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Feb. 11, 2008 – Looking into Polaris’ future

February 11, 2008
Filed under Features

By Neil Pascale
Editor
The future path for Polaris Industries seems pretty well defined, even if the manufacturer doesn’t know who yet will lead it down that path.
Current CEO Tom Tiller laid out that vision a day after announcing he would not seek a contract extension with Polaris through 2008. Tiller, who has been with the Minnesota company for 10 years, says it was the right time for change for both him and the company.
Tiller will stay on as CEO until a replacement is found, something the company says could take well into 2008 to determine, and could remain on Polaris’ board of directors after a successor is named.
The morning after Tiller’s decision was made public he spent some time with Powersports Business discussing the future, from how important international sales will be for his successor to the likelihood of that person steering Polaris away from its current dependence on ATV sales.
“It’s a very different world than when I got here,” Tiller said, noting the change in the U.S. economic climate and its impact on the powersports industry.
When Tiller decided to leave GE for Polaris 10 years ago, the ATV industry was growing rapidly, the snowmobile industry was humming along and Polaris was manufacturing PWC.
Fast forward 10 years and the traditional core ATV industry has seemingly peaked and begun a slow descent that worsened in 2007. The U.S. snowmobile retail market has dipped each of the past 10 years and Polaris has left the PWC market and entered a larger one, the on-road motorcycle market.
“The next person will have a different set of challenges,” Tiller said of his successor, “but I think ultimately we’re quite likely to be successful during the next 10 years for many of the same reasons that we’ve been successful during the last 10 and really the last 54 years.”
Tiller believes much of the company’s success during that time can be attributed to its ability to change direction.
“It’s a very adaptable company,” he said. “It wasn’t so many years ago that the only thing we made was snowmobiles and everybody was all wigged out and asked, ‘Oh my God, we’re all dependent on snowmobiles and what do we do about that?’
“We’re not afraid to try new areas. We were not afraid to go into the motorcycle business with Victory when everybody thought we were absolutely nuts to do that. And as it turns out, thank goodness we made the decision to do that. So we try to look forward and do our best job to figure out where the markets are going and plan for that.”
Certainly Polaris has had to look forward recently, with nearly 70 percent of its revenue tied to the declining ATV market, according to its 2007 third-quarter financial report. Of course, a portion of that ATV revenue is the lucrative and growing UTV market. But a substantial part is tied to the core ATV market that has declined for three straight years.
Tiller says Polaris reacted to that declining market by finding nontraditional but related fields, noting the company was one of the first OEMs in the powersports market to take advantage of the emerging side-by-side market. Plus, it has actively sought and acquired military ATV business, recently announcing a new contract with the Army that could total more than $16 million.
“That speed and flexibility has always been one of our biggest advantages, and I suspect that will serve us well in a world that is changing,” Tiller said, “and we like when the world is changing. That’s beneficial to us.”
Part of that changing world requires companies to look closer at international partnerships, if not outright acquisitions. European companies, including BMW and KTM, made such moves in 2007. Tiller, who was unsuccessful in working out a long-term partnership with KTM, says his successor will likely see more industry consolidations and partnerships in the future.
“A lot of that is driven by emissions regulations,” Tiller said of industry consolidation. “With the emissions regulations, the cost of the engines and the fuel management systems is much, much higher than it used to be in the good old days of carbureted two-strokes. So those investments are much bigger and take a much longer period of time to amortize and if you get one wrong it can have pretty devastating consequences.”
The global nature of business also is bringing about such partnerships.
“When I got here I would say it was kind of a polar business,” Tiller said. “You had kind of a North American industry, and you had kind of an European industry and maybe an Asian industry. Today’s it’s much more of a global business on the supply base side and a large extent now the brands are much more global. We certainly are trying to globalize our brand and most companies are.”
Like other businesses, Polaris also is seeking new areas to grow in. Last summer, company senior management and its board of directors spent time asking some very challenging questions, Tiller said, like “how’s the world changing? How do we need to respond to that? Where can we create kind of a unique competitive advantage?”
Some of the answers that came out of those brainstorming sessions figure to shape the tenure of Tiller’s successor. Tiller himself expects the company and whoever its new leader is to concentrate on developing more innovative product, like the Ranger RZR or Victory Vision, and identify growth areas both in its traditional and nontraditional markets.
“We love the businesses that we’re in,” he said, “and we think we can be very successful in those businesses even with the pressures that are here today.”

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