American Motorcycle Dealer AMD 236 March 2019 - Page 18

instructor for SCCA for both open wheel and production classes.” Charvat has been a motorcycle rider from a very early age. “When I was very young, my Dad got hold of a mini bike frame and I watched as he put a 50 cc engine into it, and with very little else by way of brakes or anything, that became my first bike. I learned to ride, and more importantly how not to crash, and then my first bought bike was a Yamaha 80 cc dirt bike. “I progressed up through 125 and 250 and then in the mid ‘80s [Charvat is 53 years old] I started road racing with a RZ 350 two stroke and loved that. Then I progressed to motorsports and I’m still a weekend racer whenever I can find the time.” Asked for his assessment of the challenge he was taking on when accepting the MAG job, he said he’d done his research thoroughly. Being no stranger to how private equity generally operates he said that “the Lacy (LDI) acquisition from Leonard Green and Partners was fairly typical of its kind. The company had been leveraged with debt at the time of the deal, but through the filing they were able to wipe the balance sheet clean. The new owners have been very mindful to make sure history doesn’t repeat itself and that, on emergence from the filing, the business hasn’t been overburdened with debt again. “So that is positive. But then you have to look at the reasons why the business failed. Yes, you had the overall downturn, but coming out of the downturn motorcycle sales have continued to be mostly flat to down “people buy from people” ever since. Our consumers have still not, really, completely started to open up their wallets and spend on helmets, apparel, hard parts and accessories again like they did. “I don’t think anybody can look to the market to start doing them any favors. We are not going to be seeing any unbelievable rebound with people starting to buy new motorcycles like crazy again, tomorrow. Now, with that said people are buying motorcycles, but they are buying used - so that is a dynamic that suggests that the future for businesses like MAG, like Tucker, is brighter than might otherwise be thought. “But in that context, you look at what puts a business like MAG and Tucker, with that potential, into bankruptcy, 18 and you have to say that some pretty poor decisions had been made.” Charvat’s remarks when we met him, and his open, transparent and honest appraisal of the history he’s inherited, and the challenges the group faces (self-inflicted and otherwise), came as a breath of fresh air. “I don’t know any of the prior owners or managers so I’m not talking about the individuals concerned as I did not meet any of them, I do not know them, but decisions were taken without any consideration or understanding of what the collateral damage could be. “For example, you take a business like MAG, with some legendary brands like Vance & Hines, Performance Machine, Kuryakyn and the other business units MAG owned, and you look at combining them, and with a powerful distribution business like Tucker into what you could call ‘vertical integration,’ and that looks to have a certain logic. “In a conference room, on a white board, that may well look like it made a lot of sense, but while you have a lot of very bright people working in private equity, very few of them are what you’d call experienced as individual business operators. Interestingly, Charvat sees more to the subsequent issues than a simple matter of ongoing market decline. “I’m sure that when the decisions were made, on an income forecast level they may well have thought that this is what the future may well look like. But what they didn’t appreciate were the nuances of the distribution industry. At the end of the day people buy from AMERICAN MOTORCYCLE DEALER - MARCH 2019 people. While you have dealers who see Tucker as a great supplier and partner, you also had those who weren’t buying from Tucker. This ‘vertical’ concept allowed dealers to start seeing Tucker as a competitor. “The moment you mandate that you can no longer buy a particular product direct or through an alternate distributor of choice, but have to buy it from Tucker, that just incenses them. So they decide to go and buy an alternate product, or from another supplier, and you chase that business away, all because you were trying to chase this ‘vertical’. understanding. An understanding of how those products are taken to market, and what their appeal is to the various corners of the market, was completely missed. The questions were never asked or, if information was volunteered, people were just not necessarily heard.” Good point, well made. Anybody who has been witnessing the hemorrhaging of talent of the past few years will be aware that there has been a great deal of messenger blaming for what turned out to have been valid and even prescient messages. “So, when I looked at all that, and you “the new owners have been mindful to make sure history doesn’t repeat” Was it simple naivety or worse? “Some of the decisions that were made to try and force this ‘vertical’ were inherently flawed, or at least somewhat short- sighted. Combined with that, some decisions that were made on the manufacturing side to try to pull some business footprints together, just weren’t ever going to work either. Yes, you’re bending and cutting metal, but they were and are completely distinct products. So, was it a failure of trying to drive manufacturing by ‘spreadsheet’? “I think there was a lack of come back to where we are now, today, the opportunity that we now have is look very carefully and selectively at what we can do to unwind some of the decisions that were made in a way that allows us to restore some of the relationships, maybe outside of Tucker, with other customers. “But that maybe also allows us to go back and ask how do you leverage the relationships you restore with these dealers. We really have walked away from servicing some of them, either through not having the inventory, or