In September 1963, Steve McQueen defied Nazi Germany and seemingly defied gravity, performing high-flying stunts on an Indian motorbike in The Great Escape’s climactic chase scene. But in the end, he was caught, and his attempt to escape was shut down.
Exactly 40 years later, the maker of the “Chief” he rode to cinematic success has itself shut down, handing out pink slips to 380 employees in its 150,000 square foot Gilroy, Calif.-based plant. Despite nearly $150 million in private equity investment since the company reopened its doors in 1998 (it originally shut down in 1953), Indian Motorcycles has fallen far short of the production rate it needed to break even, let alone pull in a profit.
Audax Group, a Boston-based private equity firm, was the 103-year-old manufacturers’ latest attempted savior. The firm poured in $45 million just two years ago. But rather than throw bad money after good, the firm decided to shut down the company, and walk away from the biggest investment in its inaugural $500 million fund.
“Over the summer, we had negotiations with a major investor,” said Geoffrey Rehnert, co-CEO of Audax. “Talks became prolonged and it wasn’t financially prudent to continue. And the likelihood of another major investor coming along [soon] was slim.”
When Indian reopened in 1998, a consortium of wealthy motorcycle enthusiasts looking to revive an American institution invested $100 million. “We didn’t make our investment for that reason, but we saw an opportunity to create a sizable company and capitalize off that,” said Rehnert. “Obviously, this is a disappointing development.”
Whether or not there can be a revival, the folks at Audax are satisfied with the attempts they made to make Indian a viable company. “We did a lot of things right,” said Rehnert. “We produced a new engine, a stronger dealer network, installed efficiencies in the manufacturing process and improved the overall quality of the product. But there were still so many things going against us- it made sense to shut down.”
Rehnert points to U.S. economic woes, long winters, the war and a rainy spring as big factors in Indian’s inability to sell a little more than half of the 7,500 cycles needed just to break even this year. “The magnitude of warranty claims [from engine problems stemming from the pre-Audax days] surprised us and definitely put us in a hole from the start,” he said.
Rehnert also offers no apologies. “We’re in the business of doing very operationally challenging deals, and have eight others in our portfolio doing very well,” he said. “Our LPs understand this, they’re our core constituency. They look at our portfolio and know we are making money for them overall at the end of the day. They invested in us because we do high-risk, challenging deals.”
At least one LP, who doesn’t invest in Audax funds, said Indian’s flat tire shouldn’t damage the private equity firm’s reputation. “LPs expect some bad investments-they happen,” the LP said. “Every portfolio has a failed transaction or two, and every investor knows this. The trick is not to make it a habit. The high-profile nature [of the Indian failure] probably won’t have a long-term impact on Audax.”
The Indian brand could still be a viable money-maker to an entrepreneur looking to exploit the retro revolution going on today, what with the resurfacing of the Volkswagen Beetle, throwback sports jerseys and Chrysler’s P.T. Cruiser. It has even been reported that one of the company’s entrepreneurial backers would attempt to enlist Indian-enthusiast Arnold Schwarzenegger in a revival effort.