Lehman Trikes, Inc. (LHT)
Interview with:
Larry Strilchuk, President and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
kits to convert a conventional two-wheel motorcycle into a three-wheel motorcycle.

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Lehman Trikes, Inc., a leader in the three-wheel motorcycle market, has experienced large growth due to the budding interest of the baby-boomer generation

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Consumer Products
Motorcycles/Trikes
(LHT – TSX Venture)

Lehman Trikes, Inc.

9303-110 A Street
Westlock, AB, Canada T2P 2M5
Phone: 780-349-3738


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Larry Strilchuk
President and
Chief Executive Officer

Interview conducted by:
Lynn Fosse
Senior Editor

CEOCFOinterviews.com
June 2003

BIO:

Larry Strilchuk, President and CEO of Lehman Trikes, Inc., grew up in his fathers businesses welding, machining, operating heavy equipment and farming.  He has spent his entire life as an entrepreneur beginning by purchasing his first heavy truck to work in the oilfields in Canada’s arctic at the age 17.  He has owned and operated several successful trucking companies involved in the oilfield and construction industries between 1969 and 1992.  After selling to a larger competitor in 1992, he purchased of Lehman Trikes from his long time friend and Lehman founder, John Lehman.  Larry has enjoyed a lifelong passion of motorsports, riding, building and racing motorcycles, cars and aircraft since the age of 14.

Company Profile:
 
Lehman Trikes, Inc. (LHT – TSX Venture) is the original designer and leading manufacturer of modern motorcycle trike conversions in the world today. Lehman Trikes, Inc. designs, engineers, manufacture, assemble and sell kits to convert a conventional two-wheel motorcycle into a three-wheel motorcycle. Lehman Trikes and its dealers strive to provide our customers with "The Lehman Advantage". This includes the only factory sponsored enthusiast group in the trike industry, optional extended warranty, an ever expanding line of accessories and merchandise, as well as the piece of mind of a company that stands behind both their products and their dealers. Lehman Trikes is the standard of comparison within the trike industry.

To maintain their position at the forefront of the industry, Lehman Trikes has set seven ambitious goals: Enhance brand recognition and loyalty. Expand production to meet anticipated sales. Increase product quality while decreasing costs. Improve product offerings within Lehman Trikes Financial Services. Increase shareholder value. Fully develop the North-American market and set and maintain the standards for the trike industry.

The majority of Lehman Trikes’ kits are built in-house to guarantee quality control. All manufacturing is done by their experienced team, using state-of-the-art equipment. Lehman trike conversions retain the factory drive and suspension components of your motorcycle, making service and maintenance simple and convenient. Upgraded suspensions are available for most conversions and recommended on some models. To complement the suspension, premium quality wheels and tires are included to deliver the smooth ride, stability and exceptional handling you’re looking for.

Lehman trike conversion kits are designed, engineered and manufactured to provide superior handling, performance, and durability of your Threedom Machine. Lehman engineers design their trikes to eliminate stresses to the host motorcycle that it was not designed to withstand. This commitment to original thinking and leading edge design has resulted in such developments as the famous Lehman "No Lean" suspension, which offers exceptional high-speed handling and confidence inspiring maneuverability. Lehman Trikes offers the most effective trike braking system that has been tested and complied with D.O.T. specifications to date.

Lehman Trikes philosophy is that every customer is a special customer. John Lehman said it best when he stated that "No matter how big we get, pleasing the customer will always come first." Lehman Trikes has been in business for several years and will continue building the best trikes and leading the market in the years to come.

CEOCFOinterviews: Mr. Strilchuk, please give us some background about Lehman Trikes.

Mr. Strilchuk: “Lehman Trikes is a company that started out as a hobby. John Lehman, my partner, was a friend of mine and we worked together and rode motorcycles as a hobby for years. When we were younger and we had young families, he found it difficult to get away as much as he wanted to. He had two young children and his wife was unable to ride a two-wheel motorcycle. They were looking for a way to be able to ride and take their children with them. He had taken a motorcycle on trade for something that he sold and we decided one night that the thing to do was to build a three-wheeler out of that so Linda could ride it; and that is what he did. Every time that Linda rode that bike, somebody wanted to buy it. John sold it and built her a new one and every time she rode it somebody wanted to buy it also.  It started as a hobby on the side and it grew over the next few years into a little cottage industry where he was working full-time and he had a staff. In 1993, I sold my company and joined John. It started out where we could enjoy our hobby and it grew beyond our wildest dreams. The company has always grown faster than we could afford to grow. We always had more demand that we could produce or finance. Three or four years ago we took on a few partners to finance the growth of the company. A year-and-a-half ago we took it public and that continues. We are still growing as fast as we are able and the market is growing faster than we are. As a result we have sparked some competitors, of which there are about twenty in the United States. We are no question the leader in this market and probably equal to the top three in sales volume. The market is growing and it is based on baby boom demographics. It is obvious why it is growing at the speed that it is. We think we are just starting to hit the bottom of the exponential curve that we expect.”

CEOCFOinterviews: What is the market for a three wheel bike? Is there a typical customer?

Mr. Strilchuk: “Most of people think we build these for people that are physically handicapped, but that is true for only about 1% of our sales or maybe less. Most of our customers are able bodied men of fifty-plus years of age, who are not as strong as they once were and they have been riding motorcycles most of their lives. In fact, the biggest years ever for the sales of bikes were in the early eighties. Most riders then got married and had children and a mortgage and the motorcycle was sold or put away and forgotten for twenty years.  Now they are at the age where the kids are finishing college and the mortgage is at a reasonable level or maybe even paid off and they have more disposable income and more incentive to do recreational activities. The motorcycle idea is catching on again. Because of the safety considerations many of them are still hesitant to go back to motorcycles and a lot of the wives are not comfortable on a two-wheel motorcycle, so a Trike becomes an alternative for them. They may have knee or back problem or have some problem that is causing it to be more difficult for them to handle a seven or eight hundred pound motorcycle, and they do not want to give up their hobby. Many of them travel with their wives and let’s face it, over the years we have all gotten bigger and heavier. The three wheels add a stability factor that makes it much more comfortable and easier to handle the weight of the bike. That is our basic and biggest market.

There is a secondary market, and by volume, our secondary market is women. Girls that have ridden on the back of bikes all there lives are discovering that it is a lot more fun on the front. The motorcycle industry sells about 4% of their bikes to women, which has grown 9% in the last ten or twelve years. Families are getting more disposable income and the women are getting more comfortable. The more they see other women riding, the more they feel they can do it. Lehman sells between 35 and 40% to women, so we are way ahead of the curve on that. There are a lot of girls that spent ten years on the back seat and they want to ride their own bike and enjoy the same thing their husbands do. That is our largest secondary market. We have a third one and that is attracting younger people. Many people in their teens and twenties ride motorcycles. We see our average rider getting younger each year."

CEOCFOinterviews: You take two-wheel motorcycles and convert them into three-wheels. Why not build a three-wheel from scratch?

Mr. Strilchuk: “The business started out as a kit supply business. We supplied the parts to convert your motorcycle. Then a few years ago, for reasons of compliant with DOT and our own comfort, we stopped selling kits to people and insisted that they only be installed by trained installers. That allowed us to build a bike that we were more confident was properly put together and that was DOT compliance. The next step in the chain occurred a year ago. We made a deal with an OEM to supply us with a large number of motorcycles. Using their base machine, we do the conversion at the factory and sell them as complete units. The last step will likely be the total construction of the complete motorcycle. That will be a large step and I do not know when or if it will take place. There is a lot of engineering involved in building engines and transmissions and complete units as opposed to building the back ends. However, it is a place that I believe we will be at some point in time.

There are two ways of doing this; one way is to design and build all of the components but you need the facilities of a General Motors or at least a Harley Davidson. The other way to do it is to structure an OEM deal with a supplier that will supply you with the major components and then you will assemble the bike. The issue has been liability issues on the part of the OEM. They have a concern that by supplying complete motorcycles to be turned into Trikes, they will be held responsible in the event of any kind of liability issue. There is some truth to that. The other issue is that they are watching this industry and they are seeing the growth and they will someday decide that they need to be in that business themselves, whether by acquisition or by design of their own units. It is hard to guess what the future will be but it is easy to say that the future will supply complete units from one source or another.”

CEOCFOinterviews: How do you sell your Trikes?

Mr. Strilchuk: “We have about 130 dealers in the United States and we sell directly to the dealers. We sell through a distribution system have some distribution networks in Japan and Europe. We only sell wholesale, however at one time we did sell retail. Custom bikes was something that we did in the past but that had to be set aside because it is impossible to meet all the government testing and requirements. We build standard models that can be accessorized and these basic models are standards that have been properly tested and are in compliance with government regulations. Unfortunately, we are a small company that needs to meet many of the same regulations that General Motors needs to meet. That is an important part of what we do.”

CEOCFOinterviews: Do dealers stock trikes or do customers order for future delivery?

Mr. Strilchuk: “Our dealers are required to have floor models so people can go in and buy one off the floor. Some of the customers already own the motorcycle and they want to convert to one that has three wheels. For instance, I have had several cases where a widow has come in and wanted to convert her husbands’ motorcycle. She does not want anything else because that one is special but she wants a three-wheeler so she can ride it. Those people will order a kit from a trained dealer and the dealer will install it locally. Unfortunately, we are so busy that many of the dealers at this time of year sell out of stock. The waiting list to get kits is so long that we have to tell them that we will order and get it when we can. It is a wonderful situation to be in but it comes with all sorts of problems. The truth is right now, some of our dealers are waiting up to five months to get an order.”

CEOCFOinterviews: What do you need to do to keep up with the demand?

Mr. Strilchuk: “We are growing as fast as we can but like most companies, growth is expensive and our growth is limited by the financing available to us. We know that growing too fast will kill us, so we have to avoid that. Harley Davidson did some great things and one of the things they proved is that being behind on sales is not necessarily a bad thing. It is a strong marketing tool, which almost feeds on itself. We are just starting to feel that. Harley went through it in 1985 and they are getting to the point where they are getting close to meeting demand. We are at the other end of the spectrum and just starting to have that problem. It has always been a six to twelve week waiting period. This year, in an effort to reduce the time-lines, we asked the dealers to pre-book orders and inventory so we could produce in the off-season and avoid the line-up in the spring. It worked too well. They did pre-book to help us out and what they found was that by having these things on the floor, they moved out even faster. We did this at our dealer meeting in December, and by January, we were sold out until the end of March and by February we were booking August. It was a great idea that worked but it did not solve the problem we initially sought to solve. It increased our sales substantially and made our dealers much more comfortable making orders ahead of time, which I am sure will be a benefit to us in the following year. But it has made the lines and waiting period even longer, which may be an advantage or a disadvantage depending upon how you look at it. We will lose some sales to our competitor because they do not want to wait for our bikes and our competitors can ship immediately. We create strength in our brand that will serve us in the future; it is sort of a double-edged sword.”

CEOCFOinterviews: Do you need to do advertising?

Mr. Strilchuk: “We spend a substantial budget on marketing and advertising and do a lot of trade shows. We have a truck and trailer that is run by my partner and his wife. They travel all summer from March to October, from motorcycle rally to motorcycle rally putting up displays and talking to our customers, dealers and potential customers. That is an ongoing effort. Luckily, there are motorcycle rallies in the United States every weekend of the summer. We have a focused market with many trade magazines, so it is easy to target a market for us, unlike many products that have to sell into the general public. We can buy ads in magazines that go specifically to motorcycle riders. We have a very experienced V.P. of Marketing; a gentleman that has been doing this for a number of years for many companies like ours. He has a comprehensive marketing program that focuses on building a brand on selling the product, on developing our dealer network and making them stronger and better. We believe that is another advantage that we have over our competitors. We spend a substantial sum on marketing and long-term business development.”

CEOCFOinterviews: What about the Gypsy Trike?

Mr. Strilchuk: “It was an idea that we can credit to our new V.P of Marketing; he joined us about a year ago. We were always as busy as we could possibly be, selling to the premium markets; the big dollar guys with the big appetites for expensive motorcycles. We always knew that women were a big part of our market, but we also knew that they were, for the most part, not willing to part with $50 or $60,000.00 to see if they enjoyed a new sport. We came up with a plan to build an entry level Trike that would market in the range of $14,000.00 U.S. retail. It would be a machine that would do the job very well and let people decide if triking was part of their future and they would not have to risk large sums of money. It also put Trikes in the hands of people that would not be able to afford them otherwise. It has been a resounding success. We are the premium Trike builder with an entry level bike that is lower priced than anybody in the industry, not because it is built cheaper, but because it is based on a less expensive motorcycle. It has taught us many things. We learned a lot about engineering and about the market. We always thought there was a low end market but up until now, everybody followed us into the high end market. It is a lot more exciting than it would first appear and this market is much bigger than we expected it would be.”

CEOCFOinterviews: How do you attract investors and financing?

Mr. Strilchuk: “Our company is relatively unknown, particularly in Canada, because 95% of our sales are from the U.S. We are very well-known in the motorcycle industry in the United States, but very few Canadians even know we exist.  Because we are on a junior Canadian stock exchange, we are restricted to selling stock to the local market. However, we have also been successful in getting those who look at the company to invest in it. When we decided to go public, we were probably in the worst market situation in years. So we wanted to do the minimum we could do with hopes of becoming public. Our philosophy has been to plan the growth and then plan the financial activity according to the growth. We have been reasonably successful at doing that and it gets easier each year. The other side of the coin is that you have to grow the management team and the systems. Growing in excess of 30% or growing much faster than that is dangerous.”

CEOCFOinterviews: Why is your market primarily the US while you are based in Canada?

Mr. Strilchuk: “There is a Trike market in Canada but it is small. The Canadian market is 1/10 the size of the American market. Canadians by nature are more conservative people. Until now we sold motorcycles that sold for $35-$65,000,000 Canadian. There were less people willing to spend that sort of money in Canada than the United States. Americans have a somewhat different mentality about financing. They have tax laws that are favorable as far as having tax deductible mortgages on their houses. The incentive to pay off your mortgage is not near what it is in Canada. People in the United States are more likely to carry a big mortgage on their house and spend money on toys. Our sales in Canada have been growing steadily year-over-year, I do not know if we are gaining percentage wise, but the numbers and growth are now keeping up with Americans. I think the “Gypsy” when it is better known in Canada will probably change that somewhat because it gives us a bike at a more reasonable price.”

CEOCFOinterviews: What are your facilities like?

Mr. Strilchuk: “We remodel and redesign our facility on an annual basis in order to handle the new growth. We are up to about 50,000 square feet now, spread over about four buildings. It is not the most efficient system in the world; however it is the one we can afford for now. Every year we do an expansion that we feel is going to carry us three years in the future and every year we have to stretch it again because the more we expand the more the market grows. Our growth was 20% last year and we are predicting about 30% this year; it has been doing that consistently since we started. We started with nothing and in the first five years we produced the same number of bikes that we do in three weeks today.”

CEOCFOinterviews: What is the scope of your market opportunity?

Mr. Strilchuk: “The one big thing that we have not talked about is the demographics. I have always been the kind of person that believes business needs to watch the baby boom because whatever the baby boom does is what is going to be successful. If you look at the demographics both in Canada and the United States, people start buying our bikes from about 55 and 60 years old and it escalates as they get older. We have a huge bulge of population coming into the age group of our targeted market. We are trying to grow as fast as we can to meet that market. The other thing I think is important as far as the age demographics is that my generation is probably the wealthiest generation in the history of the world. We are coming into inheritances, we have had good lives, and we have lived better than any generation before us, and probably better than most of the generations following us. We have been prosperous and focused on recreation. We are coming up on our retirement years with substantial wealth built up and we are spoiled rotten.

What we had to learn has been learned. We have a plan to grow that we do not share with the world. We will go nowhere but up and if there is a danger in our future, it is that we are going to grow too fast and hurt ourselves. That is the biggest risk. The other risk is that the ‘big guys’ will jump in and we will have to compete with them. The logic is that most of them have a herd mentality, and if one of them jumps in, there are five others that will want to be in by next year. Hopefully, that will be our opportunity.”

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