Dec. 22, 2008 – Gliding into the new year

By Neil Pascale
Lehman Trikes, believed to be the market share leader for its market, finished its fiscal year up in both unit sales and total revenue.
That has been a reoccurring theme in recent years as the one-time Canadian manufacturer now headquartered in South Dakota has seen a constant growth in its market. Since 2005, the company’s annual revenue has increased by more than 77 percent.
Lehman CEO Dan Patterson recently discussed the trike market, the growing company and its key OEM partnerships in an interview with Powersports Business. Patterson noted that although the company has continued to grow — its big-bore trikes continue to sell well — it hasn’t totally escaped the economic challenges hitting the U.S. retail sector. The company’s sales of entry-level trikes have slowed and dealer orders for 2009 thus far have been conservative. The company also closed its final manufacturing outlet in Canada during the past year.
Still, Patterson has seen a tremendous retail reaction to a project the company invested a significant amount of resources and personnel into: Harley-Davidson’s Tri Glide Ultra Classic.

Powersports Business: According to Harley-Davidson’s third-quarter financial conference call, the Tri Glide, the trike that Lehman assembles for Harley, has been doing pretty well on the retail side since its launch.

Dan Patterson: I think it’s been doing extremely well. You know, I told those guys when we sat down and started talking, ‘You guys are underestimating the market for trikes, but we’ll follow your lead.’ And I tell you, they can’t keep them on the showroom floors. In fact, their dealers are just clamoring for them.

PSB: Is there something specific to this product that is causing it to do so well in the market?

DP: I think there are a couple of things going on. One is the trike market has been doubling every year for the past five years and we have not seen a slowdown. Once we started working with Harley, we knew they would legitimize the market and the demand for trikes would go up. I think the uniqueness of this trike is that for the first time, an OEM has offered a trike backed by a full warranty and supported by their dealer network. Think about it: Harley is an icon out there. They have more than 700 dealers and they’ve got access to a big, broad audience, and that audience has been asking them for the last few years, ‘When are you guys going to build a trike?’ So they built one, they started delivering them and the dealers can’t keep them in stock.

PSB: In regards to the troubling economy, we’re seeing different levels of impact on the powersports industry. But we’re guessing your core consumer demographic has not been hit too hard?

DP: From a Lehman’s perspective, the sales of our entry-level trikes have slowed and those are usually the folks that have entry-level financing. They’re not the retirees. They’re not the ones who have stuffed away a whole lot of money in their 401ks. They are folks that want to go ride but want to buy a trike and they go after the entry level-priced trike. We’ve seen a slowing of demand for that trike. But for the big trike conversons we’ve seen constant sales on those all the way through this crisis. Now we’ve seen our dealers take a little more conservative approach on their pre-booking, even with the incentives we’re offering. We still have about the same number of orders on the books today that we sold last year but it just seems like there is no growth (for 2009). I believe as we go through the year, dealers will demand more and we also now have the capability to provide more. We’re in a good position.

PSB: Last spring in Powersports Business, you discussed the possibility of Lehman further expanding its U.S. facilities. Is what we’re seeing with the economy or your 2009 dealer orders causing you to push that expansion back?

DP: We have delayed our plans for an expansion, but we still have plans coming up toward the third quarter of next year. With the demand for the supply side for Harley, it still looks like we’re going to have to expand unless we cut back on our product line and right now we’re not planning on doing that.

PSB: Your third-quarter financial report showed profitability being down vs. the prior year. What caused that?

DP: I think there are two things. One is we have invested heavily for the production of the Tri Glide. And, we miscalculated on the entry-level trikes and we’re carrying inventory in that area that hasn’t moved through. We’re going to be up in units and revenue for 2008 but we’re going to be off our target by about 200 units and that is all sitting on our books right now. We also had additional write-offs for the Westlock (Canada facility) closure too.

PSB: Where are you at in terms of your dealer network?


DP: Our objective is still to grow our dealer network. We have made a massive shift in our dealer network. We’ve moved from independents to the majority of our dealers are OEM-franchised dealers that are either carrying the Harley, Honda, Suzuki or Victory product.

PSB: It seems Lehman Trikes has grown in recent years more off its partnerships than its own brand. Would that be an accurate statement?

DP: We saw three or four years ago the potential for the future was to align ourselves with the OEMs, both with Harley and Victory. We saw that as the future for turnkey trikes. And yes, our growth has really been stipulated by the relationships with those two organizations, in several ways. One, by legimitizing the market for trikes. Two, by making us a better company. Both of those are Fortune 500 companies with all the processes and procedures that are required to move to the next level and they brought that to our little company. Both in product release, engineering development and actual manufacturing operations experience and processes and procedures. They made us a more disciplined, mature company. We had to be to meet the stringent requirements for Harley. That, in itself, has positioned us as one of the survivors in this business. They have been wonderful as mentors, both Victory and Harley. Little Lehman Trikes out of Canada has really matured.

PSB: Is there any long-term anxiety or possible downside to relying on partnerships rather than developing your own brand?

DP: We haven’t given up on our own brand. We’ve kind of been refining it. We know there may be a time in the future where we have to stand on our own, and we have been preparing for that. Hopefully, everybody will be pleased with what we come with. We are continuously asking ourselves where do we want to be in one year, two years, three years and engaging our efforts in that area based on what our commitments are to support the Harley project. I mean it’s demanded a lot of resources, and rightfully so. We put those resources on that project to make sure it happened because it’s huge for us. Now, we have not given up on our own product identity or brand. We’re still Lehman Trikes and we still have some things in the backwaters that we’re working on and discussing.

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