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BUSINESS IN"IRI" SUC",SS THROUGHMARKETIHTEll""",

REPRINTED FROM THE JULY 9, 2012 ISSUE

CFMOTO PRESIDENT:

'WE'REHERETO STAY'

Chinese brandshooting to expand

to 200 dealersBY DAVE McMAHON• SENIOR EDITOR

Over a plate of chicken wingsand water (no ice) for lunch, Mr.Guogui Lai talked with excitementabout the past, present and futureof CFMOTO. Mr. Lai has everyreason to be excited. His company- yes, he owns CFMOTO PowerCo. Ltd., the parent company ofMinnesota-based CFMOTO Pow-ersports - has made tremendousgains in 2012, both domestically inChina and abroad.

Mr. Laihas made strides on theAmerican culture front as well in2012. His blog recently included apost about his trip to the GatewayArch in St. Louis, in addition tofinding a tasty plate of wings inArkansas while visiting dealers ona four-day southern circuit.

Mr. Lai established his motor-cycle and ATV manufacturingbusiness in 1989, and holds thetitles of president of ChunfengHolding Group Co., Ltd. andchairman of the board of Zhe-

jiang CFMoto Power Co. Ltd.And while his titles are lofty,his down-to-earth demeanor hashelped him grow the businessto its current state in HangzhouCity, Zhejiang Province.

With interpretation providedby Ivan Tan, Mr. Lai's travelingsecretary, Powersports Businesslearned more about CFMOTOPowersports, the exclusive U.S.distributor of CFMOTO.

PSB: What is the situationwith the patent violation lawsuitthat Polaris Indusrrtes has filedagainst CFMOTO?

MR. LAI: The lawsuit has a tem-porary stoppage right now. Bothparties have agreed to that. Weare confident in dealing with thisissue with Polaris and we lookfor a good relationship. As for thedetails, it is business confidentialand we are not able to talk aboutthe details. We are standing onthe optimistic side and we arecooperating with Polaris.

PSB: Could you provide anupdate on the lawsuit thatCFMOTO filed against the U.s.,U.S. Department of Homeland

Security, Customs and BorderPatrol, and the EPA in]aJ1uary20 in The suit arose from sei-zure in April and May 2009 ofseveral hundred vehicles thatwere said to have been in viola-tion of the EPA's Clean Air Act.

MR. LAI: This lawsuit is resolvedand everything is clean. Thislawsuit is kind of a reminder orwarning to us because before wewere not quite familiar with theU.S. market. But after this casehappened, we know the laws inAmerica. Now we do everythingaccording to the American regula-tions and law. We do everything

according to the requirements.

PSB: What should our readersImow about the company's manu-facturing plant in China?

MR. LAI: First, the location isin Hangzhou City in ZhejiangProvince in China. Maybe youhave ever heard of HangzhouCity? It is a very beautiful city.In China, there is a saying, 'Atthe top, we have heaven. Andnot very far below that, we haveHangzhou!' We have more than1,300 employees and the facili-ties are over 1.6 million squarefeet. There are two production

2 • July 9,2012 • Powersports Business 'MNIN. PowersportsBusiness.com

lines for 4-wheelers, and also wehave two 2-wheeler productionlines. Usually, the employeeswork eight hours a day, but thatis based according to the orders.For example, if we cannot finishan order in a certain time, we willdo some extra jobs. Also we havethree painting lines. And we alsohave frame mounting lines andthree engine production lines inaddition to the machine plant.The plant has an annual produc-tion capacity of 800,000 enginesand 600,000 vehicles.

PSB: Does thefactory operate 24hours a day?

MR. LA!: Some lines do. For

example, the painting lineis automated and running24 hours. The assembly line isman's work, we say, and we add tothe line when the orders require it.

PSB: Describe the company'sgrowth over the recent past

MR. LA!: The Hangzhou plantcame into production in 2006. In2008, we were influenced by theglobal financial crisis. From 2009to 2011, we have had a 50 percentincrease in sales. From January toApril of this year, we have had a64 percent increase in sales com-pared to last year, and the biggestincrease came from the 4-wheelers- big displacement engines.

PSB: How would you describethe A TV marhet in China?

MR. LA!: For the China market,it's just the start of the 4-wheelermarket. Mostly they are beingused for recreation, for fun.

PSB: How many ATV manufac-turers are there in China? Howmany players are in the 4-wheeImarhetplace?

MR. LA!: Before the year 2008,maybe there were 20-30 manu-facturers. That's many. In 2011,there are not many left, just a fewleft. According to the calcula-tions by the industry community,CFMOTO exports more than one-

third of the Chinese volume of4-wheelers to foreign markets.In sales volume, we take two-thirds of the market. We are No.1 in 4-wheelers in China. Duringthe global financial crisis, a lot ofsmall 4-wheeler manufacturershave gone away.

PSB: Why is CFMOTO situatedat the top of the Chinese ATVmarhet?

MR. LA!: First we would needto talk about the product. Everyyear, our R&D departmentcomes up with one or two newproducts. For the 4-wheelers,we have 500, 600 and 800ccengines. We have a very good

rCFMOTO, established in 1989 with its full name asCFMOTO Power Co. Ltd., has over 20 years of experiencein the industry. As a leading manufacturer ofliquid-cooled engines, motorcycles and all terrainvehicles in China, CFMOTO has an annual productioncapacity of 800,000 engines and 600,000 vehicles.

The company covers an area of about 1.6 million squarefeet and has the facilities for engine and vehicle ~assembly, frame-making, machining and painting. •

"The first reason we set up a company in the US is because we wontedto show U.s. dealers and customers a quality Chinese product andmanufacturer. We are expanding our facility in Minnesota in order toprovide better parts and service assistance to our dealer network.Dealers wanted to provide good customer service, and we wanted to helpthem. We are not here to just make unit sales; we are here with parts andservice support as well. We are here and we are not going anywhere!"

Mr. Guogui Lai (pictured at left at (FMota headquartm in Minnesota)

PresIdent, ChunfMg Holding Group CD.Ltd.Chairman of the boord, Zhejlang (FMoto Power Co.Ltd.

www.PowersportsBusiness.com Powersports Business· July 9,2012 • 3

engine platform. In a few years,maybe one year, we will havea 1,000cc model. In Europeancountries, we have selectedvery good importers, for exam-ple, in Russia, Sweden, France,Germany. We have very goodimporters. Their aftersales ser-vice and their sales network isvery good for the customers.Also we have very good pricing.So the price is reasonable andquality is competitive with otherproducts, so the importers alsohave a quite good profit mar-gin. Another thing is the brand.We can see from the beginningthat we have built the brand. Weinput our company culture intothe brand.

We have sold our prod-ucts to OEMs in recent years,just a few percent. But for99 percent of the vehicles that weproduce, we use our own brand,CFMOTO. That way, the import-ers, the dealers, the customers,trust the CFMOTO brand. Everyyear since 2004 we have increasedthe 4-wheelers sales, excludingof course, the financial crisis. Sowe can conclude that we have aquality product, with the propersales network, importers, strategyand price

PSB: CFMoto does producesome products for other brands?

MR. LAI: We only provide vehi-

cles for a French company, Goes.

PSB: You have deep roots inEurope as a top export destinationfor your ATVs. Could you providesome insight into how your reachextends into those markets?

MR. LAI: In foreign countries, inthe ATV segment, we have someof the biggest customer groups.The market share in Russia is 30percent; in Sweden we've got 15percent, in Australia 5 percent.Also, Austria 20 percent, in Ger-many we have 5 percent. In Can-ada we have 5 percent, Italy's 10percent and Poland is 8 percent.

PSB: What's the breakdown of

2-wheel sales vs. 4-wheel salesforCFMOTO?

MR. LAI: Total productionby CFMOTO, 2-wheelers plus4-wheelers, is 30,000 units peryear, not including exports. Thesales volume in the domesticmarket is stable in recent years.Because we are CFMOTO, inthis industry, we are differentfrom other motorcycle compa-nies. We do something specialand different. In China, the othermotorcycle manufacturers pro-duce vehicles with displacementunder 125cc. We are CFMOTO,and we have 150, 250 and also650cc motorcycles. Our productis different from the others.

LOW MSRP • HIGH DEALER MARGINS· EXPANDED PARTS WAREHOUSE· INCREASED SERVICE INFRASTRUCTURE

1

JETMAX

4 • July 9,2012 • Powersports Business \fI/\N\N.PowersportsBusiness.com -

PSB: When did CFMOTO Pow-ersports [orm?

MR. LAI: Our products began tocome to the U.s. market in 2002and we built CFMOTO Powers-ports in 2007.

PSB: Why would dealers in theU.S. be interested in carrying theCFMOTO brand?

MR. LAI: Many years ago, whenCFMOTO decided to develop4-wheelers, we especially based onthe U.s. market. That is why wedeveloped 4-wheelers. But afterwe did some research on the Ll.S.market, we found a lot of strongcompetitors, for example, Polaris,Arctic Cat, BRP and also the Jap-anese brands. They are all verystrong competitors. At that timewe thought our chance was notvery good to enter the U.s. mar-ket, especially for the 4-wheelers.So at that time, from about 2005 to2009, we focused on the Europeanmarket. We developed fashion-able products that are suitable forthe European customers. "Wewentto the European market and hadgreat success. We can see the deal-ers have very good profit marginsbecause of our success there.

DUling that time, from 2005-09, the UTV and ATV marketwas just beginning in Europe. Soafter many years in the Europeanmarket, we've got a lot of experi-ence and we learned a lot fromthat market. So in the U.s. market,what we learned from the Euro-pean market will help us achievehigh success. For example, in theaftersales service, in the quality,we want to make the distancesmaller between our competitors,especially in the U.S. market. Wealso have some advantage in theR&D because we've found in theU.S. there are many people wholike sports and recreation, and we

wanted to bring more products tothe American people with lowerprice but good quality to makemore people enjoy the sports funfrom our products. CFMOTOprices are not as high as our com-petitors. Not all the people arerich people. Our price is lowerbut the quality is strong. We wantmore people who are not so rich toenjoy the fun ofATVs.

MR. LAI: Before the year 2010,in the U.S. market we focused onthe 2-wheelers. But after the startfrom last year, we changed tofocus on 4-wheeler. A good teamis very important for the com-pany to develop and increase.We want professional people tolead our growth. The new gen-eral manager, Adam Tao, hasmany years working in Europe.

"The reason we came tothe U.S. was to show dealers and

customers a quality Chineseproduct and manufacturer!'

jVJ.r:Guogui wi,president, CFjVJ.OTO

PSB: What are CFMOTO vehi-cles known for? How do your big-gest fans describe them?

MR. LAI: The first point is thatwe have good products withquality engines. We develop allthe engines by ourselves. Withso many years of development,we have formed our own productstyle, especially the appearance.They're good looking vehicles.The second point is our quality isguaranteed. No.3, we have trustfrom the customers, and No.4,we also have a good price. Thatmeans compared to other prod-ucts, we have good price andgood quality. Maybe the last butnot least, we have a very goodrelationship with our importersand dealers. We work hard toprotect our dealers' interest andhelp them provide better servicefor our customers.

PSB: CFMOTO Powersports- the U.S. operations - isunder new management. Howwill dealers notice the change inmanagement?

He is Taiwanese and also canspeak Chinese in addition toEnglish, so there's no communi-cation problem.

PSB: Parts availability forCFMOTO has been a concernfor dealers. I understand thatwalls are being knocked downfor expansion at the CFMOTOPowersports headquarters in Min-nesota. Can dealers expect some-thing different in terms of partsavailability ?

MR. LAI: Of course the partsare very important to custom-ers and dealers. The first thingwe wanted to do was give thedealers a technical guide to helpthem deal with repair issues.No.2, yes we have expandedour headquarters here to get alarger warehouse. We wanted tomake our complete line of partsavailable in the U.S. to guaranteethis wi.ll meet the needs of deal-ers. We will also have a trainingroom at our headquarters, andwe will be asking dealers andservice staff to come here to get

more knowledge about our partsand products.

PSB: Some dealers are not quiteready yet to pick up a brand basedin China. How couldyou convincethem that CFMOTO is differentthan what they are used to?

MR. LAI: The reason we cameto the U.S. was to show dealersand customers a quality Chineseproduct and manufacturer. Deal-ers want to provide good cus-tomer service, and we're helpingdo that with our new expansion.We are not in the U.S. to justmake unit sales; we are herewith parts and service support aswell. We are here and we are notgoing anywhere.

PSB: What is your currentnumber of dealers in the U.S.?Do YOll have plans to grow YOLlrdealer base, or is the numbergood for now?

MR. LAI: Right now we haveabout 90 Ll.S. dealers, but the pastfew years we have just focused onthe 2-wheelers. Some 2-wheelerdealers are not suitable to sell the4-wheelers, so we want to recruitmore very good quality dealers.The key issue is to get more deal-ers, especially 4-wheeler dealers.We think around 200 dealerswould be suitable for CFMOTO.

PSB: Why did YOllchoose to getinto the powersports ind1!Stry?

MR. LAI: I got into the businesswhen I was 24 years old, and itwas then that I realized you canhave a lot of fun in this industryif you work hard. And now thatit's been 24 years that I've been inthe business, I still have one goal:to help more customers enjoy thefun of powersports In the blink ofan eye, the time has passed. P 5 B

Copyright © 2012. All rights reserved. Reprinted with permission from Powersports Business magazine.