Motorcycles BS Thread 2.0

Looks like a riot, jealous!

 

https://newatlas.com/motorcycles/ktm-enters-restructuring/

 

Atomic-Moto out of Oregon sent an email out with a fairly in depth analysis, I felt if anyone is curious:

Spoiler: Part 1

This man is clearly not happy.

For those who enjoy motorcycle industry news, a story of some significance is playing out. Back on October 21st KTM’s parent company, Pierer Mobility Group (PMG, stock symbol KTMPF) announced some fairly negative financial predictions for 2024 and into the foreseeable future. PMG had been on an absolute 10-year shred, but 2024 will have a decline in sales and profit, along with negative cash flow and excess inventory. These predictions were pessimistic enough for them to completely cancel their financial forecasts for 2024. Speaking of "cancel", CEO Stefan Pierer also decided to "cancel" most of the board members, leaving just himself and a trusted friend.


Then, on November 12th PMG issued another press release that was considerably more negative. They describe needing to execute a "Far-reaching restructuring" and are seeking short term financing in the "three-digit million range". There are references to negotiations with their creditors - never a good sign - along with needing to "significantly" reduce production volume and overhead. The release is sparse but clear. They are in trouble.


PMGs stock had already dropped from $48.50 on January 1 to $13.05 on October 24th... But yesterday's news caused their stock to drop another 34% down to $8.50. Since January 2023 it has fallen from $82.10, a near 90% loss of value. I am not a stock analyst but those that make their living doing so seem to feel all this is quite bad.


The speed of this is stunning. PMG reported great news in January. Strong sales growth reported in March, although profitability dropped from 2023. Then PMGs June 14th release sharply switched tone, saying they were adjusting 2024 guidance. A month later their CFO/Board Member Viktor Sigl got the axe. The August headline cites "volatile and difficult conditions". As mentioned above, October and November releases are quite somber. The company has added a huge amount of debt and is looking anything other than strong.


A very sharp turn in just 11 months.


Internet reactions tracked as conversations about their quality and the general economy. Those are relevant ways to look at PMG's situation. However, I want to look at another aspect: PMG's aggressive and slightly unconventional product strategy. It is - only in my humble opinion of course - part of why they are where they are.


Typically, product strategy is mostly a bottom up process, percolating through other layers of management. Product managers and planners look at where they and everyone else are strong, and try to find ways to either make 1. a unique product that fits into a new market space with little competition, 2. a superior product that out-performs the competition, enough to be compelling, or 3. product line fillers that they have to offer in order to be considered viable and/or to meet their dealers’ sales needs. There is a little bit of "The Art of War" thinking involved, you prefer battles you can win because you are either uncontested or stronger than the comp.


KTMs product strategy once looked like that typical model. But it has not been for almost a decade.


In my example, product management is an early component in the overall process of bringing bikes to market. Other things like sales, distribution, production, etc. are crucial, but the decisions of what bikes to make precede how to produce, promote, sell, or distribute them. I have met and spoken with hundreds of world class product people responsible for making that decision, with all sorts of backgrounds, ending up with amazing bikes and gear. Not one of them ever expressed the desire to acquire other brands, and figure out how to absorb them. (Ironically one of the more impressive product people I had a design meeting with was Gerald Kiska - head of design for KTM.)



Because it is not a product strategy, it is an acquisition management strategy. That is what I feel PMG has fallen into for the last several years.



They started by buying Husaberg in 1995. This was a brilliant acquisition because it gave KTM the legendary RFS, which was the industry’s first high performance dual sport bike. It’s the motorcycle that built KTM.


The RFS was an example of all three winning product strategies. They were unique and had little competition, they had vastly superior performance, and they filled KTM's line and dealerships with a much-needed hit. KTM sales from 2001 to 2007 exploded, largely built from that Husaberg acquisition.


But the Husaberg acquisition was about buying technology, not a brand. PMGs subsequent acquisitions were more ambitious but also less logical. After Husaberg, PMG bought Husqvarna, WP Suspension, Gas Gas, MV Agusta, Kiska Design, Felt Bicycles, R Raymon e-bikes (which they backed out of yet still sorta own), a share in CF Moto and a few other entities. Buying WP Suspension and Kiska Design are conventional vertical integration choices since both are suppliers. Buying MV Agusta made sense, as they are a boutique brand in a market space that would be expensive for a dirt bike brand to succeed in. Husqvarna seemed redundant even back in 2013 but they have great history and BMW was selling it for pennies on the Euro. Buying Gas Gas was a head scratcher.


PMGs bicycle purchases are even more odd. They purchased US brand Felt Bicycles in 2021 from Rossignol. Felt is a solid brand and company but it was very hard to identify what upside PMG actually saw, that they could not create on their own. In 2023 they issued press releases stating they had sold Felt after owning it less than two years. Apparently that never happened as Felt is still listed as being one of their brands on their website. PMG also initiated then apparently backed out of the purchase of a barely known German mountain bike brand named R Raymon. PMG does currently sell bicycles under the Husqvarna and Gas Gas brands, but...not KTM. In case you missed that, PMG do not own their own KTM brand name in the bicycle industry. KTM Bicycles are owned by and sold by a completely separate company.


Unless made specifically for the target’s technology - like Husaberg - it may not have a positive effect on product integrity. It gives the product team a bunch of cool stuff to play with. But the complexities of a redundant acquisition are a real pain in the ass. With any acquisition, it is a massive time-suck dumped on mid-level management to sort through everything and everyone to identify what to share, what to divide, and what to eliminate. with the goal of reducing to the best and most efficient iteration.



In my view, not only were PMGs acquisitions redundant, they were also inverse. In other words, successfully swallowing Husky and Gas Gas required PMG to expand or build out almost everything about them. Husky and Gas Gas were both failing. They had few dealers, no viable or hit products (the Gas Gas designs were sold to Rieju), and not much of anything else. What PMG bought was mostly just the names. Everything else had to be created. True, the two added brands could copy whatever the KTM brand had, but duplicating is creating, and combining is reducing. One is like climbing up a hill, the other like walking down.


Which brings me back to the product strategy. In my ex-product manager view of their brands, they don't have a product strategy. Instead, they have replaced it with an acquisition strategy likely handed down from the top of the company. Under those circumstances it would be extraordinarily difficult to create the brand and model differentiation needed to keep three brands efficient and interesting. This is not the only reason they went into the ditch. Certainly there is a spending and finance component, and a ton of hubris. I am either not qualified nor want to analyze those. Certainly they have had a lot of successes. But capitalism does not care about those, it is only concerned with your weaknesses.



What I know is that getting back on track will require creating product clarity and discipline across 4 brands.




Due to its length, I broke this commentary up into pieces. Part 2 will cover PMGs lines and models in more detail. That will be sent next week.



Part 3 I get to play Product Planner, and give suggestions for streamlining and differentiating their brands, which models to make, positioning, etc. I would love to include your model suggestions for KTM, Husky, Gas Gas, and MV Agusta. Feel free to reply with them.


NOTE: No one should should interpret this as Orange bashing. I have no ill will toward KTM the brand, the fans, the owners (I am one), or the bikes. This is a discussion about product strategy, NOT one of those incredibly stupid my-bike-brand-great-your-bike-brand-sucks scrums. No one should get their padded shorts in a bunch over it.



Thanks for reading this long-ass email. It was fun to write.


A few reference articles:



Pierer Mobility Home

Pierer Group Structure

PMG Brands

KTM Wikipedia Page

Spoiler: Part 2

It's not your eyesight.

In part 1 of this series, I talked about the terrible situation Pierer Mobility Group has fallen into. To recap, they are forecasting a painful drop in future sales, their stock has dropped almost 90% since January, they have too much inventory, have added a lot of debt, they are getting pummeled in the press and social conversations, and they need a few hundred million Euros in bridge financing. Things have not improved. CEO Stefan Pierer announced steps to reduce production. 300 employees will be laid off permanently, and the main factory in Mattighofen will close for two months. They will also reduce production for a longer term by going from two production shifts to one. No word yet on financing, but the stock has stopped falling. For now.


That is an extraordinary combination of challenges. Make no mistake, there will be more. Even if they find the financing they need, and get the stock back up, there will be cost cuts, inventory problems, inventory challenges for dealers, and much more to endure before this flushes through their system.


This bad news has pushed aside something that cannot, must not be ignored: PMG have done an amazing, fantastic, stunning job at sales growth. Their numbers are already impressive, but the impact on motorcycles, motorcycling, and motorcycle racing is phenomenal. In 2005 they were a niche brand, now they are playing at the top of the industry in every way. Forget unique bike models that "reset" the industry, KTM has reset the industry as a brand. They, by themselves, have completely altered the off road, adventure, and dual sport market. They are the number one European motorcycle company in the world. It is staggering to consider all they have accomplished in the last 20 years. This cannot be ignored. They deserve massive credit for it.


Let's look at their sales stats. In 2023 Pierer Mobility Group sold 381,555 motorcycles. That is a 2% increase over 2022, however they have doubled sales since 2015. KTM is the bulk of those sales, 208,206 units worldwide. Husqvarna sold 67,462 units, a 4x increase since PMG acquired them. Gas Gas sold 29,532 bikes, and MV Agusta 1852. It must be noted, PMG sells mostly premium, high priced models, and mostly in developed and affluent countries. I found it interesting they sold 157,358 bicycles, a huge 33% increase over 2022. I am not sure how those bicycle sales are distributed but it is a surprising number of units and strong growth. Those are envy-inducing sales numbers for a motorcycle brand.


What they got right


KTM's product strategy was at the core of their success. It was actually pretty simple: focus on the most serious motorcycle enthusiasts, precisely target new positions or entire spaces in the market and bring a higher level of performance and premium quality in their bikes. This strategy is summed up by their tag line, motorcycles that are "Ready to Race". As a marketer, I love this phrase for its elegant simplicity and clarity. It is a very effective way to look at model creation and it is certain that the product team used this phrase every single day to guide themselves.


It worked because it exploited where the Japanese brands are weak. The Big 4 make broadly focused models with conservative branding and end-product spec'ing. Of course their strategy is also smart for its own reasons but their unwillingness to deviate from it created a massive opportunity. KTMs had sharper performance, lighter weight, and more premium components. You can nitpick that if you like, but you cannot deny the sum total of those things together: an elevated, high performance brand image. That is something the mature and conservative Japanese brands with their broad lines of user-friendly bikes could no longer achieve. It is pure marketing gold.


Most product managers are lacking in creativity (privately I describe them in harsher terms). They look at existing items in a product space, interpret those as successful, and create the same thing with a different brand. Consumers generally do not expect uniqueness, so this is usually unnoticed. Conversely, GOOD product managers try to figure out what is not being made and then create it. The beginner level of this is creating compelling improvements in function, design, usability, quality, performance, etc. The pro level is when they make something so much more compelling that people abandon the existing products and move to theirs, thus resetting the category.


This is precisely what KTM did in the 2000s and 2010s. The RFS was a smash hit. The 990 was a 500 pound 100 horsepower bike that could be ridden on single cylinder terrain. The 500EXC was more capable and also just as reliable as most dual sport models. The 350 was a Goldilocks blend of power and agility. KTMs 300 2-strokes were a Goldilocks blend of power, agility, low weight and electric start! Their 790 went in the opposite displacement direction as other brands and still gave amazing performance. The common thread with each of these model templates is they did not exist until KTM created them, they reset the consumers expectations, and they became the new standard. KTM better understood what you wanted and became the only company to make it.


1 + 1 + 1 = ???


I cannot point to a specific time, but I am convinced PMGs acquisitions redirected their product team away from thinking about innovative configurations. Be sure that assimilating Husky and GG required massive time for everyone involved to analyze, strategize, relocate, and get up to speed. Pierer says exactly that in his Alan Cathcart interview: "we are at the leading edge of electro-mobility. At KTM we slowed down for two reasons. First of all, integrating Husqvarna, because to assimilate such a big brand took time". Of course, running three brands means having brand-specific marketing, service and parts materials, racing teams, and a long list of other tiny details that are not necessary with just Orange. It is not hard to imagine this had a cost, and that cost contributed to their current financial situation.


To be fair there is one advantage to having multiple brands using the same technology: "more doors". In other words, better distribution by having more places to sell your bikes. The more accessible your machines are to the public the more you sell (although not in direct correlation). However, in the industry it is frowned upon at best to open multiple dealers in close proximity and many states have laws that prevent it. By having three brands to sell bikes through PMG sidestepped both the blowback and any regulations.


What just happened?


Internet conversations are assigning all sorts of causes for PMGs problems. Inflation, interest rates, pricing of the bikes, dealers, product quality, etc. Bullshit. Those are challenges that will affect company performance. But those are the kinds of challenges that a strong company is supposed to withstand without having to hunt for a few hundred million Euros. The type that the C-suite is supposed to anticipate. Why did they hit PMG so hard and so suddenly?
Hubris, inattention, and lack of discipline.


In the years leading up to COVID PMGs brands were on absolute fire. When COVID hit it created a massive surge in the industry. Most of us in the industry knew this massive surge was not going to be permanent. One would assume PMG would not be so foolish . But reading about their production cutbacks, it appears they continued pumping motorcycles out of the factory as fast as they could. That led to a buildup of inventory.


There are also signs they were spending too much. Sales dipped only slightly last year and not catastrophically this year, but PMG racked up quite a bit of debt. I do not possess a deep understanding of finance but even with my basic knowledge I know if revenue starts to slow down 1. You had better have some reserve, and 2. you need to look at how much is going out. The speed with which and the amount of debt they accrued cannot be blamed on inflation or interest rates. Besides, great leaders are paid to deal with those. PMG was excessively aggressive, failed to moderate, and got bit. Need proof? CSO Florian Kecht said exactly this in an interview with Australian publication MCNews: "Florian also underlined that the group had realised that their strategy to relentlessly chase growth had to end, because it was leading nowhere. He said that they saw this coming at the end of 2023, and a decision was taken then to change tack in order to protect the brand and the company. Growth of around ten per cent each year was proving not sustainable and that they needed to make major changes, including a cultural change within the company."


This is stunning. They did not see a sales drop coming until late 2023? It further seems the part of the company culture that needed a reset was the CEO.


What they got wrong


Going forward there is one large overarching issue: There is not enough differentiation between PMGs models and their 3 brands. With all due respect, minor differences in components do not make a product compellingly unique. Did they really believe they could continue to get away with that? This is a subset of a larger problem: what do the Husqvarna and Gas Gas brands stand for? A brand has to represent something in the customer's mind. KTM knows this; they sell bikes that are Ready to Race. Can you tell me what Husqvarna represents and how it is different than KTM? Again, different specs are not enough. The Gas Gas brand is so unclear to me I often forget it exists (no offense to the owners and their bikes, this is just marketing discussion).


It hurts me to say, they might actually have too many brands. One has to wonder if Husky as a brand unit is making money. I would be shocked in Gas Gas is. Since both use KTM technology and infrastructure, there is only the brand to sell. The brand alone is not well developed and likely worth little. I won't be happy but also unsurprised if Gas Gas gets clipped.


It can be argued KTM are now on defense. The overly conservative Japanese brands were ignoring KTM for a long time. They still mostly are. Mostly, but not entirely. Bikes like the CRF450L are clearly a response to KTM's success. So too are the Tenere 700 and Africa Twin. It is common for the vocal core to dismiss both as inferior machines, and not as actual competition. However, Yamaha positioning the Tenere 700 as a downspec model with a lower price was a very smart decision. And it's a hit. Forget the online noise - only the sales numbers matter and the actual numbers always look different than perception. By the way, the T700 would be a great Gas Gas model.


The more I gathered info for this article, the more PMGs situation looked like the arc of a startup company. Tiny company with new approach gets traction, grows like crazy, gets drunk on their own (orange) Kool Aid, becomes out of control, and falls hard. The more you poke around the more this makes sense. Their sales numbers were exceptional. I have to wonder if they might have been in a sustainable position WITH 3 brands, if they had not made some of the decisions they made. Bicycles, MV Agusta, Moto GP come to mind. Not one of those were necessary, and PMG was too frigging busy to leverage them anyway. JFC, am I the only one who scratched my head at an off-road brand trying to compete in MotoGP?



When I initially read Pierer's Cycle News article I was very impressed with what he said. Rereading it now in the context of their current situation, he seemed to be going in too many directions all at once. The initial plans discussed for Husky and GG lacked clarity and they deviated from those extensively.


PMG definitely has some pain ahead. They need a lot of cash, quickly. I would like to point out Bajaj has not leaped to their rescue. Presumably because they want PMGs situation to get worse, so they can buy it at yard sale prices. With or without financing, current ownership structure or JB welding the pieces back together, they need to figure out a version of themselves that is rightsized. The schadenfreude (see what I did there?) is omnipresent and brutal. Every conversation includes talk about cams, bad warranty experiences, high bike prices, where the bikes are made, and all sorts of backlash. This is definitely not helping their brand, it probably qualifies as a PR disaster. While the world has beat up on Pierer a bit here, he's clearly a very, very capable person and businessman. But they are a massively successful and famous global brand with an industry leading product line and incredibly loyal customer base. There will be change, there will be pain, but there will certainly be orange bikes for us to buy and ride.


Part 3 coming next Thursday. Or maybe Friday. But it's coming, I promise.

Cycle News Stefan Pierer Interview Part 1

Cycle News Stefan Pierer Interview Part 2

MCNews.Au CSO Florian Kecht Interview

Haven't gotten part 3 yet

 

Hope they don't pull a Jaguar kind of restructure... Jags have been around forever, and always had cool cars. Now they put out ads that look like they sell the fashion show reject clothing.

 

Nice! Looks like you had a great day. I need to get back there with my lap timer to see how we compare soon!

Happy thanksgiving to you all!

 

Ive been getting those from him as well, I like his opinion on it

 

Lololol. This was a good one.

 

Ha the countershaft seal guy needs a promo too

 

Or slave cylinder guy

 

Or the camshaft guy..

 

electro and co makes a nice product
but yea not cheap lol


just think though, all that extra ride time with it being silent stealthy
dont mind if i do!!

 

Dang, can’t believe yesterday was 1 year with the Super Tenere already. Still love the bike so much. I think I’ll wash it this weekend.

 

Had an unusually nice weather window this weekend, so decided tot ake advantage of it. Broke the bike out, hit the ferry over to Whidbey and up to a brunch spot named Goldie's. Polenta Benedict was top notch!

Was going to go up and over to get back home via Deception pass but was running out of daylight, so bombed down the coast and caught the ferry back for a nice 5 hour cruise.

 

Im at 3 years with my bike. How the times have changes. Although I am looking for a stablemate for the AT. My range is wide - grom, XR400, sportster 883 or 48, or a Triumph Bonneville. All will be a project. In the spring I plan on picking up a tig welder, so i can chop things up and make them cooler (in aluminum or stainless)

 

Man I’d love to learn how to weld. It would open up a world of possibilities.

 

How about adding a set of gold wheels to the stable?

 

Im going to teach myself. Basically taught myself mig.

You should get a cheapo one from HF and watch some videos. Thats basically my motivation

 

I might. Aftermarket is like 2-3k. I kinda want a set of OEM tubeless for ease of patching a tire out on the road. And especially because I don't carry spare tubes

 

Received an interesting email today. Sounds neat.

TLDR: https://www.dustmoto.com/products/hightail

Read (cut and paste): quote.


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The Hightail (known previously as Model_1) is priced at US$10,950 and is now available for pre-order in the United States with a $100 refundable deposit, with initial deliveries set for late 2025. For more information on the Hightail and Dust Moto’s mission to introduce sustainable options to the power sports industry, visit dustmoto.com.


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end quote.