HARLEY-DAVIDSON, Inc. 2008: THRIVING THROUGH RECESSION

 

Case Abstract• Founded in 1903, Harley-Davidson is a modern

success story of a company that turned itself around by emphasizing quality manufacturing and image marketing. After gaining control of the company from AMF in a leveraged buyout in 1981, management introduced “just-in-time” manufacturing.

• Encouraged by the high market demand for Harley’s motorcycles in the 1980s and 1990s, competitors increasingly challenged Harley’s dominant position in heavyweight motorcycles.

• To expand its product offerings, the company acquired the Buell Motorcycle Company, a manufacturer of sport/performance motorcycles, in 1993

• Its attempt at diversification outside of motorcycles into recreational vehicles with the purchase of Holliday Rambler was reversed in 1996 with the divestment of this business unit. Worrying that the baby boomer target market for its heavyweight cycles was aging, management decided to introduce the V-Rod in 2001.

• This was a low-slung, high-powered motorcycle meant to appeal to a youth market that was interested in riding “crotch rockets.”

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• After consistently growing through the 1990s, sales were showing signs of slowing as the baby boomers continued to age. Safety was becoming an issue, given that riders over age 40 accounted for 40% of all fatalities.

• For the first time in recent history, sales and profits declined in 2008 from 2007.

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• After President James Ziemer reviewed the 2007 financial results, he noted that 2008 would be a challenging year for Harley-Davidson given the pending recession.

• Analysts wondered how the company would be affected in a deep recession. How does Harley-Davidson continue to grow at its past rate?

CURRENT SITUATION CURRENT SITUATION

12-6

Performance

• Motorcycle shipments (2007 330,619 versus 349,196 in 2006.)

• EU market share 9.6% (growing).• Dominate heavy weight bikes – 49.4% market

share.• 2007 net sales were down – 1.2% and net

profits were down 10.4% from 2006.

Mission

• “We fulfill dreams through the experience of motorcycling by providing to motorcyclists and to the general public an expanding line of motorcycles, branded products and services in selected market segment.”

Objectives

• To increase sales and profits.• To provide great motorcycles.• To enhance the Harley lifestyle experience.• To continue providing an excellent financial

performance.• To increase production capacity in 2007.• To expand and improve the company’s

distribution network.• To expand globally.

Policies

• Improving strategic alliances with suppliers, reducing costs and implementing technology.

• Promotion from within.• Encouraging employees to focus on value-added

activities.• Continuing education of employees.• Enhancing the Harley Davidson experience

through H.O.G.• Giving back to the community through charities.

Current Strategies• Focus on costs and materials.• Growth through increased international presence.• Manufacturing strategy: increase capacity, increase quality,

decrease costs and increase flexibility to respond to changes in marketplace.• To increase Harley Davidson Financial Services’ (HDFS)

segment participation with European dealers.• Growth of new millennium bikes through V-Rod and

acquisition of Buell. Growth of new sportier bikes aimed at younger consumers.• Groundbreaking of Harley-Davidson museum in June, 2006

EXTERNAL ENVIRONMENTEXTERNAL ENVIRONMENT

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Economy

• Low interest rates (O)• Domestic recession threatened in 2007 (T)• Fuel efficiency of motorcycles with rising gas

prices (O)• High price of gas and rising (T)

Technology

• Technological advances pose more efficiencies for industry (O)

• Worldwide product protection through patents (O)

• High cost of new technology (T)

Socio-Cultural• Women riders are an undeveloped market (O)• Baby boomers generation is industry target

market (O)• Younger buyers (O/T)

Political-Legal• Tighter government regulations (T)• Steel import tariffs from European Union (T)

Task Environment

• Opportunities– Increased expansion will introduce Harley-

Davidson to new markets and increase their international market share.

– Custom/touring motorcycles are expensive but have high sales and high profit margin.

– Advertising through licensing agreements and cafes.

Task Environment

• Threats– Threats of substitutes include motor vehicles

and/or mopeds, scooters and bicycles.– Unionization and wage control.– Bargaining power of buyers high due to

exhaustion of backlog and high inventory at dealers.

– Highly competitive global and domestic markets.

INTERNAL ENVIRONMENTINTERNAL ENVIRONMENT

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Corporate Structure

• Two business segments:• Motorcycles and Related Products• Financial Services (Harley-Davidson Financial

Services)• Decentralized decision-making.• Stage III Corporation.• Company owns Buell Motorcycle Company

(performance motorcycles).

Corporate Culture

• Commitment to quality.• Commitment to employees.• Commitment to customers.• Commitment to community.• Commitment to HOGs.• Commitment to partnership with vendors.

Marketing

• Resale of products higher than competition.(+)• Introduction of sleeker, 110 horsepower V-Rod

aimed at younger buyers in 2001. (+)• Some older models selling at a lower expected

price (-).• One-hundredth anniversary celebration ride

was a success (+).

• Licensing and Cafes – most visible brand building tools (+).

• Harley-Davidson trademark highly recognizable (+).

• H.O.G. promotes Harley through rallies and events, dealer promotions, magazine and direct mailing advertising (+).

• Website – easy to use, complete information on company (+).

• Strong brand loyalty (92% repurchase rate)(+).• Television advertising program began in 2002 (+).• Alliance with Ford Motor Company. (+)• Buell’s appeal to younger buyers (+)• E-commerce growing since 2000. (+)

Finance• Supply demand balance, improvement over 2002-2004

era. (+)• ROE has remained relatively constant at no less than 20%

since 1994. (+)• HDFS generated income from continuing operations of

$960 million during 2005. (+)• International sales advanced 2%. The largest international

markets were Europe, Japan, and Canada (+)• Earnings grew from $417 million in 2001 to $960 million

in 2005, growth was fairly steady and strong.(+)• 47.8% and 8.9% European market shares during 2005. (+)

R&D

• Research and development expenditures of $178.5 million, $170.7 million, and 50.3 million in 2005, 2004, and 2003, respectively.

• Product R&D focused on quality/reliability. (+)• Developed the V-Rod, the fastest of any bike

HD has ever built. (+)

Operations & Logistics• Just-in-Time (JIT) manufacturing.(+)• Statistical process control.(+)• Strong partnership relationship with vendors. (+)• Value-added services offered at dealership. (+)• Joint ventures with Porsche producing power train

components, strategic alliance with Ford.(+)• Five facilities. (+)

HRM

• Motorcycle Segment• 9,000 employees. (+)• Unionized –AFL/CIO and IAM. (+)• Contracts expire in 2007 and 2008. (-)• Financial Services Segment -550 employees and

no union. (+)• Heavy community involvement. (+)• 50% of H-D employees ride a Harley bike. (+)

RECOMMENDED STRATEGIES• Expansion to other geographic location to obtain

market share• licensing agreement• Consolidate international operations in an attempt to

gain efficiency prior to further global expansion (turnaround strategy).

• Maintains current size and sales in order to decrease inventory at dealerships.

• Review all casts to see savings can be made.• Consider special sales incentives. Do a cost/benefit

analysis to ascertain the profits will not be negatively affected.

• Looks like it will be a world recession – so expect sales/profits to decrease. Again – focus on costs.