Wednesday, September 14, 2011

Is Italy finally taking the Malaguti bankruptcy seriously?

Is Italy finally taking the Malaguti bankruptcy seriously?

Sometimes I read this stuff and I get my hopes up. Then I call my friends in Italy and its the same old story.

For those of you following the blog or the articles on Motorcycle USA regarding the failure of the Italian government, Malaguti, and the Unions to come to an agreement on how to save this prestigious firm it seems the press in Italy has finally woken up.

This week alone several articles have hit the press online. The protests are starting up again. It's a comedy and you can't even make this stuff up because it could only happen in Italy where people go on vacation in August and forget that they won't have a job in October. "Ok guys let's go to the beach and when we come back in September we will start the protests again!" its exactly what happened. At least the Greeks would be burning something and setting a bus stop on fire, but in Italy they are a little more civilized as the Chinese motorcycle industry slowly destroys whats left of Italian production.

Right now according to the economist magazine September 10th edition there are 44 million people unemployed in the Western Economies (OECD) this would be equal to Spain's population. In America we have close 14 million people and who knows how many undocumented unemployed workers right now. The only thing we see happening in Europe and in America is talk of tax rebates, stimulus dollars, and more projects to hire on a massive scale. I think what Europe and America needs is a boost in the arm much like the car industry received back when the financial crisis started. We have over 15 idle factories in Europe in the motorcycle sector that are under capacity right now or on the verge of closing. Including Derbi Spain which is about to close. The most famous of all of these is the Malaguti factory. The last remaining independent family owned operation who is tired of loosing money and is trying to close on purpose. Why would an entrepreneur do such a thing? Because in Europe the laws will drain you dry in order to keep people employed. While their competitors in China get better kickbacks for keeping people employed Malaguti has been unable to compete with the rising tide of less expensive Asian imports. Nonetheless there is a solid argument for reasons they should be saved.

Several articles appears online this week most of them repeating the same information without mentioning the deals or possible investors by name ( it just goes to show there is no investigative reporting anymore in the motorcycle industry unless its paid by a behind the scenes advertiser )

What all these magazines fail to mention is how I brought several qualified investors to the table only to be ignored by the Malaguti family, Regione Emilia Romaga Graziano Prantoni who by all means is incompetent.

One group of investors had a net worth of over $30million and asked for majority shares and for the Malaguti family to make concessions in production. Nobody budged. It's better to destroy the Italian economy, fire everyone, than to let US investors come in and take over. I suspect the real reason again is that Malaguti will continue much like Benelli and Garelli as a Chinese brand. Once the employees are fired they will go back to importing ensuring that all future production will not truly be Italian which is what made Malaguti special in the first place.

The situation in the Italian motorcycle industry is as bad as the US mortgage crisis in my opinion. Banks would rather demolish a brand new house or foreclose on it than to budge and refinance certain buyers. 

Why refinance when you can write it off as a loss? Why not reduce the value of the property and get some income instead of none? Malaguti has its back to the wall. The requirements of the Italian Unions and the employee costs are so high they cannot compete. Forget bad management, old designs, etc... the biggest factor in this is the cost of production. 


50cc scooters are no longer high end goods. You can buy them in China for $300 less than the cost of materials thanks to the Chinese governments kick backs. The Italian solution to this has been allowing more and more of the industry to outsource to China. As one member of the EICMA told me "If the motorcycle part is designed in Italy, the packaging is made in Italy, the company is Italian you can produce the part in Taiwan, assemble in Italy and it will say made in Italy."

Hence why that Polini clutch that reads made in Italy, is made at the same factory in Taiwan as the MRP one in a different box. Italy right now is a joke and our country is in the same boat. Don't believe me check out this video from Taiwan

The truth is ANCMA and EICMA all have a stake in this. Our own MIC could do more and tell our Administration what needs to be done for US builders. We can't all live off Harley Davidson and a few companies like Polaris. The truth is more parts get outsourced every single day. Have you checked your Harley Lately, there's parts on it made in China by ZONGSHEN. 

Yes, the same ZONGSHEN parts MRP has and the same bikes found in PEP BOYS. Have you looked at your ARCTIC CAT ATV? That 250cc is made by KYMCO TAIWAN. It's a great engine and we love Kymco, but more and more of our industry is getting sent abroad to the point where we the United States of America will end up like Italy. 

The Obama Administration can continue giving the rich tax breaks and discounts but it wont get people to invest more in the USA if I can go to China and open a factory for a third of the cost. To revitalize the US Motorcycle Industry give us incentives to produce and assemble in the USA not a tax break. Give motorcycle companies cash to manufacture and hire. Same in Italy. Do you want Malaguti to stay in business? Give them the cash to hire, eliminate the high taxes and allow foreign investors to take majority shares. Bring in fresh management.

The Motorcycle Industry press won't call it how it is, but there are fewer real OEMs out there. I hate to be one for calling for barriers to trade, but the same way we didn't allow GM, Ford, and Chevy to fail maybe Italy should take a closer look at what is left of the scooter industry. Last I checked Piaggio Group - owners of (Vespa, Gillera, Derbi, Aprilia, Piaggio) were closing plants in Spain and firing people in Italy to build more factories in China, Vietnam, and India. If you check online all the new Piaggios entering the USA are not even made in Italy anymore the two basic models are Zongshen, some of the Aprilia scooters are made by Jincheng. The funny thing is this all makes sense if you were the board or an investor in Piaggio Group. So its up the people of Italy to rise up and demand that they keep these jobs and they keep Malaguti open. So far I'm not holding my breath, most people just got back from the beach and are just getting back to the picket line.

It's a slippery slope when it comes to letting your production get outsourced.

The Scooter Maven

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