Is Harley-Davidson the Next Casualty?

Question: Can Harley-Davidson survive the world economic disaster?

The company itself paints a bleak picture of its present and future. To quote from an October 15 corporate press release:

Worldwide retail sales of new Harley-Davidson motorcycles declined 21.3 percent in the third quarter compared to last year's third quarter, an improvement from the 30.1 percent decline in this year's second quarter. An 84.1 percent decline in net income and an 84.5 percent decline in diluted earnings per share from the year-ago quarter reflected lower motorcycle shipments and the effects of the economy on retail and wholesale loan performance at Harley-Davidson Financial Services.

Hummer, which became an iconic brand in just a few years, has been sold to a Chinese industrial manufacturing company. Now H-D, which is for many a Hummer-like example of housing bubble-fueled consumer product overkill, seems in danger of going down a similar road.

This past week H-D shut down the East Troy, Wisconsin, factory where their Buell sport bikes are built, putting about 180 people out of work, and announced they're looking for a buyer for their MV Agusta brand (which also builds Cagiva bikes), based in Italy.

Harley bought Agusta in 2008 for $109 million, just before the Bush Depression hit the world economy.

A 1907 Harley-Davidson track racer

In 1993, Harley-Davidson bought a minority interest in Erik Buell's bike-making company, which used H-D XL 883 and 1200 engines in sportier, racier chassis. In '98, H-D bought the remaining 49% of Buell.

And Buell just last month won the American Motorcyclist Association's SportBike championship -- the first for an American motorcycle maker since 1986. MV Agusta is perhaps the world's most-storied name in two-wheel racing, with a history of one world championship title after another in road racing.

H-D itself laid-off 1,100 factory workers this past January.

And in another instance of what would turn-out to be bad timing, Harley opened their 130,000 sq ft museum in downtown Milwaukee in July, 2008; the next few years would not prove to be the best time to say "Welcome!" to tourists.

Until the downturn, H-D had been enjoying the best years of their long, long existence. Their Harley Owners Group (known as HOG) remains the biggest motorcycle club in the world and the machines were sought-after everywhere, especially popular in Japan during that nation's awash-in-cash housing bubble in the 1980s and '90s.

2008 MV Agusta "750 America"

Japanese bike enthusiasts considered Harleys acceptable symbols of American high technology and they represented a very different lifestyle from what one would experience in Tokyo or Osaka.

Harley-Davidsons, like Hummers, are overpriced, overweight and overwrought. Buyers who wanted a Harley would accept nothing less, though, similar to Hummer buyers, and with fast and easy cash pouring through the economy starting in the 1980s and continuing through the end of 2008, the bikes sold in record numbers.

The company even established a modern image while still considered ruffian and gangster-like, something H-D does little to downplay in its advertising or even on its website.

Many recent owners probably would never have bought a H-D if "bigger is better" vehicles didn't become a symbol of success in those phony mortgage-backed security years.

Is a Harley-Davidson nothing but a two-wheel Hummer? And is that necessarily a bad thing?

Doctors, lawyers and celebrities of all sorts were financing new Harleys, earning these buyers the derisive nickname Rubbies, short for "rich, urban bikers," considered by "real bikers" as mere poseurs who didn't really understand what made a Harley a Harley (which, after years of study, I consider to be the bone-rattling noise they produce; in fact, that sound has been trademarked by the company).

And Jay Leno, who posed with his Harley in front of the Hollywood sign for an article I wrote about him and his bike collection for Popular Mechanics magazine in 1986, saw his growing popularity encourage more sales of these loud, boisterous and often chrome-laden machines.

But in the past 18 months, since the economy began its tanking maneuver, Harleys, like Hummers, became representative of obnoxious excess to more and more Americans.

And this past week there was yet another "sign o' the times" when it comes to the economy and involving Harley-Davidson.

Seen in Jay Leno's garage -- along with mere motorcycles, here's an over-$1 million McLaren

The Love Ride, an annual biker extravaganza in southern California staged and sponsored by Glendale Harley-Davidson, was to celebrate its 26th anniversary this year. Started in 1984 with 600 riders as a fundraising event for the Muscular Dystrophy Association, it now benefits more than a dozen children's charities and raises over $1 million a year.

The event morphed over the years into one of the largest single-day motorcycle events in the world, attracting 20,000 riders including celebrities like Jay Leno (there he is again!), Peter Fonda, Lorenzo Lamas (well, they can't all be big-time), Robert Patrick (of "Terminator" fame) and Willie G. Davidson, grandson of company co-founder Arthur Davidson (those celebrity-watchers wanting to catch Guvernator Schwarzenegger on his H-D should stake-out San Vicente Boulevard in Santa Monica, CA, on a nice, warm weekend afternoon).

Last year, ZZ Top and Foo Fighters entertained the Love Ride-rs at the Los Angeles County Fairgrounds in Pomona, about a 40 mile ride from the Glendale Harley store. This thing is a big deal (and all motorcycles are welcome, not just H-D machines).

But this year, the Love Ride was canceled, due not only to a dearth of bikers willing (or able) to pay the $70 minimum entry fee, but also because local businesses, which normally pick-up some of the tab for the festival, bowed out, ending their sponsorships and support.

Many of the Love Ride participants (and I've been one several times) are some of the most highly-visible Rubbies/Harley owners in the Los Angeles area; if $70 is a big hit for them, then what's the possibility of their buying a new $20,000 motorcycle anytime soon?

Of the hundreds, more likely thousands of motorcycle companies which have existed in the US in the past 110-or-so years, only Harley-Davidson, that icon of Milwaukee, biker gangs and those Rubbies, has been an ongoing success.

This is what many people see in their mind's eye when someone says, "Hey! Check-out that Harley!"

H-D has been a dominating presence on race tracks made of wood, concrete and dirt since the company's inception up until right now. While it also innovated and perfected many bike powerplant and chassis features which have become standard throughout the industry, the company's motorcycles were never able to really overcome a reputation for poor reliability.

Until 2001, that is, when the VRSCA V-Rod was introduced for the 2002 model year. Designed with help from Porsche Engineering, the V-Rod was Harley's first bike to combine fuel injection, overhead cams and liquid cooling, and delivers 115 horsepower. Plus, it was a great-looking machine and quickly became known for its dependability.

Harley's VRSCAW V-Rod has changed the image of the company, with help from the folks at Porsche when it came to engineering and design

H-D started selling bikes in 1903, two years after William Harley, then age 21, designed the machine to be a track racer. Arthur Davidson was his partner and in 1904 the first H-D dealership opened in Chicago, selling one of the first three H-D bikes ever produced.

1909 saw the six-year-old company introduce what would become its signature "look," its first V-twin motorcycle, with a displacement of 49.5 cubic inches. Two cylinders in a 45-degree configuration would fast become one of the most enduring icons of Harley-Davidson (and world motorcycling) history. Also available this year for the first time from H-D were spare parts for motorcycles.

Seeing both success and tough times through the years, H-D produced machines for the war efforts in both WWI and WWII and became part of the American psyche. Biker gangs like the Hells Angels and Mongols admitted new members only if they rode Harleys, and the bikes became representative of a "Buy America" feeling among motorcycle purists as reliable Japanese motorcycles began pouring into the US in the 1960s, hurting H-D sales and supplanting Euro-made machines for most buyers, too.

Ford sells a pricey "Harley-Davidson"-themed version of their Super Duty F-series truck ... and it's damn popular

It was also in the '60s that H-D formed a single-cylinder, small-displacement bike-building division in Europe (Aermacchi Harley-Davidson), bought 60 percent of the stock in the Tomahawk Boat Manufacturing Company and, in 1969, became part of AMF, American Machine and Foundry Company, a longtime producer of leisure products. H-D eventually would make everything from small off-road motorcycles to snowmobiles, diluting the company's image and whatever engineering prowess the company could claim.

In 1981, the company's senior executives began the buy-back of Harley-Davidson from AMF. By mid-June, the deal was official and H-D was once again in-charge of its own destiny.

And almost instantly, corporately-speaking, in 1983, Harley-Davidson successfully got an import tariff tacked on all imported Japanese motorcycles 700cc or larger. This tax on American buyers was to last five years.

The tariff worked, "encouraging" Americans to buy H-D bikes, and by 1987, the company was doing well enough to ask for the tariff to be ended a year early. By this time, H-D had opened a new assembly plant in York, Pennsylvania along with new R&D and engineering facilities in their Milwaukee HQ and various other warehouses, R&D, manufacturing and assembly facilities in the US and, in 1998, even in Brazil.

H-D was listed on the American Stock Exchange in 1986. Many, though, questioned the company's choice to further diversify its holdings, purchasing Holiday Rambler Corporation, a motor home manufacturer. A decade later, the motorcycle maker sold Holiday Rambler to Monaco Coach Corp., a manufacturer of luxury Class A motor homes near Eugene, Oregon.

But as it has for Hummer and other American motoring products including Plymouth and Saturn, the economy seems ready to come down on Harley-Davidson.

Harley's first competition venue was in board track racing ... yes, the tracks were made out of wooden boards, and the first one in the country was in Playa del Rey, CA; falling down resulted in splinters the size of, well, boards

Has Harley made deadly mistakes by too often diversifying in what appears to be to some a wild attempt to build a gigantic, world-dominating multi-faceted "leisure products" company?

Which image, the biker gang or the Rubbie, should H-D cultivate as it tries to pull out of its sales spiral? (But don't expect an H-D version of the famous "You meet the nicest people on a Honda" ad campaign which established that company's two-wheelers in this country).

Has Harley-Davidson established their credentials as a dependable, reliable and common-sense machine which appeals to a wide-range of buyers, or would that be anathema to the company's heritage?

What must H-D do now to stem the bleeding of red ink?

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Comments

[Lynn Barnes]

What must H-D do now to stem the bleeding of red ink?"

The fact that the current Income Tax Liability for this year is 60% plays no part? It is amazing that the Federal Government makes more off of Harleys than the company.

As a daily rider of a Harley I continue to enjoy my commutes into work as well as the 45 mpg the bike gets. I'm sure the nice lady in the BMW that entered my lane this morning without looking because she was on a cell phone would tend to agree with you. But I don't.

[jester357]

I think as the economy worsens people are going to respond more to brand loyalty. If you remember when AMF was at its worse the only people riding Harleys were cops and outlaws . The Evo motor was a saving grace for Harley ( ironically AMF helped develop the Evo motor and update Harleys Machining practices ) When Harley started doing good they forgot about the hardcore and instead went for the new money . The loyalty for Harley is not there this time as new money will sell a bike at the drop of a hat . This is recreation ( key word here ) for most of Harleys riders and not a lifestyle . I know guys like myself that still have our first Harleys ( I have a 48 and a 76) because to us it is a lifestyle . I think Harley forgot about us but guess what We did not forget . As Sonny Barger said in his book . " I think we really missed the boat in the 70"s by not switching over to Honda's . " Coming from a man like Sonny I think that speaks volumes about Harleys future . I hope they do get their act together . But with no bike for the younger up and coming riders in their stable Harley may go the way of the Indian or Norton . Still around but a former shell of it's glorious self .

[Ezy Al]

Although the financial situation is difficult to say the least, I firmly believe Harley has the capital and foresight to transition through this crises. They have already announced strategies to reduce the dealer body by about 20% similar to Ford a few years ago and reduce 2010 inventory production by 25-30%, which will also help struggling dealers from having to hold excess inventory. A healthy dealer body is critical in maintaining Harley as a viable company. As a 25 year veteran of the auto industry who has now transitioned to selling Harleys, I see a huge difference in how auto manufacturers and Harley are responding to this environment. These latest cost cutting measures are probably not the last. The average Harley purchaser spends close to $3000 in accessorie­s,clothing etc within the first year of buying their bike. I'm sure GM would drool at that figure. They have a built in advantage with their hardcore enthusiasts and are slowly making headway with the upcoming young bucks and females.
As always, there are no guarantees but when people tatoo your logo on their bodies, that's a powerful branding that few companies can boast of. With careful planning, dedication to servicing the core while appealing to younger and female riders, Harley should make it and be in a very strong position when we get a rebound. Unless we go into complete economic freefall, people will still find a way and a reason to justify spending 10-25k on a life-long dream.

[Reyn Mansson]

The MV Agusta pictured in the story is a 1975-77 750 America - there was no 750 MV in 2008 and the new MV is a thoroughly modern motorcycle.

[WorkingClass]

Harley is a tradition. Hummer is just a fad.

[BronzeOwl]

I agree.

[Joseph Joyal]

Harley has been a poor run company since it was bought by a group of investers. They have made their real profit on T-shirts and chrome goodies made in china.
Harley is a victom of its own making, they tried to seperate there selves from the hardcore riders that keep them alive during hards in the past, they tried to make everything motorcycle Harley.
Their dealers up prices and some still do on motorcycles, could don't deliever what the customer wanted when they wanted it.
The quality of their product suffered when they upped production rates. and had a harstime dealing with the other companies in the motorcycle market.
Harley made many BAD investments in businesses they should of never tried to get into. and they forgot about their core customers.
If H-D fails it is of their own making stupid business practices have brought this on.

[Steve Parker - Huffpost Blogger]

I think their business practices hurt them more than their product. The V-ROD is a world-class (and great-looking) machine and quality for all their bikes has gone up in recent years.
But you're right about the frivolity of trying to be all things to all people with their product offerings ...
Steve

[Fabini]

"What must H-D do now to stem the bleeding of red ink?" If I could answer that, someone at Harley-Davidson and every other red ink company in America would have thought of it first. As said by other posters, we have no purchasing power any more. "It's the economy, stupid."

But I will give my 2¢. Harley needs to diversify into smaller displacement bikes and scooters. They should also look into micro cars. Yes, micro cars. Each product needs to be well made and have high reliability. They need to back this up with a more diversifies retail network. Harley-Davidson has always been for people who love "Harleys." That's fine, but it is time to diversify. To survive Harley needs to be for everyone.

[ferrarimanf355]

Smaller displacement? Scooters? lol, diversifying shouldn't mean dilution.

[Steve Parker - Huffpost Blogger]

Those are all interesting ideas. The questions are whether H-D would have the gumption to build smaller bikes and cars (hell, they built golf carts and snowmobiles!) and, especially, if they'll have the money to do anything like that.
My experience has been that there have been plenty of good, smart people at big US companies who saw this depression coming ... unfortunately, they often didn't have the corporate juice to make the execs stand up and listen. And ultimately it was the bean counters which shut down the auto industry ...
Steve

[Professor Ed IHMC]

Harley-Davidson never made golf carts and snowmobiles. Their former parent company, AMF, produced those items sometimes using Harley engines. When Willie G. Davidson and his investors bought the company back from AMF, they set about redoing their product so they could address some of the slop that had gotten in during the AMF debacle. Willie G.'s creation of the Soft Tail and the new V2 engines changed Harley's direction. They became the product one could rely on and invest in. Harley is still improving having doubled their bumper-to-bumper warranties on their bikes three years ago. Harley has introduced a new three wheeler for the rider who will need to ride one or just enjoys a three wheeled motorcycle. Their numbers may be down now, but I believe that H-D will survive.

[Reyn Mansson]

The Harley Brand would not transfer well into micro cars or scooters as it didn't succeed with Buells. The value of the brand name won't translate to a Toyota type consumer. The cost of the R&D would kill them.

The V-Rod has not been a big success, there are plenty of HD stores that don't stock V-Rods or carry a few. About one in 7 Harley Dealers carried Buells.

[freethinking moderate]

The problems with Harley-Davidson are easy to list but to do so will be in vain because the HD cult followers will simply whine about the "haters" not understanding all the while these cultists ignore the true demographic numbers. However, for those who want to buy a well made American motorcycle but cannot since one does not yet exist, here is a thesis on why H-D's problems were easy to recognize and address years ago.....

http://www.goingfaster.com/angst/noharley2.html

[Steve Parker - Huffpost Blogger]

H-D never tried to reconcile their "two" groups of fans: gangster biker-types and Rubbies; both groups got recognition from H-D and I bet more Rubbies pretended to be real bikers than gangsters day-dreamed they were Rubbies ...
Steve

[MilwaukeeDan]

Steve, Harley-Davidson's fate, like anything else recreational, has always been tied to the middle class and the economy, which you well know has been on the decline since the 1980s. And I'm not talking about the fake wealth of the last 20 years, fueled by debt. But it's not just Harley-Davidson, it's local builders of recreational and marine equiptment, they are all laying off potencial customers. The slow death march of the American middle class continues.

[Steve Parker - Huffpost Blogger]

You remind me of a great point. A motorcycle line whose least-expensive bike is around $15,000 is hard to sell to those struggling financially. And because we're ALL struggling that way is why I question the ultimate future and viability of H-D.
Steve

[Reyn Mansson]

The least expensive HD is a base Sportster at $8999

[seawolf77]

I've wayched with admiration how Harley gave good solid slow growth for years as the boomers aged. It was a marketing match made in heaven, aging boomers wanting to recapture their youth with 88 fire breathing horses between their legs. Add to that a remanufacture and redesign of older styles like the Softail which made you feel like you were riding in 1957. The leather. The women. I often wondered why a chain of drive in drive thru bars or restuarant never popped up to service them, how they always had to find a freindly business parking lot for their gatherings. Sadly the boomers are dying off and their assets will be worth peanuts to their kids but lots to saavy investors. iT'S THE DEMOGRAPHICS. I would short Harley as soon as this run is over.

[Steve Parker - Huffpost Blogger]

There are H-D cafés ... there's a huge one on the Las Vegas Strip. and in Manhattan (NY, not Kansas). Probably one in the new museum in Milwaukee, too.
As one who frequents cruise nights all over the country, I'd say one big problem with staging 'bike nights' is that it tends to keep away family-type customers with all their noise and partying. Car cruises tend to be more family-oriented affairs.
You forget H-D always made bikes with low seats for us shorter guys, too ...
Steve