Indian Motorcycle closes its doors
Date: Monday, September 22 @ 11:16:58 CDT
Topic: News


DEAL TO KEEP GILROY FACTORY RUNNING FALLS THROUGH
By Matt Nauman
Mercury News

The first time around, Indian Motorcycle lasted more than 50 years. This time, it lasted five.

On Friday, Indian closed the factory in Gilroy where it made heavyweight cruisers and other motorcycles, telling its 380 employees that a deal with a new investor had fallen through.

``The motor-vehicle industry is not for the faint of heart,'' said Fran O'Hagan, Indian's executive vice president. ``It has huge capital requirements and very long time horizons.

``In the end, we didn't have the momentum'' to fund both current operations and future projects, he said.

Lou Terhar, Indian Motorcycle's president and chief executive, broke the news to employees.

``It was quite emotional on the floor,'' said Ruth Rogers, who worked in Indian's payroll department for the past year. ``I'm sad for myself. We have a lot of employees who have been here for quite a few years. We have families, husbands and wives, who both work here.''

The closing comes as Indian was enjoying strong sales and critical acceptance. O'Hagan said the company was ``on target'' to sell a record 4,500 bikes this year.

``The great irony is, the 2004 products finally put Indian where no explanation or apology was necessary to compare Indian to any other brand,'' he said.

The news took Gilroy officials and Indian dealers by surprise.

``It comes as a shock, certainly,'' said Susan Valenta, executive director of the Gilroy Chamber of Commerce. She described Indian as both ``a viable employer'' and an active corporate citizen.

Gilroy's Economic Development Corp. identified Indian as the city's third-largest employer in 2002 behind Christopher Ranch and ConAgra, two companies involved in the town's signature garlic business.

O'Hagan wouldn't discuss in detail the would-be investor in what he called ``an eight-digit deal.'' In 2001, Audax, a private equity firm in Boston, invested $45 million in Indian and brought in new executives, including O'Hagan, who had worked for Jaguar, BMW and Mercedes-Benz.

The closing ends another chapter in the storied history of Indian Motorcycle.

Founded in Springfield, Mass., in 1901, Indian was once a rival to American icon Harley-Davidson. It first went out of business in 1953.

Then, for nearly a half-century without new product, it remained a well-known brand name globally. Some 50,000 old Indian motorcycles are thought to still exist in the United States.

Finally, after a lengthy court battle, Indian was revived in 1999 by Rey Sotelo, founder of California Motorcycle, a builder of big, customized bikes favored by football players and other celebrities. The factory was a 150,000-square-foot former grocery warehouse in Gilroy.

At first, the company over-promised and under-delivered. An early chief financial officer forecast 9,000 to 10,000 sales in 2000, 16,000 to 20,000 in 2001 and, eventually, 35,000 to 40,000.

Instead, only 1,100 of the original 1999 Indian Chief models were built. Sales grew slowly, reaching 2,000 in 2000 and 2,656 in 2001.

Employment, which quickly grew to 600, dropped to 400 after layoffs in 2001.

But, after several rounds of funding and management changes, things had apparently stabilized.

In May, the company said it sold 563 bikes, its best month ever.

``Business has been great,'' said David Nakamoto, general manager of Indian Motorcycle San Jose on The Alameda. His store has sold 130 to 140 bikes a year over the past three years, he said.

The news of Indian's closing took Nakamoto by surprise.

``We have not been notified,'' he said. In fact, he was planning to be in Las Vegas starting Sunday for an Indian dealer meeting to unveil its 2004 product line and at the factory Wednesday night for a dealer party.

The company's 200 dealers have about 1,500 to 2,000 unsold 2003 models remaining. It's likely that dealers who sell only Indian motorcycles will be forced out of business eventually.

The factory was just about to begin building its 2004 models, O'Hagan said.

O'Hagan said late Friday that he was unsure what would happen next. Bankruptcy is one option, he said.

``In the end, the creditors will control what's left of Indian Motorcycle,'' he said.







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