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Bike maker Cannondale moves into off-road market
Tuesday, April 11, 2000 By David Kinney, The Associated Press
BEDFORD -- Mario Galasso watches a motocross racer roar around freshly piled dirt on a track outside the Cannondale Corp. plant. Keith Johnson is on a prototype of the company's new motorcycle, which screams and howls -- BZ-BZ-BZZZZZ! -- kicking up clods of mud.
At a steep hill the bikers call "The Elevator," Johnson guns the engine, soars into the air and comes down for a smooth landing.
"Woo-hoo-hoo!" yelps Galasso, a 34-year-old vice president who helped design the bike. "Awesome! That was huge!"
A few feet away, company founder Joe Montgomery laughs and spins to smile at the knot of onlookers.
Moments like these have driven Cannondale for the past few years. A company known for making high-end bicycles, Cannondale is leaping into motorcycles with the release of a series of new off-road bikes made in the United States.
It has taken a couple of years longer than expected, but when the bike is released in the coming months, Montgomery hopes the venture will double sales and turn around a stock languishing at under 7, down from 25 in late 1997.
To do that, the company will have to steal a bit of the market from serious competition, the Big Four of the dirt bike industry: Yamaha, Suzuki, Kawasaki and Honda. Cannondale is the first major American company to get into motorbikes since North Centerville, Utah-based ATK in 1987.
HEADQUARTERS: Bethel, Conn.
MANUFACTURING BASE: Bedford, with subsidiaries in Europe, Japan and Australia.
CHIEF EXECUTIVE: Joseph S. Montgomery, 60.
ANNUAL REVENUE: $176 million in fiscal 1999, up from $171 million in 1998.
EMPLOYEES: 952.
PRODUCTS: An off-road motorcycle, the MX400, to be released this spring; 71 bicycles models in 2000 line, including mountain, road racing, multi-sport, recreational and specialty bikes; shock absorbers; bicycle equipment; biking clothing and bags.
IN DEVELOPMENT: Two other motorcycles and an all-terrain vehicle.
CELEBRITY CUSTOMERS: Madonna, Jerry Seinfeld, Harrison Ford, George Harrison, Larry Bird.
TICKER SYMBOL: BIKE.
WEB SITE: www.cannondale.com
"The point of riding and racing is trying to make your bike lighter, faster, trying to get an edge over a guy," said Galasso, a racer himself. "You don't get into this if you don't think you can do it better."
Boosting Cannondale's confidence are projections that 180,000 dirt bikes will be sold in 2000, up 23 percent from 1999. Don Brown, an Irvine, Calif., analyst for the motorcycle industry, sees double-digit percentage gains in the next two years.
The recreational off-road boom is being fueled by television coverage of motocross competitions -- particularly ESPN's broadcasts of the freestyle acrobatics.
"It's become NASCAR-like," Galasso said. "The whole thing is kind of going crazy."
Cannondale is hoping to sell a few thousand in its first year. Their brand name should help: Market research shows that many mountain bikers -- core Cannondale customers -- ride dirt bikes, too.
Cannondale, founded in 1971 as a maker of bike bags and clothing, turned itself into one of the world's leading manufacturers of high-performance, aluminum-frame bicycles in the 1980s. The company sold $176 million worth of bikes and clothing last year, its best year ever.
But with bicycle sales flat and the company flush with money after going public in 1995, Montgomery went searching for something new.
The company has spent more than $20 million in start-up costs and built a second plant in Bedford, where about 600 employees are being hired to build the new bikes. The first MX400s are expected to be shipped by May. Two other models and a four-wheel all-terrain vehicle could be released later this year.
That a bicycle company would try motorbikes surprised followers. Montgomery says it is natural.
"This is what we're good at," said the 60-year-old former Wall Street analyst, who flies his own jet from the Bethel, Conn., headquarters to Pennsylvania twice a week. "We're good at the challenge, being too dumb to know better."
Company confidence aside, the venture is no shoe-in to succeed, dirt bike riders and analysts said.
"That's hard to say," said Scott Hoffman, a Dirt Rider Magazine editor. "They created a lot of hype. People put down deposits, dealers were putting in orders. The hype built and built and built. But it's taken so long. It's all going to depend on how good the bike is. People aren't going to buy it just because it's made in America."
It may not help that the bikes are expensive: At about $8,000, they cost about $2,000 more than the competitors' models. The company's defense is that its bike is race-ready, while other bikes often need upgrades.
While many bike magazines have been effusive in their early reviews, dealers and bikers are getting antsy. The MX400 was supposed to be in stores by the summer of 1998. Cannondale never expected the introduction to take so long.
The major holdup has been the engine, which engineers have redesigned twice. At first, Cannondale asked consultants to design it. Early results were lousy: The engine wasn't reliable or powerful enough.
"We didn't know we could do it ourselves," Galasso said. "Once we got design, manufacturing and testing in-house, we got the thing on track."
The engine is a four-stroke, unlike many dirt bikes. Most racers use two-strokes for the bursts of acceleration they need to explode out of turns and up hills.
But Yamaha recently introduced a four-stroke that has proved itself on race courses, and the motorcycle industry fears laws against two-strokes, which are bigger polluters. The four-stroke also is easier to handle and more comfortable to ride -- more suitable for consumers who might be scared off by a two-stroke's power, Dirt Rider's Hoffman said.
The bike is lighter and includes some departures from the Japanese competition. The big question is whether Cannondale's bike is good enough to chip into the foreign juggernauts' sales.
Turning around the lagging stock means convincing Wall Street that they can.
"They don't believe we're going to do the motorcycle. It's pretty easy to be a believer when you're standing out there behind the building," he said. "The market hasn't seen that yet."
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