Nov. 30, 2009 – The road ahead

By Neil Pascale
Editor
MEDINA, Minn. — With the recession bell curve starting to point in the right direction, it’s scarcely surprising to see Polaris Industries executives Scott Wine and Bennett Morgan speak fervently about what’s to come, rather than dwell on what’s behind them.
Wine, Polaris’ CEO, and Morgan, the company’s president and chief operating officer, took turns addressing not only what awaits in 2010 but further down the road in an interview with Powersports Business. The hour-long discussion at times turned into a banter between the two about what lies ahead for the Minnesota manufacturer. Like with their budding partnership with construction industry giant Bobcat Co. and what that could materialize in.
Morgan, choosing his words carefully, tried to hint at what that partnership will provide dealers in the years to come by suggesting the possibilities of a product that combines “what we’re good at and what they’re good at.” It’s a product, Morgan continues, “that frankly nobody has seen on this planet before.”
Wine, sitting to Morgan’s immediate right, smiles and adds, “We like it a lot.”
Morgan grins, but won’t go further, “That’s as much as I’m going to say.”
But Wine, still smiling, won’t let it go. “And we like it a lot.”
It’s little wonder the two can take some comfort in the future as the company’s retail sales have shown signs of a rebound. Polaris’ retail sales declined more than 20 percent in its first half before elevating a bit in the third quarter, down 17 percent from a year ago.
While there is still much to be concerned about — Wine candidly says he doesn’t like much of what’s being done at the federal level to stimulate retail sales — there are a number of potential positives for Polaris. International growth seems likely enough that the company is not only seriously looking at new, emerging markets, but also considering manufacturing and engineering in their most developed overseas markets.
Plus there are signs the company will be further expanding its on-road business, which today makes up the smallest part of its revenue pie. The company already made significant changes in this area in 2009 with internal moves. Polaris created an on-road division that now not only includes Victory, its V-twin motorcycle brand, but also a fledgling low-emission vehicle (LEV) program.
What about down the road? A number of signs point to Polaris making further and potentially even more significant additions to its on-road lineup. Those signs: The company recently hired Todd Balan, an executive that will be tasked with looking at potential new business; Wine has stated an acquisition in 2010 is likely; and lastly and potentially most importantly, the company has stated its belief that the on-road side of the business is key to them growing in markets outside of North America.
“That’s not a stretch,” Wine said of the possibility that Polaris could be looking at an on-road acquisition, before adding, “We’re not going to buy anything to get bigger. That’s patently uninteresting to us. We’re going to look to do things that can drive profitable growth for us. Certainly one area for profitable growth for Polaris is going to be in the on-road space. It’s certainly an area that Todd and the team are looking at. But it’s not the only one.”
Bennett describes the creation of the on-road department as a “long-term play.”
“We could go in and jump in and acquire and throw out a bunch of organic stuff really quickly but we’re not going to do it well,” he said. “What we’ve really come to see is Victory is an important piece of it, but we see lots of other opportunities to go on-road. And on-road is interesting and important strategically for us because we think off road gets a little more challenging over the next decade or so.
“What we really want to do is build an organization that has the synergies and depth to get into those different opportunities. In the past, we just had a motorcycle-focused business. But we really struggled to do anything beyond motorcycles with how we were set up. So that’s the big key operative change.
“We’ve done a lot of changes in our motorcycle business so we can compete with this new reality of what’s going on in the marketplace,” Morgan said. “But at the same time, we’re preparing for the future so we can go after other opportunities with some focus and some efficiencies that we just couldn’t do a year ago.”
Wine quickly adds, “it all ties together.”
“Our on-road business for the foreseeable future is going to be anchored by our core Victory motorcycle business. So we’re putting resources on there so that’s stable, successful and is on a path to good, profitable growth.”
That path has been especially challenging in the past year as Victory’s retail sales have either followed the significant downturn in the industry – which at times neared 50 percent below 2008 levels — or fell to even grimmer levels. Polaris reacted by significantly cutting its Victory production — wholesale revenue is off by close to $40 million compared to the year-ago period — and adding both resources and consumer programs. The latter includes a new, industry-leading warranty package.
“We’re positioning ourselves to drive better retail in the Victory business,” Wine says. “That’s really most of what we’ve done this year is added resources and capability in a lot of different areas and a lot of different ways to position ourselves to accelerate retail in the Victory business.
“We’re seeing some progress to that now. Next year is a very telling year and important for us.”

‘overwhelmed us’
What figures to be less of an economical factor in 2010 but potentially just as important down the road is the green side of the company’s business. It’s a part of the business that Polaris at times is trying to rein in — an odd thought in a time of constricting sales.
Morgan notes the immediate interest dealers showed this summer in the Ranger EV, the company’s electric side-by-side, “overwhelmed us.”
Does that mean the electric four-wheeler could become the industry’s next hot product?
“We’re not planning on it being the next side-by-side or the next Ranger,” Wine said of the electric quad.
Morgan, who has been with Polaris for more than 20 years, quickly adds, “But we didn’t plan on the side-by-side being the next side-by-side either.
“That’s one of the beauties of this company. We’re quick to market. We can get into interesting, appealing low-volume spaces. We can get there first, establish a toehold and if we’re right, then it becomes the acorn that grew into the mighty oak.”
Morgan, however, is quick to note that Polaris is being cautious with its Ranger EV production. “We don’t want (dealers) to get so excited that they think people are going to beat a path to their door and they’re going to start selling electrics like popcorn,” he said, laughing at the idea that Polaris has at times been in a “sales-prevention mode” on the electric UTV.
“We’re trying not to get too far ahead of ourselves,” Morgan said. “That’s the best way to kill a great idea is to become overly enthused and pay no attention to the facts and the economy around you and overbuild these things and get people hyped up and then there’s not sustainable demand behind it.
“At different points in my career at Polaris, we’ve done that. Where you get an idea, everybody is excited about it, everybody wants the product and they go grab it. But then they don’t really have the customer or the capability and then bad things happen. We don’t want that mistake with our distribution here.”
Morgan candidly says Polaris does not expect the Ranger EV to overtake the company’s popular ATV, the Sportsman XP, in retail sales volume in the next two years. However, both he and Wine are encouraged at the immediate interest in the product and the potential international uses it has. “Greener solutions will be pretty important in the spaces we’re in,” Morgan says.
Wine notes there are cities in China where gas-powered vehicles are not allowed in. China and South America, another market where discretionary income is increasing, are areas that the Polaris officials characterize as the “new frontier.”
“We’re going hard there now,” Morgan said.
Polaris is being equally aggressive with its international Victory business, having made strides with its recent introduction in Germany and Australia and a sudden retail sales increase in the United Kingdom, a previously sluggish market.
“It’s almost a completely different story than what you’re seeing in North America right now,” Morgan said of the Victory business internationally.
Polaris also will be taking a hard look at the Europe, Middle East and Africa region, an area where the company has had considerable success in growing its brand. In fact the company is doing a large enough volume of business there now that Wine and Morgan say the company is considering adding both engineering and manufacturing teams and facilities to those markets.
The future can’t be completely discussed without mention of the alliance with Bobcat, the brand so well known in the construction industry.
Polaris is working with Bobcat to product a highly differentiated product for the Bobcat dealer network for the second half of 2010. And of course, there’s that other product — the one that Wine and Morgan are so excited about.
“We’re right on track with those initiatives,” Morgan says.
“And we like it a lot,” Wine adds, smiling.

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