By François Shalom
The Montreal Gazette
Valcourt, Que. - BRP peered over the edge of the precipice in 2008. Plant closings all over the world, thousands of layoffs, mounting debts, a planned initial public offering shelved indefinitely, a halt to all capital investments and deep cuts in its array of products. But it managed to avoid the abyss.
“Our business was doing very well from (2004) to 2008, and that autumn, the world fell in on us,” said José Boisjoli, president and CEO of the Valcourt maker of recreational vehicles formerly known as Bombardier Recreational Products.
“Revenues slumped 40 per cent within six months,” said Boisjoli in an interview in his corner office in pastoral Valcourt, the town where mechanical engineering genius Joseph-Armand Bombardier started the still-unfolding Bombardier story early last century. “That was major.
“But we survived.”
At a cost. The workforce was slashed by more than a quarter from 7,500 to 5,500 worldwide as 2,000 employees who built BRP’s Ski-Doos, Sea-Doos, all-terrain vehicles, Evinrude and Johnson outboard motors, jet boats and other products were let go at factories in the U.S., Austria and Canada—roughly 1,400 of them in Valcourt. Plants in the U.S., Canada and China were shuttered or sold and Quebec’s Société générale de financement and Investissement Québec came through with $80 million in emergency loans—adding to the $500 million in debts incurred in the leveraged buyout in December 2003 that was forced on then-owner Bombardier Inc. as a result of its own brush with financial disaster.
The company was taken private by Bain Capital, a U.S. investment firm founded by Republican presidential candidate Mitt Romney that holds 50 per cent, the Beaudoin/Bombardier family that kept 35 per cent and the Caisse de dépôt et placement du Québec with the other 15 per cent.
The private firm no longer reports financial results. So how bad did it get in the tough 2008-09 years?
“It was difficult,” Boisjoli replied, smiling wanly.
“But we are profitable again now—and growing.”
The firm has even rehired 500 people and revenues are recovering, even if they have yet to return to 2006 levels, when they were $2.8 billion.
“We’re below that, true, but you can sense a certain growth and we think we could flirt with $3 billion within 12 to 18 months,” said Boisjoli, who has been at the firm’s controls since 2002.
“You still can’t say that the economy is good. You get three good months followed by three bad months.
“But we have very good products and when a company has good products, good people and good facilities, it will always pull through.”
BRP’s problems, however, did not begin with the recession. In 2004, after being sold by its parent for $960 million, the company’s profits slumped, and BRP had to do one of its periodic rounds of cuts—1,150 jobs, distribution centres and other facilities, as well as its St. Bruno head office. In 1997, it also eliminated 1,250 jobs.
In essence, Boisjoli himself conceded, the company sells discretionary recreational products “that are the first off the shopping list when times get tough and the last back on the list when things are good again.”
Rommel Dionisio adds another element—the faddish nature of the industry.
The analyst with New York City’s Wedbush Securities said that manufacturers in that industry must constantly come up not only with new products but with new concepts because of the high boredom quotient of people who buy recreational vehicles.
Hence the three-wheeled Can-Am Spyder roadster launched in 2007, for instance, and for which BRP is busy developing a hybrid model.
Or the Commander side-by-side off road, whose launch Dionisio called “a success in the U.S.”
“The snowmobile market has been in decline for 15 years now,” said Dionisio, “by something like eight per cent a year,” so BRP had to expand its horizons.
BRP’s own numbers show a drop in market share for its two marquee products, the Ski-Doo, which fell in the snowmobile category from 24 per cent in 2004 to 22 per cent in 2011, and from 17 per cent to 13 per cent for its watercraft during those years.
On the other hand, two new items have had successful launches recently. Its Can-Am Spyder has managed to capture eight per cent of business in under four years and its Commander side-by-side off-road vehicle three per cent in one year.
Boisjoli said he expects that together, they could triple to 33 per cent within four years.
The sudden slump occurred during Boisjoli’s watch. But much of the growth did as well.
In the mid-1990s, Pierre Beaudoin, now president of Bombardier but then the head of recreational products, embarked on a significant diversification program that Boisjoli has continued. The trick was to get out of the snow/water straitjacket it had been in for many years.
“We were a two-product company for dealers—and for southern U.S. dealers, one product. Some of them couldn’t live on the sale of just our products.”
About 4,000 industry people—many of them dealers—are about to descend on Montreal for a weeklong bash and BRP sales pitch-cum-charm offensive to persuade them to order a full range of all-season vehicles and products—outboard Evinrude motors, Sea-Doos, Ski-Doos, Commander new generation all-terrain vehicles and Spyder roadsters.
Which still doesn’t solve the vulnerability to the vagaries of weather—good economy or bad, snowmobile sales slump in mild winters and watercraft sales dip in cool summers.
Despite that, the diversification plan appears to be working.
“In 2003, 18 per cent of our sales were outside of Canada and the U.S. In 2010, it was 36 per cent—double. If we’re lucky and we do what we think we’re going to do, that figure will be 50 per cent in four years.”
“So BRP is a much more diversified company in terms of products and geographically. So in principle much more sheltered from the economic cycles.”
BRP board members Pierre Michaud and Laki Nomicos, the Bain Capital executive in charge of the BRP investment, did not return calls about the company.
Bain Capital generally keeps an investment for five years or less, but Boisjoli said that a divestment by Bain or the Caisse or a takeover by the Beaudoin/Bombardier clan is “not part of our everyday discussions.”
“Besides, why sell if you see a lot of growth ahead?”
Caisse spokesperson Maxime Chagnon said that “in a general way, the Caisse keeps an investment for eight years. But there are no hard and fast rules about this. It’s on a case-by-case basis.”
One thing Boisjoli has learned in his decade at BRP is that refreshing and reinventing products is the firm’s lifeblood.
“We’re condemned to innovate.”