Polaris Industries Shutters Victory Motorcycle Operations

Polaris, the MN-based maker of motorcycles and all-terrain vehicles announced today that it’s winding down the Victory brand effective immediately to concentrate on its better-performing Indian Motorcycles business.

Polaris said it will assist dealerships in liquidating inventory and will supply parts for another 10 years and honor warranties in place.  Victory motorcycles are primarily manufactured in Spirit Lake, Iowa.

The first Victory motorcycles rolled out in 1998, yet never took much market share from Harley-Davidson Inc., in the cruiser-bike category. Indian Motorcycles, which Polaris relaunched after a 2011 acquisition, has performed better, however Harley’s market share remains at 48 percent to Indian’s 3 percent.

Polaris Industries Chairman and CEO Scott Wine stated, “This decision will improve the profitability of Polaris and our global motorcycle business, and will materially improve our competitive stance in the industry. Our focus is on profitable growth, and in an environment of finite resources, this move allows us to optimize and align our resources behind both our premium, high performing Indian Motorcycle brand and our innovative Slingshot brand, enhancing our focus on accelerating the success of those brands. Ultimately this decision will propel the industry-leading product innovation that is core to our strategy while fostering long-term growth and increased shareholder value.”

Photo courtesy of Victory/Polaris.

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The Motorcycle Landscape Is Changing

The heavyweight motorcycle market is approximately a $4 billion market.  Harley-Davidson is the market segment share leader with 2010 revenue of $3.14B.

Last week Polaris (CEO – Scott Wine) announced the acquisition of Indian, the nation’s oldest motorcycle brand. Indian’s best-selling model, the Chief, became known for the Red Indian logo on its fuel tank.  After twice filing for bankruptcy the manufacturing of Indian motorcycles restarted three years ago in Kings Mountain, NC.  The terms of the acquisition from British investment firms Stellican Ltd. and Novator Partners LLP were not announced, but given the strong brand portfolio of Indian I’m sure it didn’t come at garage-sale prices!

Polaris entered the heavyweight motorcycle market about 12 years ago and of the Polaris $2B in annual sales, about $82M comes from Victory motorcycles.  The Indian brand will help the company build on the Polaris’ presence in the market and directly compete with Harley-Davidson in the heritage brand sub-segment with its classic style.

Clearly the motorcycle landscape is changing and if you need further evidence just look at the recent announcement by BMW Motorrad who saw a 12.3% growth in the last financial year and sold 110,000 motorcycles.  They announced that Hero Motors (India company), as the sole supplier who will provide gearboxes for BMW’s motorcycles.  Not only are they the supplier, but Hero provided the engineering and developed the advanced technology for all BMW transmissions.

According to this Sioux City Journal article,  the U.S. production of Indian Motorcycles will shift to Polaris Industries’ Spirit Lake plant later this year.  Polaris is based in Medina, Minn., and they will close the existing Indian manufacturing plant in Kings Mountain in the next two to three months.

Photo taken at and courtesy of Indian booth.

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Polaris Taking HOG Market Share

Polaris Industries -- Victory Motorcycles

Creativity.

There is a fascinating and quite boring article in ‘Newsweek’ about the creativity gap, how creativity is declining in America.  Reading it I couldn’t stop thinking about the motorcycle business and specifically Harley-Davidson.

Given it’s earning season; H-D announce earnings HERE, now it’s Polaris Industries Inc. (NYSE: PII), makers of the Victory motorcycles turn who reported its Q2’10 net income of $25.6 million.  By comparison, the 2009 second quarter net income was $17.5 million.  Sales for the second quarter 2010 totaled $430.9 million, an increase of 25% from $345.9 million recorded in the year-earlier period.

Scott Wine, Polaris’ CEO stated:

“Polaris maintained strong momentum in the second quarter, driven by solid market share gains, sales growth and margin expansion. Innovation and execution enabled us to deliver another quarter of solid operating results in an overall economic and powersports industry environment that remains sluggish.”

Yeah, but you’re likely saying that’s all ATV and snowmobile sales, right?  True the lions share is off-road sales, but specific to sales of the On-Road Division, which primarily consists of Victory motorcycles, they saw an increase of 48% during the second quarter of 2010 vs. the same period in 2009. The N.A. heavyweight cruiser and touring motorcycle industry remained weak during the quarter, but Victory motorcycles had strong retail sales during the second quarter, increasing more than 10% in N.A. compared to the second quarter last year, resulting in overall market share gains and retail sales growth for the third consecutive quarter. The increased demand reflects the popularity of the new 2010 Cross Country and Cross Roads touring models.   The N.A. dealer inventory of Victory motorcycles declined 32% in the Q2’10 compared to 2009 comparable levels. The sale of Victory motorcycles in markets outside of N.A. continues to accelerate, with sales reaching 25% of total On-Road/Victory sales for the year-to-date period.  And lastly the income from Polaris financial services was $4.2 million for Q2’10 compared to $4.0 million in 2009.

I can’t put my finger on it, but there is something missing for me with the Victory motorcycle.  Maybe it’s just the “bar-n-shield” logo and now my bias is showing?  But I balk at comments from riders that claim Victory is NOT a threat or competition for H-D… it just doesn’t ring true.  The cruisers are more roomy, the engine has more HP, the motorcycle is lighter, has a lower seat, larger saddlebags all at a cost of thousands less means Victory is doing a lot RIGHT on the creativity front.

In other words, the Harley-Davidson businessmen look to squeeze all the creativity out in the name of profits.  And now the business is in the hands of the manufacturing line worker, who are always the least creative element in the chain.  The engineers designed out cost, the line-worker built them at the lowest cost, the dealer sold them slightly above cost. Now the company is trying to fix the business, but are flummoxed.  Do they truly think cutting out cost, means somehow people will magically appear?

They’re not and meanwhile Victory ratchet’s up innovation.

Photo courtesy of Polaris/Victory Motorcycles.

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The Sombrero Challenge

Today was not a good day for leadership.

First it was Calderon.   You know — the Mexican President, Felipe Calderon?  His administration has attempted to rid Mexico of the narco-traffickers using thousands of Mexican troops and hundreds of millions of dollars in U.S. aid, but cartel members have killed thousands in an effort to maintain control of the lucrative drug trafficking routes.  More than 18,000 people have been killed since Calderon launch his military offensive in 2006.

Then in an unprecedented mucho ballsy move he comes to the U.S. today and complained about Arizona’s immigration law (SB1170), when all the state wants to do is protect itself against a flood of illegal immigrants from Calderon’s country!  And, how about that Congress’s standing ovation for the Mexican leader?!  Adding insult to injury in this twilight zone was President Obama complaining whining about Arizona trying to do something about a problem he- President Obama and the federal government- have created and choose to ignore.  George W. didn’t help.  Combined with the fact they can’t be bothered to read the law that they’re criticizing. If they did, they’d find out that parts of Arizona’s law are word-for-word the same- exactly- as the federal statutes on immigration.  I’ll save my viewpoints on how Mr. Calderon should spend his time trying to create opportunities for his own citizens, so they’re not driven by poverty and desperation to sneak into this country illegally for another day.  The fact is that this “pony show” is all about pandering to Hispanics for votes.

And speaking of pandering…

Polaris Industries Inc., (parent company of Victory motorcycle) announced today that it will establish a new factory in Mexico’s Monterrey/Saltillo area. Talk about great timing on doing your part for the American economy — exporting American jobs along with the factories.  This major realignment will begin immediately and will lead to an eventual sale or closure of the Polaris’ Osceola, Wis., manufacturing operations.  Polaris stated the realignment allows it to invest in and outsource certain “nonstrategic” component manufacturing processes while improving on-time delivery to customers, and providing savings in logistical and production costs.  Make no mistake, it is all about the money.

Scott Wine, CEO of Polaris, stated in a press release:

“Pursuing opportunities in new markets outside the United States, while concurrently evaluating our cost structure to improve our long-term competitive positioning, are key components to our growth strategy. This decision was based on a thorough review of our worldwide operations and will allow us to improve our ability to meet the quality, delivery and cost standards desired by our dealers and customers.”

Harley-Davidson has made it public they are also considering a move out of Wisconsin.  Inconceivable? Think again.  Polaris plans to have their factory in Mexico operational beginning in the first half of 2011.  Can H-D be too far behind?

My philosophy is that if my neighbor doesn’t have a job, sooner or later I won’t have a job either.

Photo courtesy of Harlistas.

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