New Press Release from Liquid Asset Partners Re: EBR

[Scott]

^ Sure sounds like they're getting plans in place for continued support/production. I can imagine negotiating new contracts with former parts suppliers is a tough row to hoe. Some of them probably got burned pretty badly when EBR shut down. They're going to want cash up front until they're thoroughly convinced EBR will be in business for a LONG time.

I was just thinking about this because I saw it as one of the big barriers along with dealership costs and credit to cover those costs etc.

But then I was thinking a little more about this specific situation this morning. Normally a company would have about 30 days to pay their vendor and that's a nice little cushion that disappears if they have money problems and their vendors require cash-in-advance.

But rumor has it that they have parts to make about 300 bikes. Let's imagine they plan to start with 30 great dealers and go slow. Those 300 bikes will likely be a one year supply (assuming each of those dealers selling about 10 bikes). So they haven't put out a dime to suppliers over the first year.

So even if they are on cash-in-advance terms with their vendors, they're already way ahead of the game since they had 'free' parts to start with. Now when they start paying their vendors for new parts a year from now, they can imagine they're actually paying for those first parts used to manufacture the bikes that will be coming off the line in a couple weeks. Instead of 30 day payment terms, that's like 365 day payment terms.

And since they won't have those vendors coming after them for that first year, that gives them some flexibility in the terms they offer to dealers. They don't need to be paid NOW by dealers (or a financing company working with the dealers) because they don't have bills from their vendors coming due that they have to pay.

There are still a lot of hurdles to get past, but cash-flow might not be as big an issue as it would appear at first glance. A smart money manager may be able to work with the tough terms their suppliers and dealers are going to be demanding by using that prepaid inventory as a cash-cushion in place of the credit terms they would typically use as a cash-cushion.

[Ed / AF1 Racing]

"(assuming each of those dealers selling about 10 bikes). "

EBR dealers back when the bikes were new did not sell 10 bikes each....we sold 3 total before all this mess and really bad PR

They haven't released MSRP on these 2016s. Will they be overpriced like the 2014s were?
They have said there is no flooring available for dealer stock -- I imagine GE wouldn't touch them since they are flooring a few hundred 2014s still.
Warranty on these new bikes? Warranty on the old bikes? many are still considered new sitting at dealers.
Parts support? -- hearing that LAP is already out of some spare parts.
Parts distribution to dealers? They are currently selling consumer-direct with no dealer margins.
Can they even find 10-20 dealers still interested in EBR?
Any help for the 2014s that dealers have?
Since they changed the name, do they need to reapply for all new EPA/DOT/CALI certs? Stamping VINs and printing MSOs is a big Federal deal. Is all that worked out with the new name LLC?

[Hellgate]

I was just thinking about this because I saw it as one of the big barriers along with dealership costs and credit to cover those costs etc.

But then I was thinking a little more about this specific situation this morning. Normally a company would have about 30 days to pay their vendor and that's a nice little cushion that disappears if they have money problems and their vendors require cash-in-advance.

But rumor has it that they have parts to make about 300 bikes. Let's imagine they plan to start with 30 great dealers and go slow. Those 300 bikes will likely be a one year supply (assuming each of those dealers selling about 10 bikes). So they haven't put out a dime to suppliers over the first year.

So even if they are on cash-in-advance terms with their vendors, they're already way ahead of the game since they had 'free' parts to start with. Now when they start paying their vendors for new parts a year from now, they can imagine they're actually paying for those first parts used to manufacture the bikes that will be coming off the line in a couple weeks. Instead of 30 day payment terms, that's like 365 day payment terms.

And since they won't have those vendors coming after them for that first year, that gives them some flexibility in the terms they offer to dealers. They don't need to be paid NOW by dealers (or a financing company working with the dealers) because they don't have bills from their vendors coming due that they have to pay.

There are still a lot of hurdles to get past, but cash-flow might not be as big an issue as it would appear at first glance. A smart money manager may be able to work with the tough terms their suppliers and dealers are going to be demanding by using that prepaid inventory as a cash-cushion in place of the credit terms they would typically use as a cash-cushion.

And who would pony up the money to fund operations Someone(s) needs to come up with significant amount to operate that model. They also need deep revolving credit. And that, if they can get it would be expensive. I don't see how they could get a bond rating much more than Ba3, Non-investment grade, speculative.

[Hughlysses]

And who would pony up the money to fund operations Someone(s) needs to come up with significant amount to operate that model. They also need deep revolving credit. And that, if they can get it would be expensive. I don't see how they could get a bond rating much more than Ba3, Non-investment grade, speculative.

Well, they re-started production today, so somebody's already paying the rent and salaries.

[Scott]

"(assuming each of those dealers selling about 10 bikes). "

EBR dealers back when the bikes were new did not sell 10 bikes each....we sold 3 total before all this mess and really bad PR

They haven't released MSRP on these 2016s. Will they be overpriced like the 2014s were?
They have said there is no flooring available for dealer stock -- I imagine GE wouldn't touch them since they are flooring a few hundred 2014s still.
Warranty on these new bikes? Warranty on the old bikes? many are still considered new sitting at dealers.
Parts support? -- hearing that LAP is already out of some spare parts.
Parts distribution to dealers? They are currently selling consumer-direct with no dealer margins.
Can they even find 10-20 dealers still interested in EBR?
Any help for the 2014s that dealers have?
Since they changed the name, do they need to reapply for all new EPA/DOT/CALI certs? Stamping VINs and printing MSOs is a big Federal deal. Is all that worked out with the new name LLC?

Those are all great points. On the subject of MSRP, they have to be very careful. A low MSRP could move bikes but make long-term sustainability a problem. The relatively high MSRP's we've seen were probably based on selling 1000-2000 bikes a year and the price breaks they got from suppliers at those levels (which is probably why there were so many parts left-over - they probably had to buy in large lots to get the pricing they wanted).

They should try to get themselves into a situation in which demand is driving production instead of pushing bikes into dealers when the demand hadn't yet asked for it.

What they need to do (and whether or not they will do it is to be seen) is:
1. Ensure the public knows they have the funding they need and intend to be around for the next 5-10 years.
2. Work with suppliers to ensure they can get the parts they'll need in the short and long-term.
3. Let current and potential buyers know that those parts will be available.
4. Have extremely efficient 2-way communication with dealers so dealers can feel confident they'll get what they need when they need it and so that EBR has a clear understanding of what dealers need to move bikes. (I would dedicate employees to doing nothing but this with a "hotline" directly to all dealers.)
5. Offer a warranty on the 2014 bikes - the money required for that will be relatively low since they shouldn't be expecting to make many warranty repairs and they need to move the 2014's out of the way before they'll be able to sell 2016's.

The next year should be a slow, steady dealer-driven process focused on moving a small number of bikes into the hands of enthusiastic owners and dealers who are willing to pay the price (both financially and in blood, sweat and tears) to have a unique motorcycle.

As for EPA/DOT/CALI certs, common sense would tell me (and perhaps we can't invoke common-sense when the government is involved) that hardware is hardware and nothing has changed. Manufacturers don't have to re-certify every year as long as they are making the same bikes and EBR will be producing the same bikes that were certified.

[Scott]

And who would pony up the money to fund operations Someone(s) needs to come up with significant amount to operate that model. They also need deep revolving credit. And that, if they can get it would be expensive. I don't see how they could get a bond rating much more than Ba3, Non-investment grade, speculative.

LAP has already put a couple million into this and that money is lost if they don't think they can keep things going. The largest cost for an operation like this would be parts. A profitable business might be buying $1 million worth of parts each month and shipping $1.5 million worth of finished product each month. The difference will go toward, salaries, heating, lights etc. with whatever's left being profit.

In this case, LAP won't have the parts bill. They'll just need to sell enough bikes to cover operational expenses. If they can move 100 bikes over the next 6 months and get $8000 per bike, that's $800,000 to cover costs of a small operation over that time.

If LAP doesn't have the cash to keep this running for at least a year, they shouldn't be trying. Since they're trying, I assume they have the cash (or know where they can borrow it).

[Daskoff]

LAP has already put a couple million into this and that money is lost if they don't think they can keep things going. The largest cost for an operation like this would be parts. A profitable business might be buying $1 million worth of parts each month and shipping $1.5 million worth of finished product each month. The difference will go toward, salaries, heating, lights etc. with whatever's left being profit.

In this case, LAP won't have the parts bill. They'll just need to sell enough bikes to cover operational expenses. If they can move 100 bikes over the next 6 months and get $8000 per bike, that's $800,000 to cover costs of a small operation over that time.

If LAP doesn't have the cash to keep this running for at least a year, they shouldn't be trying. Since they're trying, I assume they have the cash (or know where they can borrow it).

You think the new bikes will be priced at 8K? I'm on the fence for a 2014 RX for about 10k but now I may just wait to see how they will price the 2016 bikes. If it will be that low, it'll really be hard for them to increase prices later unless they are trying to clear inventory and raise cash as you mention. Also it would be interesting what they have in the 2017 pipeline, if anything, but may only be evolutionary changes (perhaps not many) - again initial pricing of the new bikes will be pretty important. I'm guessing it'll be around the 13k price point.

[noone1569]

My local dealer moved 8 rx/sx and 1 RS so far; apparently that was enough to make them the #1 dealer in the world for 2014.

I'm curious as to the future. There was some mention in the latest article about warranties. LAP did say they are exploring options for us owners.

My take on the new msrp: RX: $12,500 SX: $11,500

[d_adams]

^ That right there is where I'd expect prices to fall. They have roughly 300 finished, nearly finished or the parts to build bikes sitting there. Can they sell them as they are? Dunno, but if they can, they're sitting on essentially free money. $3.6 million if sold at $12k average price. All of those bikes/parts are already paid for at the expense of the suppliers for those said parts. I definitely get why some of the suppliers would be a little bit bitter about it all. I'd hate to lose 1/2 a million in parts or whatever and have to write it off. I can see a business tanking pretty quick as a parts supplier if that were the case.

[Hellgate]

^ That right there is where I'd expect prices to fall. They have roughly 300 finished, nearly finished or the parts to build bikes sitting there. Can they sell them as they are? Dunno, but if they can, they're sitting on essentially free money. $3.6 million if sold at $12k average price. All of those bikes/parts are already paid for at the expense of the suppliers for those said parts. I definitely get why some of the suppliers would be a little bit bitter about it all. I'd hate to lose 1/2 a million in parts or whatever and have to write it off. I can see a business tanking pretty quick as a parts supplier if that were the case.

Exactly, that's my point from above. Buell/EBR, etc has never made money. Unless someone(s) has very deep pockets to build a proper dealer network, fund R&D, and pay for operations they'll be out in a 1 to 3 years.

Honestly I don't see anyone, aside from Bad Webber's, buying one. When you go to AF1 and an EBR is parked next to an RSV4, there's no comparison, the Ape wins every time; fit, finish, goodies, etc.