Wednesday, August 11, 2010


The contemporary tale of Harley Davidson/MV Agusta proves the lessons of the past have yet to be learned, the entire scenario being a poor repeat of H-D's previous of Aermacchi in 1961.  At that time, H-D sought an entry into small-capacity motorcycling, as they hadn't developed any lightweight bikes since introducing the Hummer (below), whose design was based wholly on the DKW RT125, blueprints and tooling of which were acquired as war trophies/reparations immediately following WW2.  Thus, H-D had a lot of catching up to do, having done no development in the fastest-growing segment of motorcycling in the late 1940s through early 70s.  Having done the calculations, I'm certain management concluded it would be more cost-effective to purchase a small company with a successful product line of lightweights, than begin a years-long process of developing a new H-D line of small machines.

Harley was successful initially with their new models, which proved popular, for racing, street, and off-road uses.  The move required a huge effort to arm-wrestle dealers into selling bikes they didn't know at all, make space on shop floors, and retrain thousands of service departments to work on unfamiliar models, which were introduced at a rapid pace.  Every H-D mechanic also had to buy a complete new set of metric tools!  Echoes of their grumbling can still be heard today, and it's a rare true-blue Harley enthusiast/dealer/mechanic who retains fondness for the Aermacchi episode, or frankly, even acknowledge the Italian machines as H-Ds at all.

The flabbergasting conclusion to this whole tale isn't the fact that H-D sold MV Agusta for a reported 3Euros - that's typical when a corporate buyer must assume the debts of the seller's company.  No, it's that BOTH deals involved the Castiglioni brothers, who purchased Aermacchi from Harley in the 1978.  The Castiglionis have repeated the exercise, decades later, of  buying an Italian motorcycle company for a song when H-D was in financial trouble.  A remarkable case of déja vu - haven't we been here before?
The Castiglioni's won't have it easy to revive MV Agusta from its current moribund state, but they managed in the 70s to prosper after buying Aermacchi back from H-D, and seem to have come out just fine in the end.  Their tale, and that of their father Giovanni, deserves to be told on these pages, as Giovanni founded Cagiva in 1950 and sons Claudio and Gianfranco inherited the company - changing the focus in 1978 from metals production to motorcycles.

George Santayana famously wrote (in 'The Life of Reason', 1905), "Those who cannot remember the past are condemned to repeat it".  It would seem H-Ds venture with MV Agusta was doomed from the start.

From The Wall Street Journal:

"Motorcycle maker Harley-Davidson completed the sale of MV Agusta, its sport-bike business based in Varese, Italy. The company’s announcement didn’t include the sale price but its 8-K filing with the Securities and Exchange Commission revealed the company essentially paid MV Agusta’s former owners to take it back.

In the filing Harley said it “contributed 20 million Euros to MV as operating capital” that was put in escrow and is available to the buyer over a 12-month period. The buyer is Claudio Castiglioni, who, with his brother Gianfranco, ran MV Agusta for years before selling it to Harley two years ago for about $109 million.

At the time Harley was concerned that its core baby-boomer customers were getting older and losing their will and ability to ride motorcycles. So it bought MV Agusta, a maker of expensive, exotic, high-performance sport bikes as a quick way to attract younger buyers. But the strategy never worked out. While MVs are wonderful bikes for purists who treat each motorcycle ride almost like a gym workout, riding them in traffic or as casual transportation can be a chore. They are also prohibitively expensive for many motorcycle enthusiasts.

In the filing Harley also said it received “nominal consideration” from the buyer. In a subsequent interview the company said the specific amount it received was $3 Euros. A company spokesman said the terms of the transaction “reflect the realities of the current economic environment and the difficult conditions” in the sport-bike market. Motorcycle sales in the U.S. have been sagged in the past few years after more than a decade of steady growth. Unlike cars, which began a recovery this year, motorcycles are typically discretionary purchases — the type consumers give up during difficult economic times.

Harley has previously write-downs totaling $162.6 million for the fair value of MV Agusta and began treating the unit as a discontinued operation after announcing its intention to sell it a year ago. The company said it anticipate additional related losses from discontinued operations in the third quarter of 2010.

A footnote: There is a certain element of should-have-known-better in this story. This isn’t the first time Harley-Davidson has had a hard time with an Italian acquisition. In the 1960s it bought a stake in Aermacchi, a maker of small off-road bikes as a way to expand into new markets. Eventually it bought the whole company, but that move also eventually failed and Harley sold Aermacchi in the late 1970s. The sellers and buyers: the Castiglioni brothers."