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Wednesday, 6 March 2019

Motorsport Aftermarket Group (MAG)

MAG’s Petrolhead

At the Tucker Dealer Expo at Fort Worth, Texas in late January, AMD sat down with new Motorsport Aftermarket Group (MAG) CEO Hugh Charvat and found a man at ease with the challenges and opportunities he faces, and is determined to take the first steps on a road that should see MAG successfully draw a line under its recent past.

Charvat brings a rare combination to one of the market’s hottest of hot seats - a blue chip business resume and a genuine passion and enthusiasm for powersports and motorsports of all kinds. He has extensive experience in leadership roles at companies providing aftermarket products in the automotive and truck business. In his most recent role at APC Automotive Technologies (APC), he led an organization with more than $600m in annual revenue, 1,500 employees and nine locations in North America.
Before APC, he was Chairman, President and CEO of Schrader International and had global responsibility for Schrader Electronics, Schrader Valve Group and Plews Edelman.
At the time MAG Chairman Bob Pieser announced Charvat’s appointment, he said that he was “blown away” by the answer when he asked him what was in his garage. “Beyond his work resume, he’s got a genuine passion for having fun on two and four wheels. He owns a Suzuki SV650 and a GSF1250S for track day fun, along with a selection of sports cars. His interest in fast cars isn’t just casual. He’s been both a competitor and instructor in sports car racing, having competitive licenses with SCCA, the BMW Club and the National Auto Sports Association and been a national instructor for SCCA for both open wheel and production classes.”

“vertical integration may have looked good on a white board”

Charvat has been a motorcycle rider from a very early age. “When I was very young, my Dad got hold of a mini bike frame and I watched as he put a 50 cc engine into it, and with very little else by way of brakes or anything, that became my first bike. I learned to ride, and more importantly how not to crash, and then my first bought bike was a Yamaha 80 cc dirt bike.

“I progressed up through 125 and 250 and then in the mid ‘80s [Charvat is 53 years old] I started road racing with a RZ 350 two stroke and loved that. Then I progressed to motorsports and I’m still a weekend racer whenever I can find the time.”
Asked for his assessment of the challenge he was taking on when accepting the MAG job, he said he’d done his research thoroughly. Being no stranger to how private equity generally operates he said that “the Lacy (LDI) acquisition from Leonard Green and Partners was fairly typical of its kind. The company had been leveraged with debt at the time of the deal, but through the filing they were able to wipe the balance sheet clean. The new owners have been very mindful to make sure history doesn’t repeat itself and that, on emergence from the filing, the business hasn’t been overburdened with debt again.

“inherently flawed decisions”

“So that is positive. But then you have to look at the reasons why the business failed. Yes, you had the overall downturn, but coming out of the downturn motorcycle sales have continued to be mostly flat to down ever since. Our consumers have still not, really, completely started to open up their wallets and spend on helmets, apparel, hard parts and accessories again like they did.
“I don’t think anybody can look to the market to start doing them any favors. We are not going to be seeing any unbelievable rebound with people starting to buy new motorcycles like crazy again, tomorrow. Now, with that said people are buying motorcycles, but they are buying used - so that is a dynamic that suggests that the future for businesses like MAG, like Tucker, is brighter than might otherwise be thought.
“But in that context, you look at what puts a business like MAG and Tucker, with that potential, into bankruptcy, and you have to say that some pretty poor decisions had been made.”
Charvat’s remarks when we met him, and his open, transparent and honest appraisal of the history he’s inherited, and the challenges the group faces (self-inflicted and otherwise), came as a breath of fresh air.

 “these are just the first steps”

“I don’t know any of the prior owners or managers so I’m not talking about the individuals concerned as I did not meet any of them, I do not know them, but decisions were taken without any consideration or understanding of what the collateral damage could be.
“For example, you take a business like MAG, with some legendary brands like Vance & Hines, Performance Machine, Kuryakyn and the other business units MAG owned, and you look at combining them, and with a powerful distribution business like Tucker into what you could call ‘vertical integration,’ and that looks to have a certain logic.
“In a conference room, on a white board, that may well look like it made a lot of sense, but while you have a lot of very bright people working in private equity, very few of them are what you’d call experienced as individual business operators.
Interestingly, Charvat sees more to the subsequent issues than a simple matter of ongoing market decline. “I’m sure that when the decisions were made, on an income forecast level they may well have thought that this is what the future may well look like. But what they didn’t appreciate were the nuances of the distribution industry. At the end of the day people buy from people. While you have dealers who see Tucker as a great supplier and partner, you also had those who weren’t buying from Tucker. This ‘vertical’ concept allowed dealers to start seeing Tucker as a competitor. 

“The moment you mandate that you can no longer buy a particular product direct or through an alternate distributor of choice, but have to buy it from Tucker, that just incenses them. So they decide to go and buy an alternate product, or from another supplier, and you chase that business away, all because you were trying to chase this ‘vertical’.
Was it simple naivety or worse? “Some of the decisions that were made to try and force this ‘vertical’ were inherently flawed, or at least somewhat short-sighted. Combined with that, some decisions that were made on the manufacturing side to try to pull some business footprints together, just weren’t ever going to work either. Yes, you’re bending and cutting metal, but they were and are completely distinct products.
So, was it a failure of trying to drive manufacturing by ‘spreadsheet’?
“I think there was a lack of understanding. An understanding of how those products are taken to market, and what their appeal is to the various corners of the market, was completely missed. The questions were never asked or, if information was volunteered, people were just not necessarily heard.”

“the new owners have been mindful to make sure history doesn’t repeat”

Good point, well made. Anybody who has been witnessing the hemorrhaging of talent of the past few years will be aware that there has been a great deal of messenger blaming for what turned out to have been valid and even prescient messages.
“So, when I looked at all that, and you come back to where we are now, today, the opportunity that we now have is look very carefully and selectively at what we can do to unwind some of the decisions that were made in a way that allows us to restore some of the relationships, maybe outside of Tucker, with other customers.
“But that maybe also allows us to go back and ask how do you leverage the relationships you restore with these dealers. We really have walked away from servicing some of them, either through not having the inventory, or not having the right kind of inventory, we have lost a lot of dealers’ confidence.
“So, we have to be very thoughtful about the products we push through Tucker, or elsewhere, or offer dealer direct. Key to this will be building up the team, adding established market knowledge and understanding. In the past 90 days we’ve already brought in the likes of Greg Blackwell, a well-known and respected industry veteran, we’ve brought back John Potts who was very well known on the Vance & Hines and Performance Machine side of the business. We’ve also just announced two further appointments at Tucker - an internal promotion to the new VP Sales post, Jason Potter, former Western Region Sales Manager, and brought back another well thought of team member as VP Marketing, Jim Barker.
“Taken with other hires such as Greg Heichelbech at Kuryakyn and Mustang, the team already looks very different to the one the business had a year ago. I think this speaks well to the start we have made, to our preparedness to make the necessary changes and our determination to meet the challenges.”

Indeed, seeing MAG alumni Terry Vance being embraced by a new management culture that sees a former industry leader and legend such as him as an invaluable asset also speaks to that determination.
Charvat is a very engaging character. He is obviously enthused about the position he’s taken on, and highly motivated by the passion of the employees he has met, and they by his. Compared to the ‘vibe’ at the past few Tucker shows, while the professionalism and positivity of the Tucker team has always been admirable in the face of adversity, this year it felt like a weight had been lifted.
Not one to bury himself in spreadsheets or stay cloistered and anonymous, Charvat is clearly a natural born leader of men and women who wants to be visible and accessible to the employees he leads. His own enthusiasm and passion is infectious. In a very short period of time it appears to have filtered through the company and injected a new lease of life into a team that, let’s be honest, has certainly been up against it in a variety of ways in recent years.
As the conversation continued, we got to discussing the relationship between the MAG brands and LeMans/Drag Specialties, their primary distributor prior to the LDI acquisition in 2014, and the somewhat uncertain or at least apparently confusing evolution of those relationships since the association with Tucker was established.
For Charvat the key word there was “relationships”. He told us that, moving forward, the 

“people buy from people”

MAG brands would indeed seek to sustain and develop their relationships with other distribution channels “on a selective basis”. He accepts that the suggestion, in the months following the acquisition, that an organization such as Drag Specialties, which had significant history with the brands and significant ‘skin’ in that game, would now buy its Vance & Hines inventory (for example) through its primary competitor, from this new ‘vertical’, rather than direct from V&H as it had been doing was naïve at best. Charvat sees that assumption as exactly the kind of mistake that he would now seek to correct.
“This was another example of the lack of understanding of the relationships that already existed at the time and their importance in the powersports industry,” Charvat said. “There was the mistaken belief that an organization like LeMans, a player like Fred Fox, would simply roll over and think that buying from their primary competitor was fine.
“That was never going to be the case. That was quite justifiably perceived as a threat and could only destabilize the very valuable brand relationships that had been so carefully built, and that had already existed for so long. So while I can’t go into all the details yet, in part because some of that still needs to be worked out, I can tell you that we will be working on unwinding some of those decisions and looking to restore a platform for relationships that are better for all concerned - better for the other distributor and therefore better too for the brands, and above all better for the market’s dealers too.
“We will need to approach each of the issues we are faced with, each of the challenges and each of the prior decisions on an individual basis, on their specific merits. Since those decisions were made the market itself, the retail environment, has continued to evolve and we have to be realistic and cognisant of that, as all distributors and businesses have to be. But for sure there can and will be changes and better ways of building better relationships and, as I have indicated, where that involves unwinding prior decisions, we’ll do that if there is a better outcome available.
“Our path to market, our channel strategies need to be based on what is best for all concerned, including the end consumer. But Tucker is not going to be selling on Amazon, for example, and we are going to be as rigorous as possible in enforcing a MAP policy. If a dealer insists on buying brand direct and wants to have an online business of their own, then fine, but they are going to have to play by the same rules that the big boys do.
“Above all, Tucker has to focus on doing what is essentially a simple task, and doing it well. Tucker is in the box moving business. While there is subtlety and nuance surrounding doing that well we have to recognize the reality that dealers no longer run deep inventory and look to their distributor of choice to absolve them from the need to do so.
“Our job is to make sure that the inventory is where the dealer needs it to be, when he needs it there, and that it is the right kind of inventory. Simple. Fred Fox has been the past master and our job is to be the best possible competitor he can have. If the powersports industry has two or more great distributors doing a great job then everybody wins - the consumer, the brick and mortar shops, the vendors, the brands and, as a result, the distributors themselves.

“The secret sauce, if there is one, is how do you help your dealers to be as successful as they can be, in an evolving marketplace. If we can figure out that recipe, if we can help them to want to do business with us, to be able to do business with us, then that is how we earn their business, respect and loyalty. Our job is to make sure our dealers want to buy from us rather than another guy by being a better partner. That is the secret ingredient, but the objective itself is actually pretty simple.
“A big part of that is the value we can add to the simplicity of the logistics. The differentiators that enable the dealer, in turn, to make the sale, and do so more often. Logistics is such a straightforward proposition these days that pretty much anybody should be able to do it well. The added value that will make the dealer want to choose us as his supplier of choice will be the sales support that we can deploy at scale to help them make that sale.
“That value proposition is incredibly important and that will be our differentiator. Vendors could do it themselves, but they cannot be geared to do so. They can’t have a sales force of 120 or more people, but we can, on their behalf, on a shared resource basis for all our vendors, and that means our class-leading independent vendors just as much as the MAG brands. The dealer then can draw on the kind of resources that make the difference in making the sale. Resources that the vendor simply can’t deliver, but that can make all the difference to the dealer’s ability to prosper.