Jun. 30, 2008 – An enduring brand

By Neil Pascale
Editor
KINGS MOUNTAIN, N.C. — Not five minutes into a discussion about the new Indian Motorcycle company, General Manager Chris Bernauer pauses, looks down and places his hands next to his head in a gesture that mimics a horse with blinders on.
“My tag line is just focus,” Bernauer said. “Get your head down and focus. Focus on the engineering, focus on the product.”
His intent is just one sign the second Indian company to emerge in the 21st century will, at least from the outset, be infinitely different than the first.
A decade ago, the first signs of an Indian relaunch were emerging as a U.S. federal judge wrestled with a multitude of trademark disputes involving the iconic American brand. The eventual winning company of that trademark case, a Canadian firm, probably will go into industry lore as one of the costliest failed ventures, with more than $130 million spent in the endeavor, according to published reports.
The second attempt at relaunching the American brand that dates back to the beginning of the 20th century has begun at a modest-sized, 40,000-square-foot facility tucked inside a wooded, hilly area off a North Carolina interstate. In contrast, the company behind the first Indian relaunch purchased a 170,000-square-foot building in Gilroy, Calif., and expanded it an additional 150,000 square feet after the initial model year.
In Kings Mountain, N.C., the new Indian company has just hired its initial production staff who will take the total employee count up to approximately 50 by year’s end. In contrast, the Gilroy Indian company had more than 500 employees one year after start-up.
The contrasting styles go way beyond facility and staff sizes and underscore the new Indian company’s slow-growth, conservative mentality.
“We spent two years thinking about this until we hired a single employee,” said Stephen Julius, the chairman of Indian Motorcycles. “So there has been real thought about why we’re doing it this way.”

The Kings Mountain way
The new Indian, in many ways, will try to replicate another iconic American brand, Harley-Davidson. When the flagship Chief launches, expected sometime this year, the company will have:
• a full lineup of Chief parts and accessories — perhaps as many as 200 parts numbers — along with plenty of apparel options. A separate company, also owned by Indian, has been established in Seattle to handle the company’s budding clothing line.
• single-brand stores in the nation’s largest markets. Six dealers already have agreed to this concept, with 11 more expected to sign in coming weeks.
• a riders group, which will provide new bike buyers with company newsletters, roadside assistance and other traditional benefits.
“We’re learning from the maestro, Harley-Davidson,” said Julius, the managing director of Stellican Ltd., the London-based private equity company that purchased Indian’s trademark rights in 2004.
Julius and other company officials note, however, that in no way do they see Indian as an immediate competitor to Harley. The 2009 Chief, after all, has been placed on the premium end of the market with a price tag that starts in the $30,000s. As a result, the company has modest sales goals of 750 bikes with its initial model year.
“We’ve based this whole business plan on achieving very modest volume targets,” Julius said. “We want to do it right, slowly. This is not an overnight project.”
It is one, however, that has generated quite a bit of buzz. An online forum at www.indian-motorcycles.com asks the simple question, “Will you buy new Indians?” It’s hardly a unique question. Bernauer said Kings Mountain has received interest from “almost 60,000 people who have come to us and said, ‘Keep us posted. We want to know what you’re doing.’”
The interest is so strong that as Julius speaks of short-terms challenges he notes quite frankly, “It won’t be finding the consumers.”

The Chief concern
Part of the new Indian way is emphasis on the product, a marked difference from the Gilroy operation’s initial Chief, which had little to offer in terms of proprietary elements.
“What did we learn from the Gilroy operation?” Bernauer said, referring to the boxes of documents the company has from the now-defunct California company. “Their foundation, particularly in the beginning, was a custom shop mentality. You could buy most of the Gilroy Indian from a J&P catalog.”
That certainly won’t be the case with the 2009 Chief or its three variations, which were unveiled to the public in late May. The Chief will come with a 105 cubic inch, V-twin engine that emerged first on the Gilroy 2002 Chief and has since been radically redesigned.
“In reality, it’s hard to think of a part that we didn’t touch on the motorcycle,” Bernauer said, comparing the Kings Mountain 2009 Chief to the last model year Gilroy developed.
How much emphasis has the new Indian company placed on product? Julius points to Bernauer, who spent 11 years at Harley-Davidson before leaving for Indian, as the best response.
“The fact that our general manager is an engineer who was responsible for the whole Sportster platform at Harley-Davidson speaks volumes about our commitment to engineering,” he said.
So does the company’s staffing. To date, of the 30-plus employees hired by the company, roughly 67 percent are engaged in engineering roles.
That engineering staff has been tasked to turn public opinion around about the reliability of an Indian motorcycle. Company officials discovered just how bad things were after they sent out 10-page consumer surveys to Gilroy consumers. The result — “a huge dose of reliability concerns,” Bernauer said — is stacked in folders that dwarf Yellow Page phone books.
“In retrospect, it looks like they launched the Powerplus 100 too early with not enough testing because it was a problem,” Bernauer said of the Gilroy Indian’s proprietary engine, which has been significantly overhauled with not much left besides the original architecture. “The flywheel scissoring was the biggest problem with it. Dealers would talk about following riders home from the dealership” to ensure their bikes made it that far.
The V-twin engine, however, was hardly the only element that has been significantly altered.
“We’ve pretty much taken the frame drawing (of the Gilroy Chief) and wiped all of the dimensioning and tolerances clean and just started from scratch and asked, ‘All right, how should this frame be engineered?’” Bernauer said.
All of these engineering efforts are aimed at convincing the public that “the mentality and strategy here is more of an OE manufacturer than a custom bike manufacturer,” Bernauer said.

Dealer plan
In 2000, a year after the initial Gilroy Indian model was launched, the number of North American dealers selling it swelled to more than 170. That same pace to build a dealer network from scratch won’t be repeated by the new company.
Kings Mountain has set an initial target of 100 dealers, although it doesn’t expect to reach that level until possibly its third year. From the outset, Julius says the company decided to focus on finding dealers for the largest U.S. markets, those the company defines as its “A” and “B” markets. These two markets, according to company and industry estimates, represent more than 40 percent of the industry’s total sales. Indian would like to have 30 dealerships within those “A” and “B” markets.
The company is seeking to have stand-alone, single-brand dealerships in those large markets.
“We’re not to the point where we’re saying if you can’t give us 10,000 square feet on a major freeway and build it exactly like we’re telling you, then we are not interested in talking with you,” Bernauer said of the company’s discussions with potential dealers. “That’s not it. That’s not it all at.”
However, that’s not to say the company doesn’t believe the stand-alone brand concept isn’t critical, believing the consumer experience, and hence dealer profitability, can be infinitely better in such a retail environment. That’s why they’ve created a blueprint for a 10,000-square-foot Indian dealership, pinpointing everything from the exterior architecture to the paint color and custom, branded furniture for the interior.
“In terms of inside the store, the color scheme and the materials, we’re asking that they all do it in the same way to brand that in the mind of the consumer,” said Indian President Steve Heese, noting how important the brand experience can be in determining a retail sale by asking, “How many BMWs would they sell in a gravel parking lot with a doublewide as an office?”
“This is a lifestyle company, a lifestyle brand,” Julius said, explaining why the company is pushing the single-brand concept. “Certainly heavy cruisers are a lifestyle choice.”
Consumer surveys back that notion up. The 2007 J.D. Power and Associates’ new bike buyer survey found the No. 1 reason for purchasing a specific brand by cruiser owners was the brand’s image. It was more than three times more important than a bike’s reputation for performance.
“Bottom line,” Bernauer said, “is we want our dealers to be successful. We want them to be profitable.
“If they’re not profitable selling Indian Motorcycles, then chances are they are not investing in the brand and investing in our customers and taking great care of our customers, and then we all lose.”
That’s not to say some future Indian Chiefs won’t be sold in multibrand dealerships. In fact, they could outnumber the stand-alone stores. Julius says the smaller U.S. markets, which Indian has designated as “C” markets, might not be large enough to financially support stand-alone stores, meaning Indians could wind up in multibrand stores.
“Do we like it? No,” Julius said of Indian being in multibrand stores. “Do we accept it? Yes.”

The premium strategy
At Kings Mountain, the premium sector of the cruiser business is an initial foray and a testament to where company officials believe the brand initially belongs. It is not, however, a final destination.
“As we look over the next ten years, we will be developing product that will allow us to come with prices in the $20,000s,” Julius said, noting the company will next look at a Scout model after the Chief is launched. “But that’s down the road. Initially we have to build a business that makes sense. In this particular environment, taking a premium position makes a lot of sense.”
Julius did just that with another American heritage brand, Chris-Craft boats. Similar to Indian, Julius took the brand from a start-up position and slowly built it to what it is today, a $60 million business that sells premium products.
“If we hadn’t taken a premium position with Chris-Craft, we would be suffering like the rest of (the boating industry), which has halved in size in the last three years,” Julius said, noting Chris-Craft’s revenue grew about 5 percent last year.
Company officials note their announcement that Indian will start in the premium category has not, at least initially, had a chilling effect on interest or sales. In fact, officials said the number of consumers who have reserved bikes increased after Indian provided the first public details on their 2009 models, including the price tag.
Like the premium-branded Chris-Craft, Julius is shooting to make Indian profitable within three years.
“We need to be because if we’re going to invest in new platforms and new products,” Julius said, before pausing and adding, “capital investment in a motorcycle business is huge. So being profitable is not something that’s a bonus, it’s essential to existing, to having a future.”
To ensure the company has a future, Julius and his staff have studied the business models of not only existing brands, like Harley-Davidson, Ducati and Triumph, but those that did not make it, like Excelsior-Henderson.
“We’ve been very, very rational in what we’re doing,” Julius said. “Whether we succeed or not is another matter. But in terms of justifying why we’re doing it this way, we’ve thought very carefully about this.
“We would like to prove to the world that Indian has a reason to exist, that there is genuinely an opportunity for a second American heritage brand. It was that way in the past. There’s no reason why it shouldn’t be again.”