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Posts Tagged ‘Claudio Castiglioni’

MV Agusta - F4

I’m not sure who said it, but there’s an old saying about Harley-Davidson, that goes something like: “if I have to explain it, you wouldn’t understand.

So, on the day I left for Sturgis (August 6th), Harley-Davidson announced it had concluded the sale of its subsidiary, MV Agusta, to Claudio Castiglioni and his wholly owned holding company, MV Agusta Motor Holding, S.r.l.   You may recall that in October 2009, under the new leadership of CEO Keith Wandell, H-D announced its intention to sell MV Agusta as part of a NEW corporate strategy and to focus resources on the Harley-Davidson brand.  In fact, Mr. Wandell was in route to Minnesota on this announcement day so his handlers undoubtedly had everything all wrapped up prior to his departure ride to Sturgis.

The divesting announcement came 2 years (almost to the day) after it completed the $108M purchase acquisition of MV Agusta on August 8, 2008.  Then CEO Jim Ziemer said of the purchase:

“We are thrilled to welcome the MV Agusta family of customers and employees into the Harley-Davidson family of premium motorcycle brands,” … “Our primary focus with this acquisition is to grow our presence and enhance our position in Europe as a leader in fulfilling customers’ dreams, complementing the Harley-Davidson and Buell motorcycle families.”

The divesting announcement didn’t include the sale price but its 8-K filing with the Securities and Exchange Commission revealed the company essentially paid MV Agusta’s former owners to take it back.  In the filing Harley stated it “contributed 20 million Euros to MV as operating capital” that was put in escrow and is available to the buyer over a 12-month period. The buyer was Claudio Castiglioni, who, with his brother Gianfranco, ran MV Agusta for years before selling it to Harley two years ago.  In the filing Harley also said it received “nominal consideration” from the buyer. In a subsequent interview the company said the specific amount it received was $3 Euros (~$3.98 USD)

In 2008 most of us were stymied by the purchase of MV Agusta.  As a maker of expensive and exotic, high-performance sport bikes at minimum it overlapped with the Buell products and even worse was the company never explained how MV could attract younger buyers to H-D.

Here are my questions.  How many laid off workers equal the cost of this poor decision and why hasn’t the Board of Director’s been held accountable for one of the worst business decisions in H-D history?  Yeah, they’ll likely tell me “if they have to explain it I wouldn’t understand…”

I previously blogged about H-D going Italian HERE.

Footnote:  There is a certain level of incompetence from the old time management at H-D and they should-have-known-better.   It’s not the first time Harley-Davidson has had a hard time with an Italian acquisition. In the 1960s it bought a stake in Aermacchi, a maker of small off-road bikes as a way to expand into new markets. Eventually it bought the whole company, but that move also eventually failed and Harley sold Aermacchi in the late 1970s. The sellers and buyers: the Castiglioni brothers.

UPDATE: September 11, 2010 — Not previously made public, but buried in the Sale and Purchase Agreement filed with the SEC is a provision that H-D retains control of any press releases and statements about the sale for a year from the August 6th closing date.  Why?  Maybe the fact that H-D forgave a $103M Euro receivable… basically money it had loaned MV Agusta for operations.  The sale agreement specifies that the receivable transfers to Castiglioni for $1 Euro!!  Shareholders need to hold the board and management responsible for this “BARGAIN:”  H-D paid $108M, then put $20M Euro in escrow for Castiglioni when they “sold” it back; forgave $103.7M Euro’s lent to MV Augusta and wrote off $162.6M on the company.  Q3’10 will include more losses due to tax liabilities…does it ever end?

Photo courtesy of MV Agusta.

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First was a slam about H-D imitating and going down the General Motors path.  Then there were calls for a Lazarus-like resurrection!

Not my words, but direct from Mr. Keith E. Wandell (Harley-Davidson CEO and President) who states; “Look in a mirror – Harley was already so far down that same (GM) path it wasn’t even funny.” More talking point nuggets from his first in-depth press interview HERE and HERE.

I’m not sure about you, but I’ve never thought of my Harley as a “Chevy” and I own both!  Never mind that many GMs are made in Mexico or Canada.  The public perception of GM is that it stands for overlapping product lines with bland differences and the “bigger is better” mantra is followed to extreme, and then a crash diet when fuel prices soar.  This has lead to a sea of monstrosities as well as a few genuine moments of clarity and even a hint of brilliance.  But in total, the brand is most often marred with an indifferent quality perception and inexpensive or cheap label.

I don’t hang on Mr. Wandell’s every word, but his point above is an interesting way to send a condescending comment to the Harley-Davidson employees and buying public.  Does the Harley Chief really want his current customers to associate their recently purchased premium ride with GM?  It seems disingenuous to compare GM to the state-of-state at Harley-Davidson or use them as the poster child for everything wrong at H-D.  Wasn’t it just a little over a year ago that H-D management and the board approved what many would consider the equivalent of GM buying Ferrari (H-D acquires MV Augusta)?

Keith E. Wandell - CEO Harley-Davidson

The implication from the CEO interview is that H-D, like GM is a fading American industrial might, one that offered up a motorcycle to feed every market segment which has since degraded into exuding minimal coolness from contrived models.  Many others with little identity and somehow you’ve been duped into paying a premium price for indifferent quality.  This doesn’t seem intellectually honest or make for good PR!

The mind-set reminds me of an article in yesterday’s Wall Street Journal about plastic corks and how they’ve made major inroads into the 400 year-old world of wine-corks.  One quote rang especially true and reminded me of the Harley motorcycle business.

“By the 1990’s, retailers and wineries were clamoring for a solution to wine taint, but the cork industry didn’t respond.  No industry with 90% market share is going to see its propensity to listen increase – and that’s what happened to us,” stated Mr. Carlos de Jesus (Head of Marketing, Amorim Group (largest cork producer in Portugal)).

The bottom line is corks didn’t work that well and wine ended up contaminated/bad because of cork deficiencies.  No cork manufacture believed there was a problem and didn’t see the opening for an entrepreneur.  In less than 10 years, plastic corks account for about 20% of the bottle stopper market.  They changed the way winemakers think about making and closing wine.

Lessons for Harley?

  1. Never lose focus on your core mission.  Which is bringing great quality motorcycles to the public.  Some motorcycle manufactures have tumbled into the abyss because it became more about hip-hop star alignment, brand marketing, finding a tiny niche and filling it, oblivious to the point most of your market just doesn’t care.  Oldsters and hipsters are both confused.
  2. Don’t be inured to nostalgia or old technology.  The public is more open to innovation than the supplier.  People are not married to the old ways, they’ll embrace new ideas even if not every innovation triumphs.
  3. Success breeds complacencyAll most innovation in the motorcycle business is by the independents or custom shops doing it outside of the system.  To say you need a major motorcycle company to triumph is to say plastic cork suppliers can’t win unless they align with real cork suppliers in Portugal, who after all are fluent in distribution and have pre-existing relationships with wineries.  But, the plastic cork guys went it alone.
  4. Efficiencies and price. We’re not talking virtual here, corks are physical whether real or plastic.  The future is lower priced motorcycles and the cycle time for new models can’t be like harvesting cork from a tree every 9-to-10 years.  The fundamental measurement of lean manufacturing is cycle time.  It doesn’t matter how many “Kaizen” events or “six sigma” projects a company holds. Cycle time is to lean what weight is to a dieter.  You can get all the bean counters to measure inches lost or reductions in calorie intake, but at the end of the day the bottom line is determined when you step on the scales.
  5. Multiple answers. There is always more than one answer which can take hold.  Screw caps are triumphant ‘down under’ in Australia and New Zealand.  Who will develop the next “screw cap” for the motorcycle industry?

The point is not to be weighted down by your presuppositions.  Don’t think that you’re operating in a world of immutable laws.  And to realize that trying to hold back the future is a losing proposition.  The only way to maintain your share is to improve what you’ve got. Concentrate research dollars on fewer models, pack them with the latest features and technologies, manufacture them in low-cost, U.S. factories (non-union?) and update them relentlessly on rapid fire engineering design cycles.

Schematic photo taken at H-D Museum; Keith Wandell photo courtesy of Tom Lynn/JSOnline.

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TTTI landed on the Discovery channel the other night and watched a rare look inside the MV Augusta factory, where they built the F4-312. 

You may recall Harley-Davidson acquired MV Augusta last year for $108M which was previously blogged HERE.

At any rate, I’ve watched the ‘Twist The Throttle‘ documentary series in the past, but MV Augusta was one story I had not viewed on the world’s most famous sport motorcycling brand.  The series reviews various brands (Honda, Yamaha, Suzuki, Kawasaki, Ducati, Bimota, BMW and Alpinestars) histories, what happens behind the scenes at their factories, inside their research and development centers and ultimately what it’s like to ride the machines on some of the great motorcycle roads and race tracks around the world.  The series is available on the Discovery Turbo website.

For example I learned it takes 11 hours to build the F4 engine and 4.5 hours to build just one motorcycle.  It was also interesting to hear several of the on camera interviews evangelized the lack of any hard-core time-based manufacturing processes… huh?  Isn’t MV a motorcycle manufacture?  Watching the story you couldn’t help but think a bottle of red wine followed each motorcycle down the assembly line like a cocktail soiree and when it’s done, it’s done.  No rush…we’re artists!  Wow, the Italian build process seemed opposite and very casual compared to the Milwaukee plant tour I attended last year.

DADS Simulation

DADS Simulation

In fact, Harley-Davidson uses advanced engineering and simulation tools to compress design cycles as well as other tools to reduce the overall manufacturing process time.  For example the application DADS from CADSI (now part of LMS of Coralville, IA) is used for full 3-D prototyping and to simulate the handling of the motorcycle during a lane change, j-turn or weave maneuvers.   For a company that produces 12 different parts made of 4615 material with complex profiles of 20-42 teeth and robots measuring parts baskets with door-to-door cycle time of 11.3 seconds and overall grind times of 56 seconds…I find it astonishing that MV Augusta/H-D exec’s would go on camera pontificating the merits of the aristocratic craftsmen — “no motorcycle before it’s time” philosophy.

Is it time to exchange the Girard-Perreguax watch for a Timex and bring on the accountant dawgs to rehabilitate the long lunch wine drinking staff?

Photo courtesy LMS and H-D.

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MV Agusta - 1078RR

MV Agusta - 1078RR

You’re an executive at Harley-Davidson.  Gas prices are up, rally attendance is down, product costs are increasing, product sales are in free-fall, you’re customer demographic is aging, the economy is stalled and the housing bubble prevents people from fun-filled-equity-financing.

You dig deep into the Harvard Business School memories and determine what to do?  Buy an Italian motorcycle company (MV Agusta Group) for $108M of course!  WTF?  Harley completed the acquisition of MV Agusta in July,  but until recently I couldn’t wrap my head around this or understand the complimentary connection to the beer drinking Milwaukee company vs. the high-flying invitation-only cocktail soiree that MV Agusta typically entertains.

MV Agusta Factory - Varese, Italy

MV Agusta Factory - Varese, Italy

But, I get it now!   It’s about wine and Harley execs jet setting to Milan for private VIP parties to swap race stories with makers of high-end Italian brands in what can only be described as a marketing orgy to portray the ultimate in luxury and style.

Let’s break it down.  Fly into Varese on a direct international flight and land in northern Italy…about an hour from Milan.  Grab a room at the Palace Grand Hotel and catch a glance out the window to see a spectacular view of Lake Varese below.  The Palace Grand Hotel was built on top of a hill overlooking the town and lake below. Built over 100 years ago the structure is magnificent, and also happened to be owned by Claudio Castiglioni who was once president of Cagiva and MV Agusta.

MV Agusta is the Italian national symbol of motorcycling prestige and technology, and represents the ultimate in terms of engineering.  They must have held candlelight vigils after hearing about the Harley merger?   I learned the secret to this merger is the approximately 195 wineries located near the factory!  The Corso di Porta Ticinese is a popular place for young people to hang out and is home to many notable churches.  During the day the Harley execs can do long lunches drinking world-class wine and then visit the many boutiques, ateliers, craftsmen workshops and when the sun goes down the canal area transforms into a colorful nightlife where the Milwaukee “jetsetters” hang-out to be seen in the various clubs.

In my view this acquisition is a train wreck.  The concepts of cross-engineering or having a modern product that is consistent with an aristocratic past…is like walking around with a Girard-Perreguax watch, Trussardi jacket and camo-print cargo shorts that show off cotton white socks in tan nubuck boots.  This unusual sense of cool as a “Trussardi-wearing hipster” will not inject soul into the Harley brand or bring about positive word-of-mouth buzz for either party.  There is significant engineering/product overlap with Buell and someone needs to rehabilitate the overexposed, wine drinking executive staff.

This is a magazine shoot – not real life.

 

Photo courtesy of MV Agusta web site.

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