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Romney's turnaround plan for America and the GT Bikes story

Mitt-Business-Online

Romney/Ryan 2012

The Romney/Ryan campaign has rolled a new website that promotes Romney's business achievements.

The Mitt Romney/Paul Ryan campaign has added an entire subsection to its website: business.mittromney.com. It's essentially a shrine to Romney's record — the successful part — at Bain Capital, the buyout/private-equity firm he started out of Bain & Co., a consultancy. 

The sub-site features a number of turnaround and investment tales (more turnaround than investment, actually), including Staples — which obviously has a strong L.A. presence — and Santa Ana-based GT Bicycles

The GT Bikes part of the story is interesting. On the Romney campaign's website, former CEO Mike Haynes appears in a video (see below) explaining how much good Bain Capital did for the business. Haynes, then the company's CFO, ascended to the CEO chair after GT's co-founder, Richard Long, was killed in a motorcycle accident in 1996. He was joined by Geoffrey Rehnert, who took on the Chairman's job. Rehnert was a co-founder, with Romney, at Bain.

In an article in the Washington Post in June, Bain's involvement with GT was pointed to as an example of how Romney and his associates raked in profits by outsourcing jobs. Haynes provided a response to this allegation at FoxNews:

It’s hard to believe that GT Bicycles was used in a story about sending jobs overseas. That just isn’t what happened at all. We were adding jobs in America, not sending them away. During Bain’s involvement with GT Bicycles, we doubled the number of American jobs from about 350 to 750. While Bain owned the company we expanded a state-of-the-art manufacturing facility in Santa Ana, California, that added about 150 jobs. We increased the number of workers at our locations in Buffalo and St. Louis, opened a new facility in Jacksonville, and acquired another in Sheboygan. If anything, Bain actually helped GT Bicycles increase exports of bikes made in America.

This is all true, but it isn't the whole story. The reason why GT had to grow it's U.S. manufacturing operations was because its main rival, Cannondale, was out-competing GT by keeping production at home. This is from the company history, provided by Funding Universe:

By 1996, nearly 60 percent of the company's revenues were derived from the mountain bike segment, but Cannondale was still the segment leader, with their barn-manufactured, "100% American made," unique fat tire bicycles sweeping the market, making, in 1995, $13.5 million in operating profits on total revenues of $122 million compared to GT Bicycles' $8 million against sales of $169 million in the same period. Cannondale's success was partly attributable to the fact that its local manufacturing allowed it to quickly respond to market changes; most of GT Bicycles' mountain bikes and BMX bikes were being manufactured in Taiwan.

A year earlier, GT had staged a get-out-of-debt IPO that raised $66 million — just enough to pay off Bain and a second investor in the company's 1993 buy-out, Jackson National Life Insurance. It needed to make a change, and this is where the story gets interesting. Because it was the very outsourcing that Bain's funding encouraged that made GT less competitive. So the only thing to do was pivot, increasing domestic manufacturing to outdo Cannondale. 

Bain's outsourcing strategy fared so poorly that it had no choice but to grow its U.S. operations and bring back U.S. jobs.

The bottom line is that, at least where GT Bikes was concerned, it wasn't Romney's or Bain's or Haynes' management skill that landed GT on the business.mittromney.com hall of fame. It was the superior business execution of a competitor.

Cannondale. 

If you're no fan of Romney or Bain, there's a certain ironic pleasure to be derived from this tale. But don't get cocky. Currently, neither Cannondale nor GT manufactures any bikes in the U.S. (as far as I can determine — calls to both companies to confirm that weren't returned). And both companies are part of bigger companies, with the obligations to make financial contributions to a larger corporate pie. (Both were also part of companies that went bankrupt in the early 2000s). The era of their plucky rivalry is over.

But the critical point about outsourcing workers remains, now that the Romney campaign has brought it to the fore. Unfortunately, while U.S. workers...well, worked for a while, they couldn't weather the business cycles that eventually made it cheaper to outsource, yet again.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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