Polaris Industries’ Financial Power Move

In the high-octane battle to capture the hearts and wallets of power-sports enthusiasts, Polaris Industries is turning heads and gaining ground

In August 2016, Evergreen Bank and Polaris Industries, Inc. sent out a joint press release detailing the launch of a new lending division focused solely on Polaris products. It was a simple 250-word announcement, but for Polaris, the document signaled a new era.

In forming the partnership and creating the division known as Performance Finance, the global power-sports and motorcycle company put competitors on notice: Polaris is revving up.

Edgar Hetteen, widely regarded as the “father of the snowmobile,” cofounded Polaris with his brother, Allan, and friend, David Johnson, in 1954. Today, the publicly traded, Minnesota-based company has 8,000 employees, seventeen manufacturing locations, and five R&D centers. The company and its 3,500 dealers sell more than 350,000 units in more than one hundred countries. Some of its products include snowmobiles, off-road vehicles, electric cars (Global Electric Motorcars), three-wheeled Slingshot roadsters, military vehicles, and Polaris’s fastest-growing segment: motorcycles.

The spike in motorcycle sales is a relatively new trend, and one that Sean Bagan has seen firsthand. Bagan, Polaris’s vice president of finance and treasurer, left an audit and business-advisory role at Arthur Andersen to join Polaris Industries in 2000. He’s had a dozen jobs with the company in both finance and international sales, including a three-year foreign assignment to run Polaris’s United Kingdom subsidiary. The combination, he says, makes him a well-rounded treasurer. “I’ve had a good view of the organization, which has allowed me to think holistically. It’s very important for a treasurer to really understand the structure and goals of his or her organization,” Bagan explains.

When he joined Polaris, the company generated roughly $1 billion in revenue. Eleven years later, revenues doubled. After another year, the annual figure climbed to more than $3 billion. Today, it is approaching $5 billion.

During that rapid ascent, Bagan and other leaders started to notice something: motorcycle sales represented an increasing portion of those annual sums. The news didn’t shock industry insiders. Polaris made waves in 2011 by acquiring the famed Indian motorcycle brand. Converting Harley-Davidson fans to Indian or other Polaris brands, however, has been a bit of a David-versus-Goliath battle. Polaris sells to a dealer network, which in turn sells motorcycles to consumers. Therefore, ease and availability of financing drives purchasing decisions. Harley-Davidson had its own captive-finance company, while Polaris did not.

“We didn’t want to copy what our biggest competitor was doing, but we did want to find a solution that would work for us,” Bagan says. “We needed to find a more effective way to compete.”

For Polaris, Performance Finance is that solution. Bagan refused to propose a captive finance company because operating as a bank would hinder the company’s ability to achieve its strategic objectives. “We’re not a bank; we’re a power-sports company,” he explains. “Our vision is to become a highly profitable, $8 billion enterprise by 2020. We will do that by focusing on the customer and reinvesting a portion of our profits into making the best and most innovative products in the industry.”

Competitors with captive-finance companies generate more than half of their earnings from financing. Bagan wanted to free Polaris to use its capital in other ways. By implementing the more risk-averse solution and partnering with a bank such as Evergreen, Polaris has been able to maintain its strong balance sheet and operating cash flow. Instead of building a captive infrastructure, hiring new teams, and developing specific expertise, Polaris’s employees and dealer partners can focus on giving buyers the best products and customer service.

With the course set, Bagan and others at Polaris set out to find the right banking partner. After months of research, they settled on Evergreen Bank. The institution provides full-service banking in Illinois and comprehensive motorsports financing through a loan-production office in Reno, Nevada. “We picked Evergreen because they are the best at financing motorcycles. They do everything quickly, they’re almost always open, and they use electronic loan document imaging,” Bagan says.

While Polaris values its other banking partners, the new arrangement introduces new choices for dealers and consumers. “Original equipment manufacturers aligning with banks makes sense because it allows us to get closer to the consumer and control their buying experience a little better,” Bagan says. His finance team will review and optimize Performance Finance in 2017 after working out bugs and tracking metrics in 2016. They saw more than a 50 percent increase in loan applications just weeks after launching Performance Finance.

The launch required some heavy lifting. Bagan, finance, and other internal Polaris teams created brand names and taglines, organized related infrastructure, developed dealer trainings, established finance programs, and implemented new systems and websites. The exercise demonstrated the full impact a team-oriented treasurer can make on an organization.

“The treasury team needs to be more than tactical. It needs to be strategic, too,” Bagan says. “We can add value by helping chart the right path forward, and if we do that better than our competitors, then we help the entire company get where it wants to go.” Bagan traces his penchant for strategy back to his days as captain of his high school basketball team. Those contests taught him to maximize resources before time expires and to maneuver key players to win under pressure.

With Performance Finance up and running, he’s tackling another goal. For revenue to reach $8 billion by 2020, Polaris will have to increase sales in foreign markets. In 2015, 22 percent of Polaris’s business occurred outside of the United States, with just 14 percent outside of North America. Bagan believes his team can help that figure climb above 30 percent—and eventually outpace Harley-Davidson’s 36 percent benchmark. Harley-Davidson isn’t going away, but Polaris appears to be gaining on the industry leader. Harley-Davidson’s sales are dropping. Polaris’s grew 67 percent in 2015. Can Bagan and his colleagues sustain recent successes? Only time will tell, but when it comes to the world of international motorcycle sales, an exciting challenger has emerged.