lifan keeps an inventory uf over 2000 units on hand at any time in its warehouse in Dallas TX stocking inventory is not an issue Hyosung also keeps a large inventory ready to ship from warehouses located in Georgia and California Price fluctuations will probably occur over time as a result of inflation but will be reflected in the selling price and are not expected to affect Revolution Motorsports overall margin

The government is another force that Revolution Motorsport must be cognizant of The United States has tariffs limiting the quantity on imported motorcycles a law that was designed to give Harley Davidson an edge when business was down Although Harley is currently a world leader again the tariffs remain Conversations with the head of sales at American Lifan and Hyosung CS did not indicate any worries that the supply will ever be over-regulated

The buyer is a significant force If the buyer is not interested in purchasing product from China or South Korea even if it is high quality Revolution Motorsport could face challenges Even with this in mind trends show that United States consumers are generally more likely to buy a product based on value than the location in which it is manufactured For instance people do nut buy a Toyota because it is Japanese - they buy it because it offers the value that fits their preference Therefore as long as Revolution Motorsport maintains a significant advantage in value the business plan teem feels that consumers will buy the product

China and South Korea have advantages in labor costs and manufacturing ability and will continue to hold these advantages Due to Chinas policy of maintaining a devalued currency Lifan will continue to be able to produce an inexpensive product far into the future South Korea also has an abundance of inexpensive labor If labor costs become an issue it is more than likely that Hyosung will outsource the manufacturing aspect of its company to China or Taiwan

80 Marketing Plan

Most of the Motorcycle dealers that Mr Jackson concur that the most affective advertising comes from the drive-by traffic that is associated with having a good retail location The strategic location element will be addressed in the next section Revolution

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