Oct. 15, 2007 – An ‘ambitious’ dealer network plan

By Neil Pascale
An American motorcycle company with deep roots and strong brand appeal will attempt to build a new dealer network by mimicking another deeply entrenched American bike company with massive brand appeal.
The chairman behind the relaunch of Indian Motorcycles recently said the company will attempt to mirror what Harley-Davidson has done by creating a network of single-brand dealers.
“It’s an exciting and courageous move by us to try and go from a start-up position to build a proper, monobrand network,” said Stephen Julius, the chairman of Indian Motorcycles. “We’re very encouraged by the results we’re seeing so far, but it’s way too early to tell. If we cannot get sufficient numbers to build stand-alone stores to our design, then obviously we will consider dealers with an existing showroom on the condition the store be branded Indian and that the store be monobrand.”
Indian started its dealer development process by advertising in three publications: the Wall Street Journal, Automotive News and Powersports Business. In those ads, the company outlined what it believes potential dealers will have to invest to become eligible.
“We’re being really upfront with our dealers,” said Julius, the managing director of Stellican Limited, the London-based private equity firm that purchased the trademark rights to Indian after a Boston-based equity firm gave up on reviving the brand in 2003. “We’re saying that to build a dedicated dealership you’ll need real capital to make this work.”
In fact, interested parties would have to invest somewhere in the neighborhood of $4 million to be a dealer candidate. In the advertisements, Indian identified what up-front costs the dealers would face. These included:
n the necessary equity and debt capital to fund the construction of a 10,000-square-feet retail store and service department, estimated at $2 million. This excludes whatever cost would be incurred from purchasing the land on which the dealership will be located on;
n roughly $600,000 for floor plan financing; and
n a minimum of $1 million to fund operating expenses and working capital for the necessary inventory.
Julius calls Indian’s attempt to build a single-brand dealer network “ambitious” and knows it will result in a slower relaunching of the brand compared to other methods.
“It will take us longer, there’s no question about it,” he said. “It would be easier to sign up existing people with existing dealerships and existing businesses. But we felt that in the long term that this was probably the right route to go.
“A ton of people have lost their shirt in this game. We spent over two years figuring out the right road.”
Part of that time was spent examining other motorcycle company operations.
“If you look at the nonmetrics, our competition, who has been successful?” Julius said. “And it’s very clear. There has only been one company that has been hugely successful and that’s Harley. They do so by creating a whole world within their store.”
For future Indian stores, dealers must have a seasoned general manager, one of the requirements the company listed in its ads. Julius said Indian will require “a team of people that know how to sell bikes and support bikes. So we made it very clear that we expect the general manager and his team to be qualified and enthusiastic and passionate about the brand.”
Julius knows many experienced general managers in the motorcycle business might not have the necessary capital to start up an Indian franchise. Equally important, investors with capital might not have the experience. This was one reason why the company listed the “seasoned general manager” requirement on the ads.
“Our view is that experience in the motorcycle industry and capital may not be found necessarily in one and the same person and that therefore there was nothing wrong in trying to encourage capital to hook up with experience,” he said.
Indian does not stipulate the majority owner of the dealership also oversee the day-to-day operations of the store, a condition that Harley-Davidson requires in most cases, according to industry officials familiar with Harley acquisitions. “We’re not stipulating whether the GM should or should not be a shareholder,” Julius said. “Certainly it’s not for us to tell anyone whether that general manager should have a majority position or not.”
Julius estimates the building of the dealer network will take up to three years. Sometime next year, he expects Indian to begin production on its new motorcycles, which will feature Indian-built engines. How many motorcycles Indian intends to produce in its first year has been decided upon, but is not being publicly released.
“We’d rather say less and do more,” he said. “We are incredibly conscious of all the noise that was made by the previous shareholders, and it’s incumbent on us to prove ourselves with product more than anything else and let the market judge.”

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