For us and for our loyal customers, the motorcycles we build aren’t just motorcycles. 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, INC.1
Harley‐Davidson, Inc. was far from being the world’s biggest motorcycle manufacturer. In 2017, it sold 241,498 bikes; Honda sold 11.2 million. In relation to the world market for motorcycles of about 132 million bikes—of which Asia accounted for over 80%—Harley’s market share was about 0.25%.
Yet, Harley‐Davidson was also one of the world’s most famous motorcycle companies. On Interbrand’s ranking of the world’s most valuable brands, it placed #77 in 2017 with a brand value of $5.7 billion. In 2018, the company would celebrate its 115th birthday. On Labor Day weekend, tens of thousands of Harley riders would descend on Milwaukee WI for five days of festivities. As one enthusiast explained: “It ain’t a motorcycle—It’s a way of life!”
Harley‐Davidson was also the world’s most financially successful motorcycle company. Since its listing on the NYSE in 1986, its revenues had grown 11‐fold, it had earned an average return on equity of 27%, and average annual return to shareholders was 12.8%.
However, since 2008, Harley had experienced headwinds. The financial crisis of 2008–09 had hit it hard and, despite a strong recovery, sales revenues and profits had declined after 2014. The decline in sales continued in 2018—exacerbated by the trade war initiated by the Trump administration. The European Union had targeted Harley‐Davidson with 25% additional tariff on imports of US‐made motorcycles. However, CEO Matt Levatich’s biggest concern was the longer term outlook for the market for its bikes. Was America’s long‐running love affair with Harley‐Davidson’s heavyweight motorcycles cooling? And, if it was, would international markets take up the slack? These concerns were fueled by demographic trends. Harley’s core market was the baby‐boomer generation—and this cohort was moving toward retirement homes rather than outdoor sports. Would the next cohorts—Generation X, Y, and the millennials—have the same affinity for the motorcycles and the cultural values that Harley‐Davidson represented? The evidence pointed to worrying problems for the entire US motorcycle market. Among the youngest age group—the under‐18s—motorcycle ownership was declining sharply.
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 characteristic feature of Harley‐Davidson motorcycles for the next 110 years. At that time, there were about 150 US motorcycle producers in the United States; by 1953, Harley‐Davidson was the sole survivor.
After the Second World War, the demand for motorcycles boomed. This encouraged a flood of imports: first the British (BSA, Triumph, and Norton) and then the Japanese (led by Honda). Following Harley’s acquisition by the leisure conglomerate AMF in 1969, sales declined and financial losses mounted.
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. Harley’s biggest challenge was satisfying the surging demand for its products. Between 1996 and 2003, it dramatically increased its production capacity. In 2006, Harley’s sales reached a peak of 362,000 motorcycles, a 10‐fold increase on 1986. Figure 1 shows Harley’s growth in output.
FIGURE 1 Annual shipments of motorcycles by Harley‐Davidson
Source: Harley Davidson annual reports and Harley‐Davidson archives.
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 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. The credit crunch prevented Harley‐Davidson Financial Services (HDFS) from securitizing its customer loans—it was obliged to retain them on its own books.
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 employment with lower demand, and refocus on the core Harley‐Davidson brand—which involved closing Buell Motorcycles and selling Italian subsidiary MV Agusta.2 With its financial position stabilized, Wandell then sought to return Harley to its previous growth path. This involved:
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