Victory Buys Indian, What Does It Really Mean?

As you have no doubt heard by now, Polaris Industries, the parent company of Victory Motorcycles has purchased Indian Motorcycle Limited from Stellican Limited (investment banking firm) and Novator Partners LLP, UK (yet another investment banking firm). The details of the deal are undisclosed, as is Victory's norm in such matters. Well, well, well, seems Indian has a new owner, there's a shocker, but is it news? And more importantly is it a good deal for fans of the Indian and Victory brands? The view here at the Asylum is a rock solid, iron clad, "could be".

Indian Motorcycles, still iconic

At first, we kinda scratched our chins too, sort of a mild "WTF". OK, more like a "huh!?". Sure, Indian's had more partners than Lindsey Lohan, and they haven't made a quality machine since, well since, Indian was really "Indian", and I'm not sure when the hell that was, certainly before my time, and I predate color TV, faxes, and microwave ovens. But the more we mulled it over, the more it made sense, at least from a couple of perspectives.

So beyond making a bunch of bankers and lawyers a poo-load of cash, what's in it for Indian and Victory, and more importantly the rest of the great unwashed, we lowly riders? We'll attempt to break it down. First and foremost, Victory has bought itself an iconic American motorcycle brand. Make no mistake, despite all its mismanaged mis-steps in the past, the Indian name and logo still have an amazing (unwarranted maybe?) reserve of positive brand equity, and that folks, is a very valuable asset. Especially when that brand equity tends to dwell in a segment of the market where you (read Victory) have been traditionally weak. Stay with us.

Chrome Asylum has been a fan of Victory Motorcycles from day one, mostly because of the fact that they have never gone the "me too" route; building nearly carbon copies of Harley Davidson's and calling it good; as has sadly been the case with all of the Japanese manufacturers (check out "Victory Motorcycles - building a "There" there. 11/10/10 and "Victory's High Ball" 1/23/11 in the archives). But while Victory has done a commendable job staking a claim in the heavyweight cruiser market by designing and building distinctive "performance based" motorcycles, they've never really scaled the lofty walls of what Victory calls the "die hard segment" which consists of iconic brands possessing unique style and design. Ya know, kinda like, oh I don't know, Harley Davidson?

There's no mistaking a Victory for another brand

It's not that over time Victory couldn't chip away, year by year, at the "die hards", and there's no doubt that the Victory High Ball was a pretty big swing in that direction, but Wall Street hates "long term" (think toddler with ADHD that wants to go to the zoo, and your average investment banker isn't that patient), so a prolonged, drawn out strategy to "expand Victory's target customer base" wasn't gonna fly. Enter Indian Motorcycles. Just add water, stir, and viola! instant brand icon perfectly suited to compliment your strategy, and best of all, no waiting.

With the purchase of Indian, Victory essentially did an "end-around" in terms of acquiring the tools it needed to go after Harley's market share head on. And my guess (although Victory never discloses acquisition costs) is they got Indian on the cheap. Think about it, last years revenues for the "oldest" motorcycle brand in America was a whopping $11m. With an average retail price of one of their bikes pegged at, oh say $25,000 (which is pretty conservative), that means they sold about 440 units in 2010. Need some perspective? Harley sells more in a single day. Clearly Victory is buying a brand that they figure represents a huge upside in terms of future sales and market share growth, especially given the fact that Indian's actual earnings would represent little more than a rounding error on Polaris' balance sheet. Lets just say they ain't buying it for the money Indian is making at the moment.

OK, so you bought your ticket, now what ya gonna do? First off, expect Victory to "leverage their core competencies as they design cost out of the system, thereby accelerating the growth and profitability of both brands, all the while, enhancing shareholder value" (feel free to whip out your Business Buzzword Bingo cards, we might just have us a winner). Meaning? Well, other than as a brand, Indian doesn't have much else of value, so expect to see their production/design facilities in North Carolina close (yup, we're seeing some job loses, sucks). To the degree that Indian has any distribution assets, those will go bye-bye as well, as we're sure they are way too limited in capability and not scalable.

Next up Indian assembly will move to Spirit Lake, with powerplant production most likely heading to Osceola, no doubt Victory and Indian bikes will share all phases of design and manufacture. This is not to say that they will necessarily share components, although some level of "commonality" would certainly make sense, especially in those areas "invisible" to the customer (think engine management systems, wiring harnesses, suspension, etc). Remember, we have to design costs out of the system. Our guess is that signature elements, such as engines, tanks, fenders and the like would remain distinct. To do otherwise would dilute brand perception and defeat the original strategy. That's not to say it couldn't happen, the temptation to increase margin is relentless, even at the expense of the brand itself. It takes real leadership at the corporate level, and a clear understanding of the customer to avoid what is an all too common pitfall.

You see there actually is a limit to how far you can "leverage", as Victory found our quite recently. When it was announced that engine production would be moving to Monterrey Mexico ("leveraging" their newly built plant) the Victory faithful told the company to "Fuel It". The notion that the very heart of an "American" made motorcycle was gonna be assembled in Mexico was apparently too much to bear. Not long after the guano hit the blender a "correction" was offered up (interestingly enough the correction didn't contain any of the "biz-speak" jargon of the original, hmmm), order was restored to the universe, and Victory motors would continue to be made in the US, "...like we'd ever make the things in Mexico, really!?" They will trust us on that, just not right now, there is a limit.

Another pretty nifty aspect to the Victory/Indian deal is that Victory dealers will get a much needed boost in terms of the number of models on the showroom floor, which in turn ought to increase floor traffic. That can't be anything but good. Given that by its own admission Victory is "underrepresented in the top 100 MSA's (metropolitan statistical area.....you didn't put away those bingo cards did ya?), the addition of Indian to the line-up should help entice new dealers to the fold. Let's face it, it hasn't been exactly easy to make it as a Victory only dealer, if it wasn't for Polaris' amazing ATV line, who knows what the Victory dealer network would look like? Might be a lot smaller than it is now.

So in the end what is this deal gonna mean? For one, it means that perhaps more than at any other time in recent memory, Indian has a decent shot at making it as a legitimate motorcycle brand. No doubt with Victory's resources and management skill Indian's build quality, design, spare parts availability, and market exposure will improve dramatically. Future Indian customers will feel more comfortable about the long term health and future of the company, no small issue when one is about to drop twenty five large on a motorcycle. Finally, the "kit bike" stigma should be erased once and for all.

As a result of the transaction, Indian will find itself in showrooms in cities where it may have taken them years to penetrate, and that exposure will result in increased sales. Again, nothing but good. Are there "downside" issues? Of course, not the least of which is addressing the fact that Indian motorcycles are simply too expensive, expect Victory to demand lower priced offerings. If they don't, there could be real issues. Indian, despite being an iconic brand, has had too much negative history in the market in recent years to command excessive retails. The price/value relationship needs some repair, and that takes time and a realistic pricing strategy.

Finally the leadership at Victory must be cautious in its application of "leveraging its core competencies". The two brands must always appear to the consumer to be unique and distinct, "commonality" must stay well behind the curtain. A shared engine platform between Indian and Victory for instance, would be a disaster. Such a move would only confirm the worst fears and suspicions of the market. Our guess is the crew at Victory is way too smart to step in that one. For the most part this looks like a good deal all around; it ensures Indian's survival, while it provides Victory the tools it needs to move into a lucrative segment of the market. Smart move. Kinda makes you wonder what Victory will do next, is KTM for sale......