For those willing to read a longer article on the subject, Brian at Atomic Moto has sent this out:
n 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.
