Stuart Garner on Norton's FutureLast August, Norton's future looked dark. Reports of long delayed orders and un-returned deposits came to light, at...
Last August, Norton's future looked dark. Reports of long delayed orders and un-returned deposits came to light, at the same time as public funding by the UK government was called into question. Now, the author of that original report, Nick Berkeley, has had the chance to sit down with the company's CEO, Stuart Garner, for a response. — Ed.
The following is a transcription of a taped interview with Stuart Garner on April 5th 2013. It took place at Norton’s Donington Park HQ. In addition to Stuart Garner (SG) and myself (NB) Kay Johnson, Stuart’s long term PA was present throughout. The piece has been edited only to remove pauses, repeats, obfuscation, hesitations – the inevitable consequences of in depth conversations – most of which originated on my part.
Although the interview relates to the original Bikerglory piece and covers matters arising, it also affords everyone the chance to get an idea of SG’s views on the industry in general and gives a unique insight into the reality of producing motorcycles in the UK in 2013. SG has been interviewed many times, but interviews are worthless without the right questions…..
I’ve notated the interview in order to provide key context, some of which will be familair to readers; the remainder covers new ground and deals with matters which have transpired in the intervening period. Any germane issues not covered in the interview / notes are dealt with in the Matters Arising section at the bottom of the piece.
NB It seemed to me that there was insufficient margin in the bikes from the word go to sustain the operation. How does that work?
SG You have to understand economy of scale. We always knew that as production scaled up we would bringing manufacturing in house and streamlining the supply chain… thus the margin increases.
It’s different if you’re dealing with much larger volumes. You could then approach a factory in China say, and get the entire output of the factory producing for your company, to your spec and satisfying your level of quality control. That is far more efficient than setting up a considerable in-house manufacturing operation with all the overheads and liabilities. We are manageable enough to fabricate here.
NB The China thing is interesting because you were there early doors….
SG Over twenty years ago. What’s interesting is that we started by buying from China, and now we can sell to them. That’s economics. That’s the significance of brand.
There was this perception that Chinese product was tacky, cheap and nasty. That was simply because people were asking them to produce parts on the cheap. They will give you what you want. The are very capable of producing ultra high quality components, but you get what you pay for. It’s that simple. The Chinese weren’t producing rubbish per se. They were producing on the cheap at the behest of the company making the order in the first place.
NB You mentioned the MV model as a kind of template. Could you expand on that?
SG MV have a knock down operation in Brazil. You source you suite of parts from wherever. You ship them to Sao Paulo, to your Brazilian factory for assembly. You send your bikes off to markets around the globe, including the home market. That process avoids import duty and maximises margins. All major manufacturers are doing it.
NB Did it surprise you that Triumph took so long to get the Thai operation going? I remember writing about the importance of Asia as a massive untapped market and potential production base a couple of years before the penny dropped, and I wasn’t alone in holding that view. It had seemed so obvious for so long – including production of smaller capacity machines to help break open the territory. KTM sussed that bit, but again it all seemed very reactive…..
SG Ask John Bloor that question and stand well back….. It’s a long, long journey, not simply a question of going there with money and setting it up. Everything starts from scratch, drawings, CAD, the works.
NB So a theoretical question. How long would it take to start producing Nortons in Mumbai, say?
SG Well we do have a head start. We have a complete 961 motorcycle. It exists. We are getting compliant with international emissions regulations. If in theory it made financial sense to bolt the bike together in Asia, say, then we could do that relatively quickly. But starting from scratch…. it doesn’t surprise me that it took Triumph a number of years to bring Thailand online. At the moment the Brit aspect of Norton is key to the brand, but in theory it could be done.
NB On the subject of emissions and export. When the Santander loan¹ was green lit, that must have been incredibly helpful because it’s aimed at exports, right?
SG Sure, it gives confidence. It started to take us from being an equity funded – ie me – operation, to being bankable. It was the start of external financing. There was massive due diligence…
NB As one would hope….
SG Of course. It was only a 12 month facility, remember. It wasn’t rolling over indefinitely from the off – it rolled for 30 to 60 days. Our business model is cash intensive, built strictly to order. If you go down the dealer route accessing trade finance for the sales everything is more exposed. Our model limits the operation in the beginning, but retains financial credibility, because exposure is limited.
NB The bike I rode had carbon wheels and USDs. The buyer can customise, right?
SG Absolutely. We encourage that. It’s one of the advantages of building to order: flexibility. It would be easier to build a row of generic bikes. But the beauty of Norton is that the customer can spec it to a high degree from the factory.
NB On the subject of funding, the money made available to you from the Meeson business. ² You previously told me that the funding had gone into an Escrow account and was therefore effectively untouchable. Can you just confirm that?
SG As per witness statement. I’ve covered it. It’s a legal matter, we were at the end of something we had no control over.
NB The thing I’ve got off you today is your very considerable business acumen. And yet there was no warning for you that there was a problem with this source?
SG None at all.
NB Not even a sniff?
SG You wouldn’t have gone near it if there had been. It’s all about protecting the brand.
NB Wasn’t there a scheme, a fund, for Norton owners or potential owners to invest into, which ran from here? ³
SG No. Plus we took the view from day one that multiple small individual investors in the brand itself would simply complicate what needed to be kept simple. A thousand small stakeholders was not a credible way to fund the business.
NB Is Norton the main focus for you business wise these days?
SG Well, they are all private businesses so I’ve no need to comment. What I would say is that Norton still has to emerge from those difficult early years where so many founder, and if it were to hit problems in the meantime I would be gone without my other companies.
NB There’s no law against owning a motorcycle company and having other business interests.
SG Never seen one. Mr.Bloor’s other interests were key to Triumph’s success.
NB Do you think any individual could ever do anything on that scale today and end up with a concern the size of Triumph?
SG Things have changed. Everything is corporate, commercial. There are so many boxes to be ticked. It’s very difficult for individuals to have a go themselves these days. The system is massively against you.
NB We had various allegations made about frames being re-stamped.⁴ Could you clear that up?
SG OK. Say we’ve stamped a frame for Mr.Smith. By the time we go to build Mr.Smith has cancelled because he’s read Bikerglory and wants his money back…..
SG ….. so now I’ve got a chassis which has Mr.Smith’s allocated number. Suppose Mr.Smith’s bike was an SE and the next 6 orders are for Cafe Racers. The SE carries an SE VIN. Now if there are 5 frames waiting, we would need to re-use the SE frame.
NB So during the period the allegations relate to, you weren’t making frames here, and given the build to order philosophy you might have been caught out without enough frames to go?
SG … or because of supply problems, which were endemic: that was why we started making out own. So suddenly I’m short. As a manufacturer I can take the SE chassis back in, rework the VIN and it’s perfectly legitimate.
NB The recent acquisition of Donington Hall⁵ and associated properties. It seems that the purchase must be to primarily service business interests other than Norton. I’m thinking leisure industry and so on. It must have been a considerable investment.
SG When the time comes you can do a land registry search and check out the purchase details, in the meanwhile I’m contractually obliged not to disclose. What I can tell you is that Hastings House, the other property involved, is some 45k sq ft. That is the building for Norton.
NB Hang on a minute….. how many square feet where we are now?
SG About 8k, meaning that Hastings House is nearly six times bigger.
NB But how on earth does that expansion work with a tightly run, build to order philosophy?
SG It wouldn’t be appropriate now, but it will be in the future as the company grows. To be honest the opportunity came along a bit early, but the potential is enormous. We were buying at the bottom of the market, so purely as an investment the deal makes sense – before you even start looking at the leisure opportunities of the Hall or the potential benefit to Norton.
NB Has the relative collapse of Japanese sales in Europe surprised you – I think the writing was on the wall for a long time and the big four had become complacent – but the speed of European penetration of its home market has been staggering. How do you view that?
SG In the housing market, what sector goes under first when the going gets tough?
NB The bottom of the market?
SG The sector with the most debt, which is normally a couple of levels above base. The old Japanese model of selling bikes via the importer and solus dealers left the dealer with potential negative equity issues, to a point where they crashed and burned when the market contracted. The multi franchise operators suffered too, although they should have been less exposed.
NB Plus the Japanese were horrendously slow to pick up on the way the market was changing: the appetite for street and adventure bikes which weren’t overweight, ie real world and fun, is a concept they still barely get….
SG Your new Japanese sportsbike was therefore vulnerable. They went overnight, and dealers were left holding the baby. The Japanese had thirty golden years, but partly because of that there is no real depth to the motorcycle market. Therefore if your sportsbikes are suddenly negative equity, a massive chunk of the brand is wiped out. That takes out dealers first.
Compare the bike market with the car market. You want a new Ferrari California, you put down ten grand and you wait eighteen months. Your Cali buyer takes that. Would you like to put ten per cent down on a Norton and wait a year? Because the bike market lacks depth, people don’t get that approach – despite the fact that re-sale prices demonstrate that the 961 is actually an investment. The real problem is that we all got used to the Japanese sales model, stack em up high and sell em cheap – that was the original premise – and ride it home, don’t worry about the depreciation. What do you think of when I say the word superbike?
NB Top of my head – a litre sportsbike.
SG Exactly. The Japanese made the sportsbike THE defining motorcycle. We don’t have a superbike industry anymore, not in terms of volume. We have a superbike homologated FIM class. When you think of a supercar you don’t think of a homologated race bred machine. That is another reason why motorcycle sales went into meltdown, there was a massive gap between what was on offer and what the market found itself requiring.
NB Partly because the constituency is ageing?
SG Sure. But then when we say we will build to order on a deposit, people throw their hands up in the air. Morgan have done it for 100 years. So have other marques. But your Norton will be worth more when you pick it up than when you put your deposit down and unlike some bespoke car marques, you wont find yourself looking at a non fixed final price when your deposit goes down.
NB When people buy a 961, they are buying into a brand experience because of a brand perception, they aren’t necessarily buying because of the intrinsic quality of the machine….
SG Which is why we licence with quality merchandise providers like Belstaff. Especially outside the UK, it’s the brand as much as the bikes which people get. They are interested in the merchandise.
NB So brand is like a global passport for Norton.
SG Exactly. We launch at the British Embassy in Tokyo next week because we’re Norton, not Garner motorcycles.
NB How will that work – you’ll deal with a Japanese distributor?
SG We have a contract with Norton Japan, they supply the Japanese dealers. We have pre-sold 400 bikes⁶, without having had a bike in the showroom. There are different ways of selling bikes in foreign territories. In some cases, the factory will own the distributor. Triumph have been buying their distributors back.
NB Which sounds ultimately more profitable….
SG The majority of our volume is UK and America, and so I decided we should own the distribution in those territories. Norton America is us. We have twenty dealers with a similar size order book to Japan. We start building the American bikes in two weeks time. It’s not just the bikes, it’s the information. There needs to be a dealer manual. You need handbooks for the owner. There needs to be a technical drawing of every part. The dealer manual took one guy a year to put together. And on top of that there’s emissions regs. We’re nearly there, we’re still waiting for California.
NB Assuming that some of of the original allegations were baseless, why do you think the sources were so negative about Norton? Why this animus against you personally? Remember, a lot of stuff didn’t go into the original article that people chose to make available to me.
SG Let me explain. From the age of 19, I’ve paddled my own canoe. That means I’ve seen some incredible sights along the river. Everyone else looking on has an opinion, and maybe they’ve never had to contend with the reality of skippering the boat. The only opinions you (Nick) are going to get are from people with vested interests, people who maybe haven’t had the same experience.
NB The danger of any investigative reporting is that people use you to further their own agenda. I’m well aware of that, but you have to sort the wheat from the chaff when it comes to sources. Is there anything you’d like to say about the future of Norton?
SG We’re emerging from the critical stage I referred to earlier. We’re shipping. We’re profitable.⁷
NB How many staff these days?
SG Around 40.
NB That still strikes me as being intensive given the build to order ethos….
SG We’ve gone down from 120.⁸ Some people didn’t fit, they were more suited to a corporate culture where you go home at 5, sneeze, and have a week off because you’ve got a cold…. there are some aggrieved people who just couldn’t handle it. That’s life.
This refers to the government brokered EXEFG deal which encouraged bank lending to exporters, underwritten by the taxpayer, c/o Vince Cable, the Business Secretary. Norton were beneficiaries of the scheme to the tune of £625,000. Criticism of the scheme in general and the way it was administered obviously can not be laid at Norton’s door. The main problem is that the Department views questions about due diligence and repayments as a matter for the bank in question, who naturally cite client confidentiality as the main reason for not answering questions, leaving the tax payer with precious little information as to his potential liability. All we can say for certain in regard to the Norton loan is that Santander were listed as having a charge against Norton Racing – itself listed as recently as April 4th 2013 (the day before the interview) as having a proposal to be struck off. This action was discontinued on April 18th. John Fields, a director of sister company Norton Holdings prior to the Santander deal, was previously employed by Santander’s Group Pension Scheme. Pensions and pensions schemes crop up regularly in this story – see below – but the main point regarding the Santander deal is that it illustrates SG’s financial and business acumen: Norton were the first company to benefit from the scheme. This was a major result in terms of gaining the company financial credibility.
2. The Meeson Case.
Other funding besides the Santander loan headed Norton’s way. On March 5th this year, Andrew Meeson and his associate Peter Bradley were given custodial sentences for defrauding HMRC of £5m via their company Tudor Capital Management. They were claiming a tax refund on £20m of fictitious pension scheme contributions. Large sums of money were distributed from TCM based schemes to various individuals and enterprises, including approximately £1m to Norton. The prosecution alleged that this was ‘dressed up’ as a loan, thus implying that it was a direct investment – basically a conduit for the proceeds of TCM activity. Acceptance of this funding did not of course imply that Norton / SG had any idea of its true source, SG’s obvious suss and business acumen notwithstanding. There were circumstantial connections between SG and more than one of the defendants, but again this does not prove anything.
3. Norton and Pensions Schemes.
A verified source (identity confirmed and known to us) told us that the company fielded telephone calls from individuals seeking investment advice. This appears to contradict SG’s flat denial in the interview, but it isn’t as simple as that. One issue is whether or not people contacted Norton on spec seeking to purchase shares in the motorcycle business, or whether there was a separate investment opportunity available. Even if there was, SG is entitled to carry on whatever business he chooses to conduct alongside Norton.
4. Frames and VIN numbers.
Everyone agrees that on occasion frames were re-stamped.. Where there is disparity is in the account of the reason for it taking place. SG has provided us with an explanation (above). This differs from the explanation given to us by more than one verified source. Suffice to say their account alleges that re-stamping took place when frames (and parts) were in short supply, to facilitate presentation of a near ready machine to viewing customers awaiting completion of their bike.
Whatever or whoever one chooses to believe, manufacturers are free to re-stamp and current in-house fabrication of frames obviates the need to do so.
5. Donington Hall
This property and associated land and buildings were purchased earlier this year by a company or consortium headed by SG. There is no more extant detail – unfortunately the Land Registry has not been updated, and Norton associated accounts available publicly give very little away. There is still no evidence of substantial assets which could include and therefore give a clue to the value of the new property. Arguably then, bearing in mind the references made in the interview, this purchase currently has more to do with SG’s other interests than Norton per se.
6. Motorcycles Produced: the numbers.
It’s at this point that anyone looking into Norton as a business starts wondering about credibility, because establishing exactly how many bikes have actually been sold is no simple task. As a supplementary question to this interview I emailed SG in order to try and shed some definitive light on the subject.
Q Have you got any figures for total UK sales over the last couple of years (to 1/4/13)?
A. I think total sales since we began are now approaching £10m, in year one they were of course zero, next year we are on target to do over £10m for the 12 months.
Consider the maths regarding next year’s projected figure. Let’s assume we’re talking total, global sales projections. 961 prices vary to spec, but a figure of £15,500 represents the middle of the ball park including VAT. That means an ex VAT price of around £12,400 per unit. £10m of sales at that price equates to 806 machines – or over 67 bikes per month, or 17 a week – assuming that we’re seriously talking £10m in twelve months. It may become possible, but the transition from a history of delay and interruption into fully fledged production of the kind needed to clear over £10m worth of sales per annum will be massive. It is hard to believe that those kinds of figures are imminently achievable. UK sales alone are hard to get a handle on. One way of trying to quantify home sales is to look at registration figures, although it is not a foolproof method. In 2011, a total of 14 machines were registered over the 961 range. In 2012 the figure increased to 33, or 47 over the two year period. It is impossible to extrapolate from this data in any accurate way, but if Norton claim £10m worth of sales to the beginning of the current year, clearly very few of them were ending up registered in the UK.
Company searches relating to the Norton group of companies are a poor indicator of the reality. Since SG is involved in a variety of private enterprises, some of which are based abroad, it is beyond the scope of Bikerglory to try and unpick whose money has gone where (in an attempt to try and evaluate just how much Norton Motorcycles has actually cost). Most accounts are overdue to report, and none of them show any startling evidence of profitability or indebtedness. For example, relating to Norton Motorcycles (UK) Ltd., we have:
Cash at bank: £828
Net Worth: £-711,896
Total Current Assets: £1,311,317
Total Current Liabilities: £3,882,103
The combined cash at bank value for all of SG’s current businesses is £1,133, with a combined assets value of £6,655,258 and liabilities of £5,126,183.
Forget those figures and concentrate on the big picture. Norton is one piece in the jigsaw, and although consistent profitability may be achieved, it feels like SG’s pragmatic insistence on building to order imposes a ceiling – without which the whole structure could come crashing down. Staying small could be the defining characteristic which allows Norton to survive, but a very tightly run ship is required (see below).
8. Staffing levels
Talking of tightly run ships… How the operation started with 120 people on the books defies belief. The compliment is down to 40, but that still seems on the high side given the nebulous production figures. However, SG is too astute to carry a surplus stock of staff and the running total may change again. One thing that has characterised the company is a relatively high turn over of staff, which isn’t always the ideal platform for guiding a motorcycle production facility through those critical early years. Nevertheless, Norton are still very much with us.
OTHER MATTERS ARISING FROM THE ORIGINAL PIECE
The scenario which kicked off the Bikerglory investigation into Norton – long delayed orders, difficulty recovering deposits without recourse to legal action – was put into perspective by SG before recording, but it is only fair to present his take.
CUSTOMERS AND ORDERS
Stuart pointed out that no individual had lost money: everyone either ended up with a bike or their money back. He added that while some bespoke auto builders request major deposits without guranteeing a fixed and final price, Norton took 10% deposits and never presented owners with additional price increases on delivery. Delay was regrettable, but five years ago delay had seemed permanent, since effectively Norton had ceased to exist. Thus the finished product – new Nortons in the showroom – justified the means by which they ended up there. This kind of ‘big picture’ argument was alluded to by SG on a number of occasions during our conversation.
My personal view is that concentrating on the big picture can engender a fast and loose culture when it comes to details and transparency, but at the end of it all two facts remain. Some customers did suffer from serious delays to their order, but no one actually lost money. Whether or not this is seen as acceptable will depend entirely on one’s point of view. One thing is certain: making promises which can not ultimately be kept makes isn’t great from a PR perspective – even if depositors are ultimately refunded.
The supply chain was another issue which cropped up. On the one hand it should be obvious that any machine utilising as many parts as a 961 is going to have issues sourcing at some point and this may well involve acrimony. I have no doubts at all that Norton’s relationship with suppliers has been chequered, but that is par for the course: Triumph, for example, will also have experienced their fair share of problems. On the other hand, I am inclined to believe the testimony of someone like Nigel Gibson, whose reputation has remained intact throughout the meltdown years of the UK manufacturing industry: Gibson was particularly critical of the way Norton handled their dealings with his company, Fabriweld. Whilst I don’t believe that SG was consistently the injured and frustrated party in disputes with suppliers – which was broadly his own take – again, one can not ignore the fact we’re talking about a complex operation involving a large number of suppliers. Indeed, it is largely as a result of the chaotic supply chain that SG made the decision to do as much in-house manufacturing as possible. One advantage of this is that it increases the percentage of Brit in the bike; on the other hand what really matters is quality control and financial viability. If ex UK outsourcing of parts means a more viable and reliable product, as a consumer I would be happy with that, even if it diluted the Brit percentage. The product is the key to Norton. Stuart would say it was the brand. It’s an interesting distinction, possibly providing insight into the way the company has been run – and one which leads to the one area on which we definitely disagreed: the Isle of Man.
THE IOM VENTURE
Stuart justifies the adventure by pointing out that the brand is the key, and the brand is largely associated with the IoM. It is widely known that the IoM TT authorities subsidise selected participants, and Norton are a case in point. Some would argue that concentrating on 961 production, and continuing to develop that bike is far more important for the current incarnation of Norton as a manufacturer than running a butchered Aprilia V4 around the Island. This uncharitable view is supported by the fact that in the recent hagiographic coverage of the latest venture in this week’s MCN (8/5/13), engine modifications are not revealed, weight and weight distribution are not alluded to, and the key issue of what precisely will take the place of Aprilia’s own, highly praised and updated APRC / ABS control system and ECU remains unanswered. Ditching the box of tricks and cutting and rejigging one of the most highly praised frames out there with concomitant changes to key areas like the headstock seems like a massive risk: it would be interesting to compare the times of a 2013 RSV4 Factory from the shop to the Norton Aprilia. Perhaps the IOM authorities subsidise the coverage as well; it is genuinely hard to understand how this kind of non reporting makes it to the front page and beyond. That, of course, is not a criticism of Stuart Garner: that the press have bent over backwards to accommodate Norton is testimony to his considerable PR skills and charm.
In the final analysis SG has re-incarnated one of the most glorious brands in the motorcycling pantheon and kept it alive for five years. Within the context of the British motorcycle industry, that is no mean achievement – and one that has obviously been gained at considerable personal cost. I constantly had the feeling that Norton is a relatively insignificant part of his portfolio: not exactly a front for something else, and far more than a corporate vanity project – but definitely a consuming distraction from other interests. Some of his fiercest critics acknowledge that with a little development, the 961 would move from being an attractive investment to a really serious contender in the retro / heritage market on the road. These are the people likely to be frustrated by the v4 project. But perhaps branding and investment potential alone are enough to keep the Nortons selling. Whether the end justifies the somewhat tortuous means remains to be seen, but it was always going to be a bumpy ride. The history of the name guarantees it.
Special thanks to Stuart Garner, Kay Johnson and everyone at Norton for their generosity with time, tea and a 961 to ride.
This article was originally published by Biker Glory and is reprinted here with permission.