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Excelsior-Henderson: Motorcycle dream fades in bankruptcy

The recent bankruptcy of Minnesota's Excelsior-Henderson Co., a motorcycle manufacturer whose start-up was subsidized by state and local governments, has again raised the issue of the wisdom of those financial supports. The editorials in this issue look at two sides of the subsidy coin.

Published January 1, 2000  |  January 2000 issue

Many people snickered a decade ago when Gov. Rudy Perpich's chopsticks plant failed on the Iron Range. The idea of selling chopsticks to Japan always seemed a fantasy. But no one's laughing today as the Excelsior-Henderson motorcycle plant in Belle Plaine sputters into bankruptcy.

Problems at Excelsior-Henderson have been amply documented by StarTribune reporters Tony Kennedy and Terry Fiedler: business funds nearly gone, along with most employees; key turnaround executives fired; sales below expectations; loan and tax payments missed; stock prices collapsed. Yet the product, expensive motorcycles, is seen as good.

What happened? According to former employees and other observers, the three founders—two brothers and a spouse—were skilled at promoting start-up financing and community support, but were less skilled at growing the company. They apparently were micromanagers, unreceptive to suggestions, inept at creating a solid dealer network. Their oversized plant exceeded initial needs.

Darrell McKigney, president of the Taxpayers League of Minnesota, believes some start-up operations should begin in a garage, "not in some big new building." That worked for Medtronic, but making big motorcycles required more than a garage. On the other hand, a manufacturing expert who liked Excelsior-Henderson at its start agrees it spent too much too fast.

Past and present state officials involved in a $7.1 million loan to Excelsior-Henderson say they were diligent in approving the loan. The company had a long-established business plan, provided collateral in expensive equipment, offered good jobs and had strong investor support. The company, for which 14 states or their communities were bidding, also fit well with Minnesota's auto parts suppliers.

Still, Deputy Commissioner Gary Fields of the Department of Trade and Economic Development says the bankruptcy will make the department less likely to fund another start-up.

Sen. John Hottinger, DFL-Mankato, usefully suggests reviewing the state loan to see if it holds lessons for future policy. The idea is not to bar future loans, but to learn from the bankruptcy. One question might be whether state officials looked closely enough at the founders' business experience; one had an earlier disappointing venture.

As the bankruptcy plays out, many hope the company recovers. The Excelsior-Henderson dream was widely shared. But whatever happens, there's no reason to conclude that the state shouldn't make business loans. It should, but with insights gained from this disappointment.

Reprinted, with permission, from the editorial page of the Minneapolis StarTribune, Dec. 23, 1999.

Also see: Counterpoint: The lesson to be learned from the failed Excelsior-Henderson

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