MINNEAPOLIS – Here is an ironclad rule for selling snowmobiles:

You need snow.

Warmer weather and thin snowfalls since the late 1990s have melted sales at Polaris Industries Inc. and Arctic Cat Inc., the only two U.S. snowmobile makers. After one more wimpy winter in a long string of them, some dealers say they’re struggling to clear out last year’s sleds, let alone sell out of this year’s. Some gave up months ago.

“When there was nothing here indicating that we were going to have a winter, by the first of October, there was a business decision. Pull the cork,” said Dick Tschida, who sells sleds in Forest Lake, a suburb of Minneapolis.

Tschida returned more than 50 Arctic Cat snowmobiles and all-terrain vehicles and is switching to boats instead. The returns cost him about $7,000, but that’s a far cry from the $250,000 loss he figured he’d take by the time he discounted them enough to sell.

The relative lack of snow is also being felt by Maine snowmobile dealers.

Betty Turtlott, owner of the family-run Cat Trax in South LaGrange, said sales are better this year than last but still slower than she’d like.

“We’ve prayed a lot about snow,” Turtlott said.

When asked whether she believes global warming might have a long-term effect on her business, Turtlott said no, pointing out the recent Valentine’s Day snowstorm.

“I think it goes in cycles,” she said. “I remember relatives talking about winters with the windows open, and I remember winters with high snowbanks.”

Turtlott said she and her business partners, her husband and son, have not made any significant changes to boost sales. They also sell all-terrain

vehicles, which have become popular for summer use.

Craig Babcock, owner of Hank’s Repair in Carmel, which repairs and sells snowmobiles and accessories, said this year has been “very poor” for both sales and service.

“Last year we had a decent year. It certainly wasn’t the greatest of years, but it wasn’t too bad. This year is very poor,” Babcock said.

A late-season storm that socked parts of the Northeast came far too late for dealers like Tschida – and for the companies.

“The industry has been down for basically a decade straight,” RBC Capital Markets analyst Edward Aaron said. This year was “probably the toughest of any of those years.”

Polaris snowmobile sales have dropped by more than half, from $373 million in 2001 to $157 million last year. Its 2006 profits dropped 22 percent to $107 million on revenue of $1.7 billion.

Arctic Cat snowmobile sales have been more stable over the past five years but still dropped to $238 million during the year that ended March 31, 2006, down more than 5 percent from the previous year, and profits were battered by incentives to move sleds off dealer floors. Arctic Cat’s earnings of $23.7 million for the year that ended March 31, 2006, were a 16 percent drop from the previous year, even as revenue rose 6 percent to $732.8 million.

For years, Polaris and Arctic Cat seemed like twins, synonymous with Minnesota’s snowy far north. The first Polaris snowmobile was built by Edgar Hetteen and some relatives at his derrick and hoist company in the mid-1950s. He left what was by then Polaris Industries in 1960 and a year later started the company that became Arctic Cat at a time when dozens of fledgling snowmobile entrepreneurs were building snow vehicles with tracks in the back and skis in the front. Its Thief River Falls, Minn., headquarters is only about 60 miles from Polaris’ main plant in Roseau, and the two companies are now the only snowmobile makers in the U.S. Japan’s Yamaha Motor Co. and Canada’s Bombardier Recreational Products also make snowmobiles.

But demand for their sleds has been shrinking. Worldwide snowmobile sales peaked at 260,000 sleds in 1997, but are expected at around 160,000 this year, according to the International Snowmobile Manufacturers Association.

The two companies have reacted in very different ways.

Polaris added Victory motorcycles and has tried to strengthen ATV sales to the military. It cut production of its 2007 snowmobiles by 40 percent to give dealers a shot at clearing out inventory. Last year snowmobiles were less than 10 percent of Polaris sales.

Arctic Cat has stuck with the snowmobiles-in-the-winter and ATVs-in-the-summer formula, and snowmobiles remain about a third of its sales. Arctic Cat cut snowmobile production far less, just 4 percent. Another weak winter made that look like a mistake. Early this month, it announced plans to lay off 65 workers, and in January it cut its full-year profit forecast to $1.07 to $1.15 per share, down from $1.13 to $1.19 per share.

A bright spot for both companies has been growth of utility ATVs where the riders sit side-by-side – think of a golf cart with a roll cage and off-road tires. Polaris added its Ranger ATV in 1998 and has said it believes sales of a new, sportier version of the vehicle can add sales of $150 million over the next three years. Arctic Cat added a side-by-side ATV in 2005.

Aaron, the analyst, said Polaris also was quicker to expand international sales.

“Arctic Cat is just starting to dabble with that,” he said. “Polaris has been faster and more aggressive in terms of its diversification.”

Another Polaris attempt at diversification didn’t work out. The company set up a partnership with Austrian dirt-bike maker KTM Powersports AG and said it expected to eventually buy all of KTM. Instead, KTM stayed independent, and Polaris has said it will sell most of its KTM shares this year.

Despite the snowmobile problems, Polaris said it’s a key part of their business. Polaris President and Chief Operating Officer Bennett Morgan said the production cut last year means the business is ready to grow again if the snow flies.

“We took some tough medicine. A lot of the other manufacturers chose not to,” he said. “Surprising as it may seem, we feel much better about our snowmobile business today than we did in April.”

He said Polaris has never considered spinning off its snowmobile business, despite the downturn in recent years.

“It is our heritage,” he said. “It is the heart and soul of this company.”

Arctic Cat, which didn’t make an executive available for this story, has taken some of Polaris’ snowmobile sales away. But entering new markets isn’t cheap and can take years to pay off, said Raymond James analyst Joe Hovorka.

“When Polaris entered the motorcycle market it cost them a lot of money over a long period of time. Arctic Cat has been in the ATV business now 10 years or so, and they’re still less than 10 percent market share,” he said.

Tschida says his days of selling snowmobiles are over. Too many people, he says, are hesitant to spend money on a toy they may not be able to use.

“They’re more apt to spend on a new aluminum boat to go fishing, because they know they can go fishing from at least the first of May until the end of September,” he said. “I can’t say that about four-wheeling or snowmobiles or any of the other winter sports.”

BDN reporter Anne Ravana contributed to this report.