Edited 11/26 to include info at the end of the story on Polaris's recalls and declining profits in its ATV division
*Edited 1-9-17 to include news of Polaris' decision to halt production of Victory Motorcycles.
Polaris Industries (NYSE:PII) has, since 1998, been quietly perfecting its motorcycle chops.
That's the year the first Victory motorcycle rolled off the production line. At that time, Victory was seen by industry insiders as a way for Polaris to capitalize on the soaring popularity of heavyweight cruisers in America.
At the time, Polaris was focused solely on snowmobiles and ATV's, and was, and still is, the largest powersports manufacturer in the USA.
During the 1990's the suits in Polaris HQ in Medina Minnesota saw a ton of cash flowing into nearby Milwaukee Wisconsin, the home of iconic motorcycle maker, Harley-Davidson.
They heard the stories of buyers having to get on a list and wait months to buy a Harley-Davidson.
They watched as one Harley dealership after another bought high priced real estate in high traffic areas off the interstates across the country and open "boutique" stores which, in some cases, made more profit from the sale of apparel and gear than actual motorcycles.
Then someone took a hard look at the numbers, and saw inefficiencies in Harley-Davidson's manufacturing, supply chain and management.
Then...somewhere, in someone's office, a light bulb exploded over just the right person's head and the idea for Polaris to join the motorcycle industry was born.
Enter Victory Motorcycles
I'm sure the suits in Milwaukee were laughing a little up their sleeves when they got their hands on the very first Victory. The model Antares Red & Black V92C, where "V" stood for Victory, "92" for the 92 ci engine displacement, and "C" for cruiser, wasn't exactly sexy. The engine and drive train were "clunky" due to the square cut gears, and because it had less exhaust noise than a typical Harley, the "thunk!" when changing gears was even more noticeable. Some riders even called it ugly, and to their defense, when compared to the smooth flowing lines of the competition, it was more akin to a hardworking stout Midwestern housewife than a sexy but sometimes flaky bartender from Sturgis.
Despite the negatives, the V92C was named the "best cruiser" for the year by Cycle World, and that's all Polaris needed to hear. It jumped into the motorcycle business with both feet and used it's considerable marketing machinery to go after the motorcycle market dominated by Harley-Davidson.
Beginning in 2000-2001, Victory's sales started climbing and in 2006, just as it looked like Victory might grow up into a real competitor for Harley, something totally unexpected happened. The housing market collapsed, and the economy started sliding into a recession.
Both Harley and Victory saw sales drop off and low interest money dried up and people lost their jobs.
It was at this time when Harley-Davidson made a major misstep, and one that could've turned out much differently. I'll explain in a minute.
HD bought MV Agusta for $109 million dollars, 70 million of which was assumed debt. The plan was to use this brand as a hedge against the aging demographic of the HD buyer. Milwaukee bean counters saw MV Agusta as a way to attract a younger buyer. A buyer who wanted a more "sporty" bike.
But it was a disaster. Harley riders didn't want them, and dealers didn't know how to sell them, and they sat on the floor gathering dust.
Just over a year later HD sold the brand back to Claudio Castiglioni (whose family sold it to HD in the first place) for 3 euros, or the equivalent of $3.98. Plus HD had to stick $20 million into MV Agusta's bank account, to be used for operating capital over the next 12 months.
So, after losing millions on MV Agusta, HD was essentially right back where they started. Aging demographics, falling sales and no idea how to expand domestic market share while fending off upstart small bike builders and now Victory.
It was here where large numbers of the Harley faithful starting to feel like the romance of the brand was wearing thin.
The common feeling was the brand got greedy in the 90's and early 2000's when sales were red hot.
They watched as old line mom and pop dealers were forced to sell out to new owners, ready and willing to build huge dealerships in high traffic locations and watched with dismay as prices increased without a corresponding increase in quality and performance.
They watched their service bills creep upwards as maintenance costs doubled and sometimes tripled, while the brand was plagued with recalls and stories of breakdowns and rude service departments circulated in the faithful online forums.
Many were looking for an alternative, but it had to be American made.
Victory was gaining market share, but it was a slow, tortuous, and expensive process.
Insiders say without the deep pockets of it's parent company Polaris, the upstart Victory couldn't have survived the high cost of customer acquisition.
The problem was that while the bikes were well built, and (after bringing in Arlen Ness to give it a sexy edge) good looking, the brand wasn't taking as much market share from Harley-Davidson as it was from the Japanese. Hardcore Harley riders, the ones with the bar and shield tattoos were not defecting.
If Polaris was going to win this battle they would need something with more cache, a legacy brand. Something the Harley faithful could be comfortable supporting.
Something old school.
The Scoop Of the Century: Polaris Buys The Indian Brand for an undisclosed sum.
It's hard not to speculate that somewhere in the bowels of the headquarters of the century old motorcycle manufacturer, the thought occurred to someone that all hell would break loose if Polaris got a hold of the Indian brand. But if that thought occurred to anyone, history does not record it.
However, I can guarantee you the thought has occurred since that the money spent of MV Agusta would've been better spent buying Indian (before Polaris) and locking it all away in a dusty safe in the basement.
n 2014 and 2015, Harley-Davidson was facing competition from a resurrected Indian Motorcycle AND Victory.
Not one but two distinct American made brands.
On the same team, with the same goal of taking market share away from the Milwaukee motorcycle dynasty.
The good news for Harley-Davidson was that while Indian was making significant headway stealing market share, Victory was stumbling.
Until earlier this year it seemed that Victory would fade into the dust bin of history as sales were in a free fall. At least Harley could focus on one major competitor, and not two.
According to a story on the Motley Fool, sales of Victory motorcycles were tumbling as much as 15% while Indian sales were growing at double and triple digit rates.
Then, just like in a football game where the opposing team intercepts a pass and runs it back for a score, the momentum shifted again.
Today the report says Victory motorcycles have reported positive gains, and in its third-quarter results posted at the end of October, Polaris said combined sales of Indian and Victory bikes were up by low-teen percentages.
So with its two front approach, it appears Polaris may be poised to overtake Harley-Davidson in the next few years as the dominant player in the domestic cruiser market.
Indian aims to steal market share in the heavy-weight segment, by luring the buyer for the Electra-Glide and Street Glides with the Chieftain and Roadmaster, while Victory, with its Octane (midsize cruiser) is going after the entry level buyer that might otherwise be attracted to the Harley Sportster Iron or the Street models.
Indian is also going after the younger performance oriented rider with the Scout Sixty, since the prevailing wisdom is to get the customer's butt on your brand at the entry level and as they grow and mature, they'll keep upgrading with your brand through the years. It's an axiom Harley-Davidson has proven time and again over it's history.
The growth of Indian and Victory means new customers for the aftermarket companies, many who have enthusiastically responded with an ever expanding line of parts and accessories.
Custom builders have embraced both the Indian and Victory line with hundreds of aftermarket modifications in a mutual beneficial relationship where the builder showcases their parts and accessories, and the brands receive invaluable exposure in the press, at bike shows, and everywhere bikers gather.
This relationship also props up the used market for the brands because riders see the opportunity to save some coin buying a used bike and customize it to their taste, and ride something uniquely their own.
A relationship that was almost exclusive to the Bar and Shield for the last half century.
Make no mistake, Harley-Davidson isn't going to roll over and play dead. In the domestic market, HD still own the lions share of the heavyweight cruiser market.
But now instead of one competitor, there are two. Two strong ones with a parent company with deep pockets.
But, Polaris is not without troubles of its own. The past year has been a rough one in terms of recalls and mis-steps which have thrown a monkey wrench in the gears, slowing sales and decreasing profits. It's a situation Polaris can ill-afford as by some reports, 90% of the profits come from the ATV division, and those profits are used to bolster and grow the other divisions.
This story in the Bloomington Pantagraph highlights Polaris's troubles
In the long term, assuming Polaris doesn't crash and burn, Harley will have to meet the twin foes of Indian and Victory head on.
It's a one-two punch that Harley-Davidson may not be able to counter and ultimately will see itself regulated to 2nd or 3rd place in the domestic motorcycle market.
*In a surprising move Monday Jan 9, 2017, Polaris Industries announced that it plans to halt production of Victory Motorcycles. The Motorsports firm, which manufacturers motorcycles as diverse as ATVs, side-by-sides, snowmobiles, and the unique three-wheeled Slingshot, will assist dealers in selling off current Victory inventories and will continue to supply parts for ten years. Polaris says it will honor service and warranty coverage for Victory owners and dealers, too. Read that here on Biker Nation