Harley Davidson turnaround strategies S Lioukas

“It’s one thing to have people buy your products. It’s another for them to tattoo your name on their bodies.”

A peek at Harley’s History..  1903: Founded by William Harley & William, Arthur, Walter Davidson  1906: First factory in their hometown, Milwaukee (50 bikes)  1909: Introduction of first 2-cylinder, V-twin engine (characteristic Harley sound)

History peek..  1953: Harley, the only US manufacturer (Indian closed, Excelsior vanished after Great Depression)  1959: Still market leader  British imports 49% US market  Honda enters the US market  1970s: Harley’s market share decline by over 80%  Honda market leader in US heavyweight market

History Peek..  1981: Leveraged buyout by H-D senior managers ($81 million, most of it as debt)  Severe recession and high interest rates in US worsen situation  1982: Sales down by more than 1/3 from 1979  $60 million loss in two years - 30% office staff and hourly workers dismissed

History peek..  1983: Transformation begins  Visit Japanese automobile plants and study TOYOTA’s JIT system  Implementation of MAN (Materials as Needed) production-scheduling program → reduce inventories/costs and improve quality control  New spirit of cooperation between workers and management  US government tariff (49%) on Japanese heavyweight motorcycles imports (anti-dumping laws)  1986: Harley goes public

History Peek..  : H-D’s heavyweight market share expands from 30 to 60%  revenues increase by 80% US (70% international)  1990s: Continuous growth of heavyweight market and further increase in Harley’s share  1996: International expansion  1998: Acquisition of Buell Motorcycle Company  2003: sales, 8x increase from 1983

Main Competitors  Japanese companies: Honda, Yamaha, Suzuki (based on their world-wide market share)  Both offer products that sell in international markets compared to Harley  Harley products are more expensive but are known for service and stability  Competitors are more diversified and less vulnerable to industry fluctuations.

Strategy  Strong established Brand Name/Brand Image.  H-D does not just sell motorcycles; it offers its customers a whole new lifestyle and experience.  “The fact is we must focus both our effort and our investment on the H-D brand, as we believe this provides an optimal path to sustained, meaningful, long-term growth” Keith Wandell, CEO  Abandon reliance on advertising. Instead, H-D established HOG (Harley Owners Groups) Through HOG (sponsored by company and dealers), owners of Harleys socialize and ride with each other which gives them a sense of community Result: Brand more valued and customer attraction

Harley Owners Group (H.O.G).  Harley-Davidson established the Harley Owners Group in 1983 in response to a growing desire by Harley riders for an organized way to share their passion and show their pride.  As the '90s continued, H.O.G. hysteria spread into Asia, including new chapters in Singapore and Kuala Lumpur, Malaysia.  By 1999, worldwide membership had hit the half-million mark  Today, more than 650,000 members make H.O.G. the largest factory-sponsored motorcycle organization in the world, and it shows absolutely no signs of slowing down.

With the crisis the market collapsed …  In Europe and USA the market for heavyweight motorcycles fell by 40% between 2007 and 2010 from units to units  Harley-Davidson sales revenue fell by 21% over the same period Net profits collapsed from US$ 933 million in 2007 to a loss of US$ 55 million in Results started to pick up again in 2010 after heavy restructuring.

Harley - Davidson Financial Results

The company takes decisive turnaround and recovery actions…  Restructuring actions taken: Cost Efficiencies Asset Retrenchment Focus On Core Activities Building The Future Management Change

Cost cutting (1)  Consolidation of production operations Cut production by 26% (less than the market drop) Consolidation included 2,000 job losses, representing a 22 per cent headcount reduction Vehicle test facilities also were consolidated from three US locations to one  Outsourcing transfer distribution of parts and accessories to a third party provider

Cost cutting (2)  Major longer term cost efficiency initiatives Lean product development processes ○ to reduce the time to market by 30 per cent ○ better capture customer insight ○ and simultaneously handle more product development initiatives Structural and operating system changes across all the firm’s manufacturing facilities ○ To allow all models to be produced interchangeably on a single production line ○ New 7-year labor agreements, with seasonal adjustment, use of flexible workers up to 20-30% of plant employees

Asset retrenchment In October 2009 Harley-Davidson announced that it would shut down its Buell Motorcycle Division – a shock to many of its customers and employees! Divests MV Agusta, the Italian sports motorcycle manufacturer, that had been acquired just a year earlier for $109 million, at undisclosed sum - resold to the previous owner

Focus On Core – Building the future (1) Deletion of a number of slower selling models, but combined with introduction of new models ten new models were introduced from 2009 to 2009, e.g. sports “Seventy-two” model with 1970s styling features All new models based on incremental development of existing platforms (to reduce costs!) targeting customers who were loyal to the brand’s differentiated proposition of traditional engineering, heritage and retro styling

Focus On Core – Building the future (2)  Launch of models orientated to the young adult and female segments  Steps to raise export sales from 33 to 40 per cent of production output by 2014 New regional headquarters for the Asia Pacific and Latin America regions to support sales, marketing and dealer development activities in these markets The first H-D dealership opened in India in This was followed by an assembly facility in 2011 to allow local assembly of motorcycles from components manufactured in the firm’s US plants, reducing tariffs and making the products more accessible.

Market Development :expand sales to female riders. BRAND NEW!!!

Management Change  A new CEO is appointed from outside the firm Keith Wandell, from Johnson Controls, becomes the new CEO  Appointment of a new CFO who had joined Harley-Davidson six years previously and brought 25 years of financial leadership experience  Two further senior internal promotions of executives possessing significant experience in the operations and product development functions  Other changes to the TMT were made subsequently

The results of the Restructuring (1)  Marked results shortly after the restructuring Revenue is increasing from 2% in 2010 to 9% in 2011 Returns to profitability from 2009, against a declining market ○ European and USA markets continue to decline by 9% Market share in the U.S., their biggest market, increased ○ to 54.9% in 2010, from 53.3% in 2009, and 45.4% in 2008

The results of the Restructuring (2)  Return to restructuring Restructuring activities have saved Harley- Davidson over $217 million per annum in 2011, increasing to $ 315 per annum from 2014 High return to a total “investment”: one-time costs of the restructuring was estimated to $ 500 million  Increase in brand loyalty In 2011, 65% of people that purchased a new Harley- Davidson motorcycle in the U.S. had owned a Harley-Davidson previously in their lifetime

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