Italian Buying Orgy
 Who's buying? Who's
selling?
So what’s being owned by
Piaggio mean to Guzzi and Aprilia? My first reaction is cautious optimism. My
second thought is what I call the ‘new baseball manager’ syndrome, in which we
believe the new guy will be great, even though we don’t know anything about him!
In my most pessimistic
moment, I remember what I thought when Aprilia’s Ivano Beggio purchased Moto
Guzzi in May of 2000: We’ll there’s another deep pocket to drain! But seriously,
I thought Aprilia would be the best thing to happen to Guzzi since it was
privately owned by its founders. Since Carlo Guzzi’s death in 1964, I think of
Moto Guzzi as having been owned by a succession of monopoly players, more
interested in propping the company up to profitably sell to the next guy than
making motorcycles. Aprilia seemed to be a dream come true: a highly successful
privately-held motorcycle manufacturer with money! Ivano Beggio conveys a
passion for Moto Guzzi, understandable as a motorcycle nut who grew up in Italy.
I wonder if he wasn’t a bit bored, as Aprilia was making lots of money and
probably kind of ran itself. Moto Guzzi was an intelligent addition to Aprilia,
as Guzzi had tremendous unrealized potential in the large cruiser market, which
is too far removed from Aprilia’s high-tech, high-performance brand image for
them to attempt to build their own. So the acquisition was sensible from a
business standpoint, as a pet project for Mr. Beggio, and maybe as a way to give
back to the Italian motorcycle industry by resurrecting an icon. It has also
been said that emotions and the need to outbid Ducati lead to Aprilia paying too
much for Guzzi.
So what went wrong? I’m not
going to pretend that Aprilia was completely blameless for their downfall but
they do seem to be a victim of circumstances beyond their control. Two
significant law changes came about in Italy, possibly related to the move
towards European unification. One deregulated insurance, raising the rate for
the average teenage scooter rider from $500 to $1500 a year. The other made
helmets mandatory, which I thought also affected young riders the most but it
turned out to be especially adverse to young office workers - helmet head is
simply not fashionable!
Aprilia saw their total sales
drop from a peak of 330,000 to 170,000. Worse, this drop happened right at the
time when scooter profits were to be directed to refurbishing Guzzi. Still, huge
improvements were made at Moto Guzzi’s facilities, plus Guzzi benefited from
Aprilia’s greater buying power and huge engineering staff.
Looking back now, I can see
the signs of them trying too hard to make up for a lack of money. Really, we’ve
had little in the way of truly new models from either company since Aprilia
bought Guzzi. There has been a huge improvement in quality and some nice updates
to existing models, but the truly new stuff from Guzzi is really next year and
beyond.
The first public sign of
trouble was news of the Guzzi assembly line closing in about March. It turns out
that the news was taken more ominously than it really was, as apparently it’s
common practice for large Italian manufacturers to impose temporary layoffs that
are supported by the government.
Things got worse when news
came of impending bankruptcy for Aprilia if they failed to meet an early May
deadline for paying several million Euros, meaning that Aprilia’s creditors
could take control of the company. I didn’t fail to notice that the date pretty
well coincided with Aprilia’s purchase of Guzzi four years earlier. This made me
realize for the first time that Aprilia probably didn’t so much ‘buy’ Guzzi as
they ‘financed’ it. It also possibly explains the curious coincidence of Aprilia
buying Guzzi and Laverda at the same time. Perhaps one of the banks arranging
the financing was holding paper on Laverda and made it a required part of the
deal.
So the bankers refused to
extend Aprilia’s credit any further, obviously seeing their legal opportunity to
seize control of the company. The Italian government apparently didn’t like the
situation and provided a bridge loan to get Aprilia out of the jam. With their
pressure removed, the banks suddenly found it in their hearts to extend
Aprilia’s credit some 30 million Euros. Nice guys.
At this point I was afraid
Aprilia might think they could struggle on. Thankfully they publicly stated
their intention to seek a financial partner, envisioned as being something about
a third share in the overall company. To make a strong gesture to potential
investors of their potential influence, Ivano Beggio stepped down. I thought
Aprilia suffered from wishful thinking, as any investor would likely want
controlling interest.
We heard that as many as
fifteen potential investors investigated the possibility, from BMW to Suzuki to
an unnamed auto manufacturer. The bad part at this phase was that we didn’t know
how many were serious or when a deal might happen, a painfully indefinite
interlude.
The best comment on the
situation came to me from an Aprilia marketing guy, who said that the Guzzi
dealers were taking it well and having fun with it, as they had just gone
through this same thing four years prior. Conversely, the Aprilia dealers, who
have never seen anything like this, were freaked out!
So with that theme of ‘having
fun with it,’ I sent out the following on April 1st, and few ‘got
it’:
Madras, India and Noale, Italy
In an historic move Wednesday, Aprilia S.p.A. chief Ivano
Beggio announced a new partnership between his Moto Guzzi and The Eicher Group,
manufacturers of Royal Enfield motorcycles in India.
"Today begins a new partnership that solves our immediate
needs and provides opportunities for both brands in the future, both in terms of
expanded markets and manufacturing opportunities," Beggio said through an
interpreter.
Reports portray Beggio as a man in need of financial
partners, both for Moto Guzzi and his flagship Aprilia brands. Recently Moto
Guzzi has furloughed its production staff, a common strategy for large Italian
manufacturers to reduce inventory. Scooter giant Piaggio has been named a
potential Aprilia investor.
Royal Enfield of India is the remains of a once great, now
defunct British manufacturer of motorcycles. The Indian division continues to
produce a largely unchanged design from the 1950s, selling with great success to
the somewhat captive, billion-strong Indian market.
Moto Guzzi will benefit from Eicher Group's financial
resources immediately (annual sales of US $315 million). In the future the new
connection will also provide Moto Guzzi with cheaper manufacturing, a more
diverse product line, and greater access to southeast Asian markets. Eicher
Group will gain greater prestige for its Royal Enfield motorcycles and better
access to European markets.
This is not Beggio's first foray into India. Last fall he
partnered his Aprilia brand with Hero in similar ways to this Guzzi/Enfield
tie-up, but in this previous instance without a financial buy-in by the Indian
firm.
I guess when something sounds
believable it’s easier to get fooled!
Finally in late July we heard
that Ducati had made known their intention to make an offer. A little checking
with friends with contacts inside Guzzi brought the news that a deadline had
been set for entities to announce their intention to bid. Bids were to be placed
by the end of July with hopes of announcing the likely winner in early August.
Ducati’s announcement was followed a week later by Piaggio’s (parent company of
Vespa scooters). Others announcing their intention to bid were Kymco of Taiwan
and Canada’s Bombardier. Now this was very welcome news, as we finally had a
definition of who and when. But at the same time, who are the who’s and what are
the prospects for each of them?
Bombarider has assets of $29
billion (CDN) and dabbles in things such as airplanes and mass transit
monorails. They recently spun off their recreational products division into a
separate company, Bombardier Recreational Products (BRP), taking with them their
famous snowmobiles and personal watercraft. Bombardier owns Rotax, the Austrian
engine manufacturer that powers some Aprilia scooters, their 650 single, and all
of their various 1000-cc V-twins. This seemed like a good match in that
Bombardier has a lot of money but few products while Aprilia/Guzzi has lots of
products but little money. I was a little worried as I read that the family
members that bought off the recreational products division barely raised enough
capital to do it, so maybe the parent company had a lot of assets and/or money
but possibly BRP didn’t.
Ducati wanted Guzzi for all
the same reasons Aprilia did: Guzzi’s bikes potentially appeal to the largest
segment of the market, cruisers, while the brand identities of Aprilia and
Ducati could never allow such bikes of tradition to be built under the same name
as their leading-edge sport bikes. Ducati could help Aprilia/Guzzi with
much-needed expertise in brand marketing. What I feared was that Ducati was too
small to take on so much and that, what with the great overlap between Aprilia
and Ducati motorcycles, maybe their intentions were to sell off Aprilia scooters
and do away with their motorcycles.
Kymco makes mostly scooters
but also small motorcycles and was said to be the high bidder. I liked this
pairing as Kymco needs recognizable brands, they seem very successful, and down
the road all these European manufacturers are going to need to move some or all
production to Asia to remain viable. I also heard that Kymco was looking to move
more into motorcycles than they had been.
Piaggio makes modern scooters
but is better known in the US for Vespa, which I consider the Harley-Davidson of
scooters, in that they have the iconic name and are known for tradition and
classic styling. Piaggio fell on hard times a couple of years ago for the same
EU-related reasons as Aprilia did this year. Roberto Colaninno of Telcom Italia
fame bought and refinanced Piaggio. Their motorcycle/scooter holdings also
include Gilera (which competes in 125-cc GP road racing), Puch of Austria, and
Derbi of Spain. I figured that Piaggio would love to add Guzzi and Aprilia
motorcycles, but I wasn’t sure what would happen to Aprilia’s scooters.
The Italian government
announced that they wanted to see Aprilia remain in Italian hands, so I figured
that meant tax incentives that would disadvantage Kymco and Bombardier. I also
wondered what it meant to Ducati, as a large portion of their ownership was an
American company, Texas Pacific Group, but apparently they remained in the
running.
I was surprised to learn the
relative size of the companies involved. Aprilia did about half a billion
dollars in business in 2003 but lost $40 million (Guzzi made a small profit.)
while building about 170,000 vehicles. Guzzi built under 10,000 motorcycles and
of Aprilia’s tally, about 20,000 were motorcycles. Ducati built some 39,000
motorcycles, Piaggio/Vespa 430,000 scooters, and Kymco 460,000
scooters/motorcycles. It wasn’t too surprising that Kymco’s offer was said to be
the highest.
In late August came a Ducati
press release announcing that they had obtained an exclusive right to negotiate
with Aprilia. That seemed crazy to me (but what do I know about big business
acquisitions?) in that one of Aprilia’s greatest strength would be the
competition between bidders. During this time there were lots of press releases
from Ducati, leading many to believe the deal was pretty much done.
For August, Cycle World
Magazine had a nice editorial describing the situation quite even-handedly, at
least, that is, until they got to the end where Michael Lock of Ducati USA said
‘Let’s be frank. Guzzi’s become an oddity.’ That to me was too much like kicking
us when we were down. My reply wasn’t published but here it is for you:
So Ducati’s Michael Lock thinks Guzzi’s an oddity? Well
Michael -“let’s be frank”- what the heck do you think desmodromics do for you? A
degree of oddity is necessary for non-Asian motorcycle manufacturers. Guzzi’s
got this figured out very well and that’s why Aprilia outbid Ducati to buy Guzzi
and why Ducati’s stuck with lingering Guzzi envy. It would be cheaper for Ducati
to build their own than buy another company, but they know they can’t reinvent
what Guzzi has. Sadly for Mr. Lock, I think the closest he’ll come to Guzzi
ownership will be visiting his local dealer!
In the end, Ducati apparently
made a low bid for a controlling interest in Aprilia/Guzzi/Laverda, announcing
in yet another press release “Take it or leave it!” Aprilia left it (saving me
from having to face up to Mr. Lock!). So that was the end of Ducati’s exclusive
negotiation period, after which it immediately became known that Piaggio was
still in the hunt and an offer would be forthcoming by August 14th.
Since that was a Saturday, the agreement between Piaggio and Aprilia was made on
Friday the Thirteenth – nice beginning, guys.
So as of this writing, we
have an offer made by Piaggio and accepted by Aprilia, but still waiting for
approval by banks and vendors, and eventual finalization sometime in the future.
As a comparative example, Aprilia’s purchase of Guzzi was announced in May of
2000 but not finalized until August of that year. But even after the deal is
done, there’s no telling if other deals may happen. I’ve heard rumors of
everything from Ducati buying Guzzi from Piaggio (Sorry about that, Mr. Lock!)
to Piaggio buying Ducati! It’s sort of like the ‘player to be named later’ in
baseball transactions. So for now at least, it’s amazing enough that they have
Aprilia, Derbi, Gilera, Laverda, Moto Guzzi, Piaggio, Puch, and Vespa – eight
brands!
So how does all this affect
you and me? Certainly parts availability will improve, but it surprisingly
didn’t get appreciably worse over the summer, which I expected, as scarce
resources were more likely to be funneled into production. Also, the ETA for new
models should finally be firmed up. None of this will happen quickly – your
MGS/01 won’t show up next week and your 1984 Guzzi T5 side cover isn’t in the
mail just yet. And problems remain, biggest to us is that the US dollar has
become relatively worthless in the past two years, taking all the incentive out
for developing products especially for our potentially huge market. More than
one European motorcycle manufacturer has diverted production of high-demand
relatively-scarce models to other markets where they can actually make money
selling them. A year and a half ago the US dollar was up 13¢ on the Euro but now
it’s down 23¢. We haven’t seen bikes prices go up 30% in that time so you know
all the companies are eating the difference – for now.
The most common question I
hear concerns dealer franchises: will Guzzi dealers now be selling Vespas or
will Guzzi dealers loose their franchise to the local Vespa shop? I think both
scenarios are extremely unlikely. When Aprilia bought Guzzi, we didn’t see
imposed dual franchises. Taking a franchise away from a dealership is actually
quite difficult and laws and dealer agreements restrict close proximity. More
so, the companies spend a lot to have representatives in the field determining
the best outlet for their brands, so they wouldn’t throw all that away and
subject themselves to scores of lawsuits. Besides, what does it matter to them
who represents them if all the profits from wholesale sales to dealers filter up
to the same parent company?
So what do we know? For now
not much more than the company is saved. Potentially, we have successful
business-like ownership with financial resources from Piaggio, engineering
expertise and continuity from Aprilia (This time without the pressure of
impending doom!), new models already developed, refurbished manufacturing and
assembly facilities at Moto Guzzi, more competitive prices from larger group
purchasing, and reduced overhead and distribution costs per vehicle from greater
total volume. How fast will any of this happen? When Aprilia bought Guzzi it was
over a year before we as dealers saw anything significant. Luckily there’s
plenty already in the pipeline: the biggest one-year new model introduction in
modern history for Guzzi: Nevada 750, Griso, MGS/01, and Griso, and from Aprilia
a whole line of new models based on their new 450-550 V-twin.
The next couple of months
will be extremely busy for the ‘new’ Piaggio group. Aprilia and Guzzi have
left-over inventory from slow sales during uncertain times. The Intermot
motorcycle/scooter show looms in mid-September, where the world comes to see
what’s new from the European manufacturers for 2005. Fall dealer meetings must
be arranged and programs devised for 2005. Show space and booth displays must be
purchased for winter motorcycle shows. The world is watching and wants the
instant gratification of visible progress. That’s a normal feeling but remember:
Rome wasn’t built in a day. Patience!
Dave
Richardson/Summer 04
Dave Richardson is the
proprietor of Moto International and author of the best selling Guzziology.
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