Sorta Cutting Edge News - No. 15

Bike: Well, what then, proved to be Cannondale’s stumbling block with motorcycles?

Armstrong: The competition was tough, but the real difficulty for us was the engine and making it work reliably. We worked with an outside company in North Carolina to develop the engine early on and we thought that would help us overcome any stumbling blocks. Unfortunately, that partnership didn’t work out as well as we hoped it would.

When that relationship dissolved, it didn’t put us back at square one, but it definitely put us behind the eight ball. We had some reliability issues in the first year with the engine. Then when we got those addressed, the next big issue was one of costs: we were never able to get the costs down to a point where we were able to make a profit on any of the units. That’s not a big problem if you’re selling just a few units, but what happened is our reputation picked up—we worked the bugs out of the engine, we were getting great ATV and motorcycle reviews in magazines, and we started to win races—and then we began to sell a lot of units. If you’re losing a certain dollar amount on a hundred units, it’s manageable, but if you’re losing that same amount and selling 5,000 units—well, that kind of situation just can’t last. The losses snowball. That was the final nail in the coffin. If we could have kept the costs in line, we would have been okay. In a sense, success in sales really exacerbated our other problems.

Bike: A recent editorial in Bicycle Retailer and Industry News suggested that there may have been some management excesses (the company jet, for instance) at Cannondale that may have contributed to the bankruptcy. Is there any validity to that contention?

Armstrong: We obviously made mistakes, but to point to the jet as a contributing factor in our filing Chapter 11 isn’t accurate.  I’ve worked at Cannondale for 20 years and in the entire time I’ve been here we’ve had a company plane. As the years have gone by, and as the company has grown more successful, we’ve upgraded the plane when we could—always going with a faster and also safer plane with more seating capacity.

And the company plane always got a lot of use.  We used to fly once a week to our factory in Pennsylvania [editor’s note: Cannondale headquarters is in Connecticut and the bicycle factory is in Pennsylvania], but more recently we were flying there twice a week – sometimes more.

After we went public, we upgraded to a small Cessna jet.  We began flying more and flying farther because of the motorcycle project—we used the jet several times to fly engineers and R&D staff to meet with our engine consultant in North Carolina, for example. To say that the plane was the source of our problems is to miss the main point—the motorsports division caused us to file Chapter 11, not the jet. We invested something like two to three million dollars in the jet, but spent between 80 and 100 million dollars on motorsports.

Bike: While we’re on the subject of articles, there was a recent review of the Cannondale single speed in Mountain Bike Action that suggested that innovative products such as your single speed are going to be a thing of the past—that Cannondale, in essence, will no longer be pushing the envelope on innovative designs. Is this accurate?

Armstrong: Not at all. We plan on ratcheting up the level of innovation. Pegasus understands that innovation is what makes us tick. It’s what has made us successful. Without the financial burden and distraction of the motorsport division, we will be in a much better position to focus on innovation.

Bike: Will Cannondale continue to honor warranties on past Cannondale products?

Armstrong: Absolutely. In fact, there was never a day when we didn’t honor warranties. We stopped production at the factory for a short time last winter, but during that time customer service was fully staffed and we never stopped servicing warranties.

Bike: As the media caught hold of the bankruptcy story, was there ever a point at which you guys sat down and said, “Damn, I wish they’d just get this part of the story right.” Is there a part of the picture that most of us haven’t seen yet?

Armstrong: If we were saying “Damn it” at all, we were saying it about some of the decisions we made in the past, not about the way we were being treated. To the contrary, we’ve been shown a tremendous amount of support and understanding from everyone—the media, our dealers and customers, our vendors and even our competitors.  And we’re very grateful.

There are two things we’d like to say. First, thank you to everyone for sticking by us. Second, watch out—because we’re coming back. Cannondale has been around for 31 years and when this is all over, we’ll have only been in Chapter 11 for about 75 days. So, while the bankruptcy may seem like a landmark situation, we’re confident that in retrospect it’s only going to be a mere blip on the radar. We’re really excited about the future. We’re getting a second chance to do what we love to do and what we’ve proven we’re successful at doing—and that's building innovative bikes. With the motorsports project behind us, we don't have any more distractions. We're coming back.