Case 7 Harley-Davidson, Inc., May 2015 for us and for our loyal customers, the motorcydes we build aren't just motor cycles. They are living pieces of American history, mystique on two wheels. They are the vehicle with which our riders discover the power the passion, and the people that define the Harley-Davidson Experience HARLEY-DAVIDSON On May 1, 2015, Matt Levatich took over as CEO of Harley-Davidson, Inc., Levatich was 48 years old and had joined Harley as a management trainee in 1994. He held an engineering degree from Rensselaer Polytechnic Institute and an MBA from Northwestern. The company he was taking charge of was not among the world's big- gest motorcycle companies--it shipped 270,726 bikes in 2014 compared to Honda's 17 million. However, it was the world's most financially successful motorcycle manu- facturer: it earned a higher sales margin and a higher return on equity than any of its rivals. Levatich's predecessor was Keith Wandell, who had stabilized Harley after the financial crisis of 2008-2009 and returned the company to its growth path. During Wandell's six-year tenure, Harley's cumulative total return to shareholders was 280%, compared to 172% for the S&P 500 as a whole. The road ahead, however, looked distinctly bumpy. On Levatich's first day as CEO, investment advisor James Berman published a newsletter that asked the ques- tion: "Is the long, classic American love affair with Harleys a thing of the past?"2 Harley's profit growth depended on its ability to keep expanding the sales of its high-priced, heavyweight motorcycles. While no other company could replicate the emotional attachment of riders to the "Harley Experience," there was always the risk that motorcycle riders might seek a different type of experience and become more attracted to the highly engineered models produced by European and Japanese man- ufacturers. Equally worrying was the fear that motorcycles might lose their appeal both as a leisure activity and as a male status symbol. Such concerns were fueled by demographic trends. Harley's core market was the baby-boomer generation- and this cohort was moving more toward retirement homes than outdoor sports. Would the next cohorts-Generation X and Generation Y-have the same affinity for noisy, heavyweight motorcycles and the cultural values that Harley-Davidson This case was prepared by Robert M. Grant. ©2015 Robert M. Grant. CART HARLEY DAVIDSON, INC. MAY 2015 represented Moreover, with consumer spending weak in both North America and Europe -Harley's two biggest markets the demand for luxury leisure products costing between $7000 and $38.000 was likely to be subdued. The History of Harley-Davidson From Birth to Maturity, 1903-1981 Harley-Davidson, Inc. was founded in 1903 by William Harley and the three Davidson brothers: William, Arthur, and Walter. In 1909. Harley introduced its two-cylinder, V-twin engine with its deep, rumbling sound: this engine type would be the charac- teristic feature of Harley-Davidson motorcycles for the next hundred years. At that time there were about 150 US motorcycle producers in the US: by 1953. Harley- Davidson was the sole survivor. The postwar affluence and the rise of youth culture created a growing demand for motorcycles. This was satisfied primarily by imports: first the British (BSA, Triumph, and Norton) and then the Japanese (led by Honda). Harley benefited from the rebirth of motorcycling as a leisure activity. However, its acquisition by the leisure conglomerate AMF in 1969 was followed by quality problems and financial losses. Rebirth, 1981-2008 In 1981, Harley's senior managers led a leveraged buyout of the company. Despite a perilous financial condition, the management team embarked upon rebuilding production methods and working practices. Managers visited Japanese automobile plants and introduced their own version of Toyota's just-in-time (JIT) system called "MAN" (materials-as-needed). Harley's manufacturing plants adopted collaborative processes of quality management. The 1986 initial public offering of Harley-Davidson's shares fueled investment in new models, plants, and dealerships. Harley's share of the market for heavyweight motorcycles (over 500cc) grew steadily. During the 1990s, Harley's biggest challenge was satisfying the surging demand for its products. In 1996, Harley announced its Plan 2003 to dramatically increase production capacity in the period preceding its 100th anniversary in 2003. In 2004, Harley sold more than 300,000 motorcycles, a tenfold increase on 1983. From 1984 to 2008, Harley's output and revenue had grown in every single year (Figure 1). Downturn and Readjustment, 2008-2014 The financial crisis of 2008 put an abrupt end to growth. After decades of customer waiting lists and a shortage of production capacity, Harley faced plummeting sales, excess inventory, and problems of bad debts as customers defaulted on their loan repayments. In the shrinking motorcycle markets of North America and Europe, Harley--with the highest average retail price of any major manufacturer-suffered disproportionately. Amidst the credit crunch, Harley-Davidson Financial Services (HDFS), which supplied credit, insurance, and extended warranties to Harley deal- ers and customers, was unable to securitize its customer loans and was forced to retain them on its own books. CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS FIGURE 1 Annual shipments of motorcycles by Harley-Davidson 400 350 300 250 200 150 100 SO 0 1900 1920 2000 1940 1980 2020 1960 Year Sources: Harley Davidson annual reports and Harley Davidson archives When Keith Wandell took over as Harley's CEO in May 2009, his priorities were to restore funding for Harley's consumer lending, align production and employ- ment with lower demand, and refocus on the core Harley-Davidson brand-which involved closing Buell Motorcycles and selling Italian subsidiary MV Agusta. In 2009, Harley posted a net loss for the year--its first as a public company. (Appendix Table Al provides details of Harley-Davidson's financial performance.) During 2010-2014, Wandell established a bold, clear strategic direction that would maximize our opportunities going forward and restore the company as a strong business that could consistently grow over the long haul." The resulting transformation of Harley included: • Rethinking and restructuring of manufacturing operations including reduc- ing capacity and increasing flexibility to allow a wider range of models to be produced and to match production to seasonal fluctuations in demand-what Harley called its "surge production system." • Expanding international sales. The primary focus for Harley's overseas sales had been Europe-the world's biggest market for heavyweight motorcycles. With Europe mired in recession, emphasis shifted to building distribution and growing sales in the emerging markets of Asia and Latin America. In 2011, Harley opened an Asia-Pacific regional headquarters in Singapore, and an assembly plant in India. • Expanding the customer base. To reestablish growth in North America, Harley needed to broaden its customer base from its core demographic of white males of 45 years or more. Targeted groups included: women riders, "Harlistas" (Latino riders), "Iron Elite" (African-American riders), "Harley's Heroes" (military and veteran riders), and, most of all, younger riders through new models. The result was a major investment in new product development, During 2013, Harley launched its "Project Rushmore" motorcycles: "The first to come through our new, world-class product development pipeline and intro- duce major innovation and design improvements. They were developed with DAVIDSON MAY del casamer input that brough the wine of the customer to product design in paralleled way for They were followed by the Street modellersports motorcycles featuring new lead cooled once and The Heavyweight Motoreyele Market Until the financial crisis of 2005-2009, the heavyweight segment had been the most rapidly growing part of the world motorcycle market, with the US accounting for major portion of this growth Worldwide sales of heavyweight motorcycles trebled between 19 and 2008. However, during 2008-2010, sales dropped sharply in North America and Europe and the in North America , Harley was the leader in heavyweight bikes , with over half the ient recovery has been slow market cible overseas, Hartey had been unable to replicate this market domi nance, despite strong sales in a few markets. Harley achieved the remarkable feat of becoming heavyweight market leader in Japan. It held similar lendership in Australia and Brazil. The Furopean market was more fragmented with Harley one amonga leading group that included Honda, BW, Suzuki, Yamaha, Kawasaki, and Triumph cach with market shares in heavyweight motorcycles of between 8 and 15% The heavyweight motorcycle market comprised three segments: Cruter motorcycle: These were big noisy, low riding, unapologetically mucho cycles typically with V-twin, large displacement engines and an TABLE 1 Retail sales registrations of heavy welche motorcycles (2005-2014 instints 2011 2012 2013 2014 2010 2005 2006 2009 2007 2008 North America 304 178 20 154 300 168 549 316 16 528 235 55 533 O doo 265 78 Europe 37 300 3 30 4 127 282 36 128 320 39 120 5 11 30 85 120 30 2 27 13 23 Davidson share Asia-Pacific Davidson Latin America Hey Davidson 25 1 12 8 ha Middle East and Africa for 2005-2011 adhu sales in an wele between 10.000 and 1.000 not available Source: Davidson 10 Kreports 300 CASER TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS upright riding position. Their design reflected the dominance of styling over either comfort or speed. For the urban males and some females) in con- ested cities such as Los Angeles, New York Paris and Tokyo, the cruiser motorcycle, while a practical mode of transportation was primarily a state- ment of style. The cruiser segment was practically created by Harley and represented over two-thirds of the heavyweight market in the lis. Most of Jarleys.competitors in this segment had imitated the main features of the to ditional Harley design • Touring motorcycles: These included cruisers especially equipped for longer- distance riding and bikes especially designed for comfort aver long distances (including the Honda Goldwing and the bigger BMW). These tourers fea. tured luxuries such as audio systems, two-way intercoms, and heaters. While Harley led this segment on the basis of style and image, Honda and BMW had engineered their motorcycles for greater smoothness and comfort over long distances through the use of multi-cylinder, shaft-drive engines and advanced suspension systems, - Performance motorcycles: These were based on racing bikes, with high- technology, high-revving engines offering speed, acceleration, race-track styl ing, and minimal concessions to rider comfort. The segment was the most important in the European and Asia-Pacific markets, representing 62 and 65% of total heavyweight bike sales respectively. The segment was dominated by Japanese motorcycle companies, with a strong representation of European specialists, such as Ducati and Triumph. Harley had competed in this seg- ment during 1993-2010 through Buell Motorcycles. Unlike its Japanese competitors, Harley was highly market focused: its Harley's models were concentrated on the "super-heavyweight" segment (over 850cc) and within this on cruiser and touring motorcycles. Harley-Davidson in 2015 The Brand Harley-Davidson's image and the loyalty the company engendered among its cus tomers were seen as its greatest assets. The famed spread eagle signified not just the brand of one of the world's oldest motorcycle companies but also an entire lifestyle with which it was associated. Harley has been described as "the ultimate biker status symbol a quasi religion, an institution, way of life." Harley had a unique relationship with American culture. The values that Harley represented individuality, freedom, and adventure--could be traced back to the cowboy and frontiersman of yesteryear, and before that to the quest that brought people to America in the first place. As the sole surviving indigenous motorcycle company, Harley-Davidson represented a once-great tradition of American engineering and manufacturing The Harley brand was central not just to the company's marketing but also to its strategy as a whole. The central thrust of the strategy was reinforcing and extending the relationship between the company and its consumers. Harley-Davidson had long
Purchase answer to see full attachment