The Future of Harley-Davidson

[Marc]

From the New York Times

SPUCK BENNETT’S dealership just outside Ocean City, Md., is cluttered with 65 shiny Harley-Davidson motorcycles, including the chrome Sportster and the sleek V-Rod. Last year, Mr. Bennett, 79, sold 200 bikes, down from 280 the year before. This year, sales have slowed to a crawl. “I haven’t seen anything like this in the 33 years I’ve owned a dealership,” he says. “We’re just trying to survive.” He has cut expenses by trimming hours and overtime, and laid off 7 of his 49 employees.

After riding high for two decades, the company that makes the hulky bikes that devoted riders affectionately call Hogs is sputtering. Harley’s core customers are graying baby boomers, whose savings, in many cases, have gone up in smoke in the market downturn. Few are in the mood to shell out up to $20,000 or more for something that is basically a big toy, and the company, in turn, has not captured much of the younger market.

And though Harley’s woes pale in comparison to what the automakers face — Harley’s revenue dipped 2 percent last year while Detroit was crashing — overproduction and loose lending practices have burdened the company’s finances. In large part because of loan problems, though, profits at Harley fell 30 percent last year, to $654.7 million on revenue of $5.6 billion. Operating income of the financial subsidiary fell 61 percent, to $83 million.

In a pattern similar to that of the housing bust, Harley goosed sales by luring many buyers with no-money-down loans. A subsidiary created about 15 years ago, Harley-Davidson Financial Services, made those loans and packaged them into securities to sell to investors. As the credit market skidded, so did this subsidiary.

As much as one-fourth of the $2.8 billion in loans issued by Harley-Davidson Financial Services last year were subprime, with interest rates as high as 18 percent. As the downturn took hold, some borrowers started defaulting on loans and investors stopped buying the securities, forcing Harley to write down $80 million of debt last year, analysts said. Although it recently tightened lending standards, the company is still chasing buyers by offering credit.

In an interview, Ziemer said about 650 of the cuts will be in Wisconsin, while more than 400 jobs will be lost at its facility in York, where its transportation operation is also based. About 85 cuts will be made at the company's motorcycle plant in Kansas City, Mo., he said.

Read more....

As some of you *may* know, the last time Harley was in a serious bind (notably not mentioned in the story, and rarely spoken about) the Viet Nam war bailed them out through orders from the US military for bomb and artillery shell casings.

Harley also reported its fourth-quarter profit fell nearly 60 percent, and said it is slashing motorcycle shipments in 2009 to cope with reduced demand. Harley says it will consolidate two engine and transmission plants in Milwaukee into its facility in Menomonee Falls, Wis. It will shrink its paint and frame operations in its York, Pa., plant and close its distribution facility in Franklin, Wis., whose duties will be handled by a third party. Harley also is exiting its domestic transportation operation - its fleet of long-haul truckers who transport parts between manufacturing facilities - and outsourcing duties to a third party. The cuts make up slightly more than 10 percent of the company's total work force.

 

[Jim Wynne]

I was at Harley in Milwaukee for eight years while they were just about printing money, and the thing that struck me--almost from day one--was the apparent lack of concern about its aging customer base. It was clear they need to do something to lure younger customers, but they were afraid that making bikes that young people wanted to buy would somehow tarnish the brand and alienate their core customers.

I guess Buell was supposed to help with some of that, but they put practically no marketing money into the brand, and the bikes are powered by the nearly-obsolescent air-cooled Harley V-twins. That's another problem for H-D--it's going to reach a point where those air-cooled engines won't be able to meet emissions standards, but they wouldn't move away from them (with the exception of the V-Rod, which is liquid-cooled) again for fear of alienating the customer base.

The time for H-D to change was when they had plenty of money, but I think the "leadership" there was content to maintain the status quo and cash the bonus checks.

 

[Stijloor]

I was at Harley in Milwaukee for eight years while they were just about printing money, and the thing that struck me--almost from day one--was the apparent lack of concern about its aging customer base. It was clear they need to do something to lure younger customers, but they were afraid that making bikes that young people wanted to buy would somehow tarnish the brand and alienate their core customers.

I guess Buell was supposed to help with some of that, but they put practically no marketing money into the brand, and the bikes are powered by the nearly-obsolescent air-cooled Harley V-twins. That's another problem for H-D--it's going to reach a point where those air-cooled engines won't be able to meet emissions standards, but they wouldn't move away from them (with the exception of the V-Rod, which is liquid-cooled) again for fear of alienating the customer base.

The time for H-D to change was when they had plenty of money, but I think the "leadership" there was content to maintain the status quo and cash the bonus checks.

Would it help if they tone down that terrible exhaust pipes noise?
Is that really necessary?

Stijloor.

 

[SteelMaiden]

Would it help if they tone down that terrible exhaust pipes noise?
Is that really necessary?

Stijloor.

um, Jan, yes it is.

 

[GStough]

um, Jan, yes it is.

I've heard too many news stories involving a motorcycle accident where a motorist failed to yield to a motorcycle when changing lanes, making turns, etc. because they didn't see them. Loud pipes save lives....

 

[Marc]

I was at Harley in Milwaukee for eight years while they were just about printing money, and the thing that struck me--almost from day one--was the apparent lack of concern about its aging customer base. It was clear they need to do something to lure younger customers, but they were afraid that making bikes that young people wanted to buy would somehow tarnish the brand and alienate their core customers.

Yeah - I saw that when I was working for them as a consultant back around 1996-7 when the Kansas City plant (built in 1998) was in their plans. They had a total disregard for customers in general. I was told at the time by Harley management that people would continue to buy Harleys because of their 'reputation'.

I was so disappointed with their management that I brought in another consultant to finish up my project and I went on to other customers (Motorola and Borg-Warner among others) and their projects.

Harley paid for most of my current house (which I bought in April 1996), mostly from my working with them and then later helping several companies that supplied Harley with parts.

 

[Stijloor]

I've heard too many news stories involving a motorcycle accident where a motorist failed to yield to a motorcycle when changing lanes, making turns, etc. because they didn't see them. Loud pipes save lives....

Gidget, I am sorry to have to disagree with you...

It's just terrible noise pollution!

Stijloor.

 

[Jim Wynne]

Would it help if they tone down that terrible exhaust pipes noise?
Is that really necessary?

Stijloor.

No it's not necessary, but it's not H-D's fault either. All of the bikes that leave the factory are in compliance with federal noise regulations, but their owners often change that.

 

[Stijloor]

No it's not necessary, but it's not H-D's fault either. All of the bikes that leave the factory are in compliance with federal noise regulations, but their owners often change that.

Which would be highly illegal where I came from.

Stijloor.

 

[Jim Wynne]

I've heard too many news stories involving a motorcycle accident where a motorist failed to yield to a motorcycle when changing lanes, making turns, etc. because they didn't see them. Loud pipes save lives....

The fact is that bikes that make a lot of noise are more likely to be involved in accidents than those that have stock mufflers*. This has more to do with the riders than with the mufflers, but nonetheless the familiar Harley-owner bumper sticker that says "Loud Pipes Save Lives" isn't supported by the numbers.

*I understand that this fact doesn't take into account the number of accidents that might be prevented by making a lot of noise, an unknowable number.