Indian's victory

Jan 11, 2017

As we reported on Monday, Victory has ironically suffered a crushing defeat. They’re out of business. Dead. Done. Fin.

The question everyone has, of course, is simple: Why did this happen? I think a lot of factors converged. Oddly, I agree with Victory’s implied assessment that the brand needed a big change. Asking a few other questions helps suss out most of the rationale behind the decision to ax the brand.

Victory's identity

What kind of bikes did Vic make? What was their brand identity? I don’t mean that in the stupid corporate buzzword way, I mean it in plain English. Who the hell was Victory? When they started out, they were the brainy domestic underdog alternative to Harley-Davidson. I understood that, and so did many others. At some point, someone there realized they were defining themselves by their largest competitor, which seems sort of undesirable. When Polaris bought the Indian brand, many assumed it too would chase existing Harley customers. In theory, that freed up Victory to live up to the words on its website: “We have an inextinguishable passion for American performance.”

That didn't seem to materialize, though. They just had... well, cruisers. The Victory lineup was stale, but most motorcyclists cut them some slack, I think. “Well, they just bought Indian.” Or “Yeah, but that new powerplant for the Indian was probably expensive.” All the comments I heard were patient bordering on magnanimous.

Empulse
It really seemed like Victory was about to reinvent itself as a brand, didn't it? RevZilla photo.

Then they picked up the Empulse from Brammo. This seemed like a great first step — a sporting motorcycle, powered by nascent technology! I was excited, and I think others were, too. Then Project 156 came about. It looked like Victory, finally unshackled from its cruiser roots, was actually going to be able to deliver some ass-kicking American machinery.

But then everything seemed to fizzle. The Empulse’s price was too high to take it seriously, especially compared to competition from Zero. The R&D budget seemed to be nonexistent for that model. I wrote extensively about how far Victory watered down the Project 156 bike. (The Octane was a far cry from what was hinted at, I felt.) And that gets us to today, where nothing really happened with Victory. Prior to shutting the doors, I don’t know what they were concentrating on, to be honest. “American performance” certainly seems like a stretch.

Enter the Great Recession

Victory was probably pretty confused on who they were after the fat-tire billet-y cruiser wave crashed right along with the stock market in 2008. Was a Victory motorcycle viable? If so, what should it look like? More of the same? Total redesign? Was there money to even make a choice? Motorcyclists are a picky lot. There have been a boatload of motorcycles that just didn’t resonate with buyers for the most arcane reasons. Motorcyclists will happily damn a great bike for some trifling matter.

Victory Motorcycles had eked out a little niche for themselves and weathered the financial storm. Monkeying with the formula probably seemed paralyzingly distasteful. Polaris watched its main competitor, Harley-Davidson, try to branch into other riding segments. Out came flop after flop: the V-Rod, the Buell series, the XR1200X. Anything with a hint of performance circled the drain briefly, then disappeared. The Japanese (and on a more limited basis, the Germans, Italians, and lately the Austrians) seemed to be able to sell all sorts of motorcycles here: dirt machines, big ADV bikes, race reps. You name it, they sold ‘em. Harley, though, was a different story.

Is it any wonder that Polaris purchased rights to the Indian name and started pouring resources into it? Indirectly, the recession threw a scare into the entire country, and bold innovation was passed over by many companies and execs who were more than happy to accept more modest profits over chances of financial ruin.

Magnum
Style, image, performance, and comfort are all ways a bike can become dominant, but there's only one thing that matters where the rubber meets the road, and that's profitability. Photo by Thomas Weiss.

The financials

This is America, where the almighty dollar rules. Polaris is a publicly traded company. Investors don’t give a shit about “American performance” unless it comes in the form of ROI. Polaris’ bread and butter is the off-road segment: ATVs, SxSs, the ACE, which is hybrid of the two, and sleds. In their 2015 annual investor report, that category accounted for a whopping 78 percent of the company’s revenue. Motorcycles? Well, Indian, Victory, and the Slingshot accounted for 15 percent. That’s not an inconsequential number, but in terms of Polaris’ overall brand mix, the motorcycles aren’t really the products that define the company.

Like it or not, the decision to ax Victory was likely a pure financial play. I tried my best to get production numbers, but I can’t find squat officially. Polaris ain’t keen on releasing the figures, but I managed to get some numbers that point to this being the case.

I talked to Derek Peterson, a spokesman for the company, and he didn’t mince words.

“Victory accounted for 3 percent of Polaris revenue in 2015. That’s after 18 years. Combined, Indian and Slingshot accounted for 12 percent in 2015, after just a few years for each,” Peterson said.

Now, that doesn’t mention profitability, but you can draw your own conclusions there. Derek told me one more key piece of info. “Victory has been unprofitable three of the last five years, and most of the other prior years as well.” Well, if that ain’t the kiss of death, I don’t know what is.

That same 2015 investor report talked at length about an "all-out assault on costs." Ominously, a section reads, "We are thrilled with the growth and market acceptance of Indian and Slingshot, and excited about the potential for Victory with new bikes and 'American Muscle' brand positioning. But as we grow towards our goal of a $1+ billion Motorcycle [sic] business, we also expect to be on a path to meet or surpass company-average margins." That pretty much lays it out. CEO Scott Wine has been with Polaris since 2008. Imagine you’re getting report after report about a brand kicking in just 3 percent of the company’s revenue and very little of the profit. He knows good and well the choice is between firing Victory or getting fired himself. I’d say he chose wisely.

Polaris ain’t runnin’ a soup kitchen. There are no handouts. Victory, to some degree or another, was eating up resources that could have gone to a more profitable branch of the company. Once a brand stops making money, it falls into "pet project" classification, and pet projects don’t last very long. To be perfectly open, I’m amazed Wine allowed it to go on this long. I suspect the RZR and Slingshot recalls from this summer (they were catching fire, apparently) probably impacted profitability pretty badly. Polaris will release fourth quarter and 2016 annual results on Jan. 24, and my gut says the news ain’t likely to be good.

What’s next?

First, I’ll give you my "pie-in-the-sky" view: Polaris felt the Victory brand was not dominant enough and could hurt chances at their new program building genuine performance machines in a full or semi-full lineup. They made the decision to ax Victory to free up funds for the new division. Dirt bikes! Adventure machines! Standards!

But that’s not realistic, as we just mentioned. Profits need to roll in. Investors need to be satisfied. And the motorcycle industry is, at present, a precarious one. Right now, expect to see more of what you’ve already seen for years.

Springfield
Polaris is pitting its classically styled Indian brand against the current market leader. Is this a bright idea, or déjà vu? RevZilla photo.

Prepare for a further entrenching of the existing "battle lines." Cruisers will be made in the traditional style by domestic companies. Standards, sport-tourers, beginner bikes, race-reps, and the like will come from other manufacturers. Upstart manufacturer Motus makes a fine non-cruiser motorcycle right here in America, but it doesn’t seem to have really captured many hearts. (And that certainly could be due to the heirloom-level price and limited product line.) From my desk (and probably the desks of the big-wig execs), attempting to enter that fray is madness. Profit margins are thin and motorcycles are a luxury toy in this country. I expect to see Polaris tread very, very lightly.

You can bet this company shutdown is going to weigh heavy on the minds of Harley-Davidson’s marketing and design teams, too. They generally err on the side of being conservative, and news like this isn’t likely to encourage them to stray far from "the recipe."

I expect the MoCo will pick up a few former Victory customers with bikes like their CVO Breakout, which offer some styling cues that Victory owners generally appreciated, but I expect more Victory customers to gravitate to a foreign brand for their next machine.

Perhaps this shucking of Victory isn’t a bad thing. Specialization does work, and if some part of a business isn’t making money, it’s hard to justify the capital it consumes. Why shouldn’t a cruiser company make the retro models its customers are clamoring for? Though it’s painful to achieve, in the animal world, a smaller, better fed herd is generally preferable to a larger one with some starving members. In that respect, Indian is the real winner here. They’re going to be backed by a company that has a little less dead weight. As long as they can keep moving units, they’ll probably continue on in good health, and Polaris should be able to direct more marketing and R&D money their way.

Polaris just bet the farm on the retro market. It's worked for Triumph in the past, and traditional styling has worked for Harley-Davidson. No matter how you slice it, Indian has scored a victory.