Case 7 Harley-Davidson,
Inc. in 2018
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 HarleyDavidson 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.
This case was prepared by Robert M. Grant. ©2019 Robert M. Grant.
CASE 7
Harley-Davidson, Inc. in 2018   443
The History of Harley-Davidson
From Birth to Maturity, 1903–81
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.
Rebirth, 1981–2008
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
400.0
350.0
Thousands of units
300.0
250.0
200.0
150.0
100.0
50.0
0.0
1900
1920
1940
1960
Year
Source: Harley Davidson annual reports and Harley-Davidson archives.
1980
2000
2020
444 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
Downturn and Readjustment, 2008–14
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:
●●
●●
●●
Restructuring manufacturing operations including reducing capacity and
increasing flexibility to allow a wider range of models to be produced and to
match production to seasonal fluctuations in demand.
Expanding international sales—especially in the emerging markets of Asia and
Latin America. In 2011, Harley opened an Asia-Pacific regional headquarters in
Singapore, and an assembly plant in India.3
Expanding the customer base. To reestablish growth in North America, Harley
needed to broaden its customer base from its core demographic of white males
of 45 years or more. Targeted groups included: women riders, “Harlistas” (Latino
riders), “Iron Elite” (African-American riders), “Harley’s Heroes” (military and
veteran riders), and, most of all, younger riders through new models. During
2013, Harley launched its “Project Rushmore” motorcycles: a restyled range of
touring motorcycles. They were followed by its “Street” models—lighter, sports
motorcycles featuring new, liquid-cooled 500cc and 750cc engines.
Matt Levatich and Harley’s Ten-Year Strategy
In May 2015, when Matt Levatich succeeded Keith Wandell as CEO, Harley was facing
declining revenues as it faced a shrinking US motorcycle market, intensifying international competition, and a rising US dollar. Of particular concern was a decline in
motorcycle ownership among younger Americans. To address these challenges, in February 2017, Levatich and his team announced a 10-year development strategy for the
company. The key theme of the strategy was “Building the Next Generation of HarleyDavidson Riders Globally.” Table 1 summarizes the key components of the strategy.
The Heavyweight Motorcycle Market
Until the financial crisis of 2008–09, the heavyweight segment had been the most rapidly growing part of the world motorcycle market: sales trebled between 1990 and
2008. However, during 2008–10, sales dropped sharply in North America and Europe.
Despite a subsequent recovery, the US market continued to contract during 2015–17.
In North America, Harley was the leader in heavyweight bikes, with over half the
market (Table 2). Overseas, Harley had been unable to replicate this market dominance, despite strong sales in a few markets: it was heavyweight market leader in
Japan, Australia, and Brazil. In Europe, Harley’s market share lagged those of Honda,
BMW, Suzuki, and Triumph.
CASE 7
TABLE 1
Harley-Davidson, Inc. in 2018   445
Harley-Davidson’s 10-year strategy, 2017–27
10-Year objectives
Actions
Build 2 million new HD riders in
the United States
To convert “customer opportunities” into HD customers, HD would use its dealer network to provide more instruction in m-cb riding, expand m-c rental, assure quality
of local events, and expand HD presence in used m-c market.
Grow international business to
50% of annual volume
Add 150–200 dealer points between 2016 and 2020. Increase brand awareness and
loyalty through test rides and dealer events, including “Battle of the Kings” dealer
customization competition.
Launch 100 new high-impact
H-D motorcycles
Annual expenditure on product development to be doubled. New models intended
to expand HD’s customer base while building on HD’s “Key Differentiators”:
Look, Sound, Feel, Personalization, and Connected Riding Experience.
Deliver superior
return on invested
capital for HDMCc
(S&P 500 top 25%)
HD’s initiatives to grow demand and increase the appeal of HD m-cs would help
revenue growth while improvements in operational efficiency would support margins. HD Financial Services would become increasingly important source of competitive advantage.
Grow our business
without growing
our environmental impact
Sustainability initiatives related mainly to waste reduction and improvements in fuel
economy. The launch of an all-electric m-c announced January 2018.
a
Notes:
a
HD = Harley-Davidson;
b
m-c = motorcycle;
c
HDMC = Harley-Davidson Motor Company, the main subsidiary of Harley-Davidson, Inc.
Source: Harley-Davidson, Inc. Investor Meeting, February 28, 2017.
TABLE 2 Retail sales (registrations) of heavyweight motorcycles (601+   cc), 2008–17 (thousands of units)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total market
477
304
260
271
299
306
316
328
311
289
Harley-Davidson
235
174
154
152
161
168
167
165
160
147
Market share (%)
49.3
53.2
54.9
55.7
53.8
54.9
52.8
50.2
51.2
50.7
384
314
301
293
300
282
320
352
392
391
Harley-Davidsonb
45
40
41
44
36
36
39
37
42
38
Market share (%)
11.7
12
12.7
13.7
12.1
12.8
12
10.5
10.8
9.8
25
23
21
21c
25c
27c
30c
32
33
30
8
6
6
7
9
11
12
11
10
9
n.a.
n.a.
n.a.
10
11
11
10
10
10
10
United States
a
Europe
Total market
Asia-Pacific
Harley-Davidson
Latin America
Harley-Davidson
Canada
Harley-Davidson
Notes:
a
Includes Canada for 2008–10.
b
Includes Middle East and Africa a 2005–11.
c
In 2011–17, sales in Japan were between 9,500 and 11,000 each year.
n.a. = not available.
Source: Harley-Davidson 10-K reports.
446 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
The heavyweight motorcycle market comprised three segments:
●●
●●
●●
Cruiser motorcycles: These were “big, noisy, low riding, unapologetically
macho cycles,”4 typically with V-twin, large displacement engines and an
upright riding position. Their design reflected the dominance of styling over
either comfort or speed. For the urban males (and some females), the cruiser
motorcycle, while a practical mode of transportation, was primarily a statement
of style. The cruiser segment was dominated by Harley and most of its competitors in this segment had imitated the main features of the traditional Harley design.
Touring motorcycles: These included cruisers especially equipped for
longer-distance riding and bikes especially designed for comfort over
long distances (including the Honda Goldwing and the bigger BMWs).
These tourers featured luxuries such as audio systems, two-way intercoms, and heaters. While Harley was segment leader, Honda and BMW
had engineered their motorcycles for greater smoothness and comfort over
long distances through the use of multi-cylinder, shaft-drive engines and
advanced suspension systems.
Performance motorcycles: These were based on racing bikes, with high-­
technology, high-revving engines offering speed, acceleration, race-track styling,
and minimal concessions to rider comfort. The segment was the most important
in the European and Asia-Pacific markets, representing 62% and 65% of total
heavyweight bike sales, respectively. It was dominated by Japanese motorcycle
companies, with a strong representation of European specialists, such as Ducati
and Triumph. Harley had competed in this segment during 1993–2010 through
Buell Motorcycles.
Unlike its Japanese competitors, Harley was highly market focused: its Harley’s
models were concentrated on the “super-heavyweight” segment (over 850cc) and
within this on cruiser and touring motorcycles.
Harley-Davidson in 2018
The Brand
Harley-Davidson’s image and the loyalty the company engendered among its customers were seen as its greatest assets. The famed spread eagle signified not just
the brand of one of the world’s oldest motorcycle companies but also an entire
lifestyle with which it was associated. Harley has been described as “the ultimate
biker status symbol . . . a quasi religion, an institution, a way of life.”5 Harley had
a unique relationship with American culture. The values that Harley represented—
individuality, freedom, and adventure—could be traced back to the cowboy and
frontiersman of yesteryear, and before that to the quest that brought people to
America in the first place. As the sole surviving indigenous motorcycle company,
Harley-Davidson represented a once-great tradition of American engineering and
manufacturing.
The Harley brand was central not just to the company’s marketing but also to its
strategy as a whole. The central thrust of the strategy was reinforcing and extending
the relationship between the company and its consumers. Harley-Davidson had long
CASE 7
Harley-Davidson, Inc. in 2018   447
recognized that it was not selling motorcycles: it was selling the Harley Experience,
which formed the central theme in almost all its external communications:
A chill sweeps through your body, created by a spontaneous outburst of pure, unadulterated joy. You are surrounded by people from all walks of life and every corner of
the globe. They are complete strangers, but you know them like your own family.
They were drawn to this place by the same passion—the same dream. And they came
here on the same machine. This is one place you can truly be yourself. Because you
don’t just fit in. You belong.6
Customers and Customer Relations
If the appeal of the Harley motorcycle was the image it conveyed and the lifestyle
it represented, the company’s challenge was to ensure that the experience matched
the image. Harley’s involvement in its consumers’ riding experience was through
the Harley Owners’ Group (HOG), which organized social and charity events.
Employees, from the CEO down, were encouraged to take an active role in attending
HOG shows, rallies, and rides. “The feeling of being out there on a Harley-Davidson
motorcycle links us like no other experience can. It’s made HOG like no other organization in the world . . . more family reunion than organized meeting.”7 Customer
loyalty led to their continuing reinvesting in Harley products: Harley-branded accessories and apparel, customizing their bikes, and eventually trading them in for a new
(typically more expensive) model. About half of bike sales were to repeat customers.
Financial success involved Harley’s repositioning from blue-collar youngsters to
middle-aged and upper-income buyers, many of whom had never ridden a motorcycle
before. Harley’s core demographic was Caucasian males aged 35 and over. The average
age of Harley’s customers was about 50.
Harley’s core customer base was narrow and it was aging, hence the priority given to
widening the brands appeal. In his final letter to shareholders, retiring CEO Keith Wandell reported success in expanding Harley’s customer base. Between 2012 and 2014,
Harley had grown its sales to “outreach customers”: young adults, women, African
Americans, and Hispanics. In addition, its international sales had grown to 36% of total
retail sales.8
The Products
Broadening Harley’s market appeal had major implications for product policy and
design. Ever since its disastrous foray into small bikes during the AMF years, Harley had
recognized that its competitive advantage lay with super-heavyweight bikes. Here it
stuck resolutely to the classic styling that had characterized Harleys since the ­company’s
early years. At the heart of the Harley motorcycle was the air-cooled V-twin engine that
had been Harley’s distinctive feature since 1909. Harley’s frames, handlebars, fuel tanks,
and seats also reflected traditional designs.
Harley’s commitment to traditional design features may be seen as making a virtue
out of necessity. Its smaller corporate size and inability to share R & D across cars and
bikes (unlike Honda and BMW) limited its ability to invest in technology and new
products. As a result, Harley lagged far behind its competitors in the development
and application of automotive technologies: not only did its motorcycles look old-style,
much of their technology was old-style. Among the 238 US patents awarded to Harley
during 2000–2016, a large proportion related to the design of peripheral items: saddlebag
448 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
mounting systems, footpegs, seats, backrests, electrical assemblies, and motorcycle music
systems. Over the same period Honda was awarded 12,228 US patents, Kawasaki 2146,
and Suzuki 740.
Long after other manufacturers had moved to multiple valves per cylinder, overhead
camshafts, liquid cooling, and electronic ignition, most Harley bikes featured air-cooled
push-rod engines with two valves per cylinder. Hence, the launch of the Milwaukee
Eight engine in 2016 was a major event for Harley. Throughout Harley’s entire history
there had been just nine engines powering its heavyweight V-twins. The Milwaukee
Eight’s predecessor was the Twin-Cam introduced in 1999.
Nevertheless, Harley was engaged in constant upgrading—principally incremental
refinements to its engines, frames, and gearboxes—aimed at improving power delivery
and reliability, increasing braking power, and reducing vibration. Harley’s automotive
technology alliance partners included Porsche, Ford, and Gemini Racing.
Harley’s new product development was driven by design rather than by technology.
By 2018, Harley offered 47 different models. Its Product Development Center and
Prototyping Lab were among the most important units within the company. Most of
Harley’s product development efforts were limited to style changes, new paint designs,
and engineering improvements. However, after 2000, Harley accelerated technological
development. Milestones included the liquid-cooled engines, fuel injection, electronic
ignition, a six-speed gearbox, and electric propulsion.
At the heart of the Levatich’s “Ten Year Strategy” for “Building the Next Generation of
Harley-Davidson Riders Globally” was a new range of motorcycles that were radically
different from Harley’s traditional designs. The Street 500cc and 750cc models, introduced
in 2015, were the first of series of lighter-weight, more technologically-advanced motorcycles. In 2019 they would be joined by the LiveWire, Harley’s first all-electric motorcycle.
Additional electric models will follow. Harley will also introduce the Pan-American–an
adventure bike designed for on and off-road use.
Central to Harley’s product strategy was the belief that every Harley rider should
own a unique, personalized motorcycle—hence the offer of a wide range of presale
and postsale customization opportunities. New bikes offered multiple options for seats,
bars, pegs, controls, and paint jobs, with over 7000 accessories, and special services
such as “Chrome Consulting.”
Reconciling product differentiation with scale economies was a continuing
challenge for Harley. The solution was to offer a wide range of customization options
while standardizing key components. Thus, Harley’s broad model range involved
“permutations of four”: four engine types, four basic frames, four styles of gas tank,
and so on.
The Harley product line also covered a wide price range. The Street 500 model was
priced as an entry-level bike, beginning at $6799, less than one-fifth of the price of the
CVO Limited, at $39,349. Table 3 shows Harley’s motorcycle output by product type.
Distribution
Upgrading Harley’s distribution network was central to its resurgence during the 1980s
and 1990s. At the time of the buyout, many of Harley’s 620 US dealerships were operated by enthusiasts, with erratic opening hours, a poor stock of bikes and spares, and
indifferent customer service. If Harley was in the business of selling a lifestyle and an
experience, then dealers played a pivotal role in delivering that experience. Moreover,
if Harley’s target market had shifted toward mature, upper-income individuals, Harley
needed to provide a retail experience commensurate with the expectations of this group.
Harley’s dealer development program provided increased support for dealers, while
imposing higher standards of pre- and after-sales service and requiring improved
CASE 7
TABLE 3
Harley-Davidson, Inc. in 2018   449
Harley-Davidson shipments of motorcycles, 2006–17
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Unit shipments (thousands of motorcycles)
United States
273.2
241.5
206.3
144.4
131.6
152.2
160.5
167
174
170
161.8
144.8
International
76.0
89.1
97.2
78.5
78.8
80.9
87.1
93.4
96.7
95.6
100.3
96.6
Buell
12.5
11.5
13.1
9.5
2.6
0.2
—
—
—
—
—
—
361.6
342.1
316.4
232.4
213
233.2
247.6
260.5
270.7
266.3
262.2
241.7
Sportster and Street
18.5
21.8
20
21.4
19.5
21.3
20.5
19.3
21.0
23.4
23.4
22.5
Cruiser
46.2
43.7
46.4
40.9
41.4
39.2
39.1
39.5
33.8
33.5
35.6
36.2
Touring
35.4
34.5
33.6
37.7
39.0
39.5
40.4
41.2
45.2
43.1
41.0
41.3
Company total
Product mix (%)
Source: Harley-Davidson 10-K reports.
TABLE 4
Harley-Davidson’s dealership network, 2008–17
US
Canada
EMEA
Asia-Pacific
Latin America
2008
686
71
383
201
32
2014
669
69
369
273
55
2017
698
68
398
276
58
Source: Harley Davidson 10-K reports.
facilities. Dealers were obliged to carry a full line of Harley products and accessories
and to offer services that extended beyond service, repair and financing to include
test ride facilities, rider instruction classes, motorcycle rental, consulting for customization, insurance services, and vacation packages. Over 90% of Harley dealerships in the
United States were exclusive: most other motorcycle manufacturers sold through multibrand dealerships.
Dealer services were a continuing strategic priority for Harley. Its Retail Environments Group established a meticulous set of performance standards and guidelines
for dealers that covered every aspect of managing the showroom and interacting
with actual and potential customers. Harley-Davidson University was established to
“enhance dealer competencies in every area, from customer satisfaction to inventory
management, service proficiency, and front-line sales.”9
Expanding international sales required Harley to extend its dealer network into
countries where it had little or no distribution presence. Yet, as Table 4 shows, Harley’s
dealership network outside of North America was still sparse even in 2018.
Other Products and Services
Sales of parts, accessories, “general merchandise” (clothing and collectibles), and
financial services represented 32% of Harley’s total revenue in 2017 (Table 5)—much
higher than for other motorcycle companies. Clothing sales included not just traditional riding apparel but also a wide range of men’s, women’s, and children’s
leisure apparel.
450 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
TABLE 5
Harley-Davidson’s nonmotorcycle sales, 2005–14 ($million)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Parts and accessories
858.7
767.2
749.2
816.5
836.7
873.1
875
862.6
842.6
804.3
General merchandise
313.8
282.2
259.1
274.1
282.5
295.9
284.8
292.3
284.5
262.7
Financial services
377.0
494.7
682.7
649.4
650.1
641.6
660.8
686.6
725.0
732.1
Source: Harley Davidson 10-K reports.
The “general merchandising” business included licensing of the Harley-Davidson
name and trademarks to third-party manufacturers of clothing, giftware, jewelry,
toys, and other products. Licensing revenues were $35.5 million in 2017, down from
$46.5 million in 2015. To expand sales of licensed products, Harley opened “nontraditional” dealerships: retail outlets selling clothing, accessories, and giftware but not
motorcycles.
Manufacturing
Since the 1981 buyout, Harley-Davidson had been upgrading its manufacturing
operations through new plant and equipment, automation, enterprise resource
planning, total quality management, JIT scheduling, CAD/CAM, and participative
­decision-making.
Despite the constant development of its manufacturing facilities and operational
capabilities, Harley’s low production volume relative to Honda and the other Japanese
manufacturers imposed significant cost disadvantages, especially in the purchase of
components.
Harley’s capacity for efficiency was also limited by its dispersed manufacturing
operations: engine manufacture in Milwaukee, Wisconsin and assembly in York,
Pennsylvania, and Kansas City, Missouri. During 2009–14, Harley reorganized its manufacturing operations, combining the two Milwaukee-area powertrain plants into a single
facility and merging the separate paint and frame operations at York, Pennsylvania. Job
losses and the introduction of more flexible employment arrangements and working
practices created frictions with Harley’s labor unions.
Competition
Despite Harley’s insistence that it was supplying a unique Harley experience, its success
inevitably attracted competitors. The clearest indication of direct competition was imitation: Honda, Suzuki, Yamaha, and Kawasaki had long been offering V-twin cruisers
styled closely along the lines of the classic Harleys, but at lower prices and with more
advanced technologies (Table 6). In competing against Harley, the Japanese manufacturers’ key advantage was the scale economies that derived from vastly greater volume.
However, despite their price premium, Harley-Davidson motorcycles benefitted from a
lower rate of depreciation than other brands.
Almost all of Harley’s competitors were, compared to Harley, highly diversified.
Honda, BMW, and Suzuki were important producers of automobiles, and more than
CASE 7
TABLE 6
Harley-Davidson, Inc. in 2018   451
Recommended retail prices for V-twin, cruiser motorcycles, 2018
Model
Specifications
Price ($)
Harley-Davidson
Street 750
Liquid-cooled, OHC, 8-valve, 750cc engine
7599*
Sportster Superlow
Air-cooled, 4-valve, 883cc engine
8699*
Softail Slim
Air/liquid cooled, 8-valve 1746 cc engine
15,899
Fat Boy
Air/liquid cooled, 8-valve 1746 cc engine
17,699
Honda
Shadow Phantom
Liquid-cooled, 6-valve, OHC, 745cc
Fury
Liquid-cooled, 6-valve, OHC, 1312cc
7799
10,449
Suzuki
Boulevard M50
Liquid-cooled, OHC, 805cc
Boulevard C90T
Liquid-cooled, OHC, 1462cc
8649
12,949
Kawasaki
Vulcan 900 Classic
Liquid-cooled, 8-valve, OHC, 903cc, belt drive
7999
Vulcan 900 Custom
Liquid-cooled, 8-valve, OHC, 903cc, belt drive
8499
Bolt
V-twin, OHC, 4-valve, air-cooled, 942cc
7999
Stryker
OHC, 8-valve, liquid-cooled, 1304cc
11,899
Victory Octane
4-valve, OHC, liquid cooled, 1200cc
9999
Victory Vegas 8-Ball
8-valve, air-cooled, 1731cc
Indian Scout Sixty
Liquid cooled, 655ccs
Indian Chief
Liquid cooled, 1644ccs
Yamaha
Polaris
12,999
8999
18,499
Note:
*Price is for the base model which is black, other colors extra.
one-third of Yamaha’s turnover came from boats and snowmobiles. These companies
could share technologies, engineering capabilities, distribution, and brand awareness
across their different vehicle divisions. Moreover, sheer size conferred purchasing power.
Imitators of Harley’s retro-styled, V-twin cruisers were not only the Japanese motorcycle companies but also domestic competitors—notably Polaris which produced Victory and Indian motorcycles.
Appendix Table A2 compares the financial performance of leading motorcycle
companies.
452 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
The Future
During the first half of 2018, Harley’s revenues, net income, and margins continued to
decline. Its problems were principally in the US where sale volume was 8.7% lower
than the first half of 2017; international sales volume grew by 0.5%.10 Overseas, Harley
sought to expand sales through adding new dealerships and building an assembly
plant in Thailand. At home, Harley continued its quest to broaden its rider base. Among
its new models, the most radical was the electric motorcycle, to be introduced in the
latter part of 2019. Moreover, Harley planned to “increase its investment in electric
motorcycle technology, products and infrastructure in 2018 and beyond. . . [which] will
help accelerate the development of this market and assure its leadership in electric
motorcycles.”11 In March 2018, it invested in Alta Motors, a California-based developer
of electric vehicles.12
In the face of challenging market conditions, Harley announced the closure of its
Kansas City plant. Production would be transferred to the York, PA plant, and the
company would incur a $54 million restructuring charge. However, Harley remained
committed to its strategy to “build the next generation of Harley-Davidson riders
globally.” On July 30, 2018, Harley announced accelerated measures to develop new
models, broaden market reach with “a multichannel retail experience,” and strengthen
its dealer network.
Exploiting the potential offered by emerging markets was particularly challenging.
A major dilemma for Harley was the extent to which it should seek to replicate the
same brand image and the same Harley Experience that had been so successful in the
United States, or whether it should adapt to the physical and cultural differences of
each national market?
A Milwaukee blogger summarized Harley’s dilemma:
So what does Harley do? One tack would be to stay focused on what it does best: big
bikes. While that strategy may make sense on some fronts (focus on what you know,
stay loyal to the brand identity, etc.), that approach will mean greatly reduced growth
prospects and could doom it if the current consumer spending environment holds out
long term. And meanwhile its core audience just gets older.
Or it could do what people have been saying what it should do for years: Make
smaller, more affordable bikes. That’s harder than it sounds, as it would force Harley
to compete against the Japanese manufacturers on their own turf. But if the market is
moving away from Harley, does it have a choice?13
As for Harley’s venture into electric motorcycles, this too attracted skepticism:
“Investment in the tech will be funded by a dying business, and they are basically
starting from scratch. Either they shrink to demand and be what they’ve always been
or they sell out and pursue some weird future-mobility business model that doesn’t
promise anything—even if they were capable of pulling it off.”14 Bloomberg Businessweek summed up HD’s dilemma as follows: “It’s searching for a middle ground, one
that will let it reach into the future without letting go of the past. If there is such a path,
it must be pretty narrow.” 15
CASE 7
Harley-Davidson, Inc. in 2018   453
Appendix: Financial Data
TABLE A1
Selected Items from Harley-Davidson financial statements, 2005–14 ($million)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
5594
4781
4859
5311
5581
5900
6229
5995
5996
5647
R&D
164
143
136
145
137
152
138
161
172
175
Selling, administrative, and
engineering expense
985
979
1020
1061
1111
1127
1160
916
866
907
1029
197
559
829
1000
1154
1281
1155
1048
891
83
(117)
181
268
259
283
278
280
275
275
9
(22)
(90)
(45)
(46)
(45)
(4)
12
29
31
1034
178
390
792
961
1114
1283
1150
1023
863
655
(55)
146
599
624
734
845
752
692
521
594
1630
1021
1526
1327
1067
907
722
759
687
1378
1436
1080
1168
1344
1774
1917
2053
2076
2105
Accounts receivable, net
296
269
262
219
255
261
248
247
285
329
Inventories
401
323
326
418
428
425
449
585
499
538
Total current assets
5378
4341
4066
4542
4216
3989
3948
3977
3853
3884
Property, plant, and
equipment, net
1094
906
815
809
819
842
883
942
981
967
Total assets
7829
9155
9430
9674
9513
9405
9528
9972
9890
9972
Current portion of
long-term debt
0
1332
0
399
682
1176
1011
838
1084
1127
Accounts payable
324
162
225
255
248
240
197
235
235
227
Total current liabilities
2604
2268
2013
2698
0
2510
2389
2747
2862
3158
Long-term debt
2176
4144
2516
2396
2936
3417
3762
4832
4666
4587
Post-retirement
­healthcare liability
274
264
254
268
258
216
203
193
173
118
Stockholders’ equity
2116
2108
2207
2420
2558
3009
2909
1839
1920
1844
Operating activities
2685
609
1163
885
801
977
1147
1100
1174
1005
Capital expenditures
(2232)
(116)
(170)
(189)
(189)
(208)
(232)
(259)
(256)
(206)
Total investing activities
(2393)
(863)
145
(63)
(261)
(569)
(745)
(915)
(392)
(562)
Income statement items
Net sales
Operating income
—of which:
Financial services
Interest income/(expense)
Income before taxes
Net income
Balance sheet items
Cash
Finance receivables
Cash flow items
454 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
TABLE A2
Comparative financial data for Honda, Yamaha, and Harley-Davidsona
Honda Motor Co.
Yamaha Motor Co.
Harley-Davidson
Triumph Motorcycles
2017
2016
2017
2016
2017
2016
2017
2016
119.97
131.3
14.31
13.28
5.65
6.00
0.54
0.43
14.7
15.23
8.95
8.02
4.92
5.27
0.54
0.43
Operating income ($bn)
7.5
5.9
1.29
0.96
0.89
1.05
0.01
0.01
Net income
after tax ($bn)
5.8
4.1
0.87
0.56
0.52
0.69
0.01
0.01
Gross margin (%)
22.4
22.3
27.5
26.8
42.3
43.0
12.0
13.9
Operating margin (%)
5.94
4.45
8.93
7.22
15.75
17.5
1.43
2.17
Net margin (%)
4.85
2.78
6.08
4.21
9.2
11.5
1.22
2.44
Operating income/
total assets
4.43
2.76
10.57
8.19
8.92
10.62
2.31
2.97
Return on equity (%)
8.97
5.77
17.59
12.31
28.20
35.93
11.3
19.3
Inventory turnover
10.26
11.12
5.42
5.09
10.50
12.0
5.25
4.51
Debt/equity ratio
0.53
0.53
0.27
0.27

2.49
2.43
0.64
0.73
Capital
­expenditure ($bn)
5.04
5.89
0.42
0.45
0.21
0.26
n.a.
n.a.
—of which
motorcycles ($bn)
0.57
0.65
n.a.
n.a.b
n.a
n.a
n.a.
n.a.
R&D expenditure ($bn)
5.71
6.39
n.a.
n.a.
0.18
0.17
n.a
n.a.
11,237
10,529
5400
5200
241
262
63
56
Revenue ($bn)
—of which
motorcycles ($bn)
Motorcycles shipped
(units ,000s)
Notes:
a
Honda’s financial year is to March 31; Triumph’s is to June 30. Yamaha and Harley-Davidson have financial years that end on December 31.
b
n.a. = not available.
Sources: Company annual reports.
Notes
1. “The Company,” http://www.harley-davidson.com/
content/h-d/en_GB/company/becoming-a-dealer/thecompany.html, accessed March 19, 2018.
2. Harley produced sports motorcycles under the Buell brand
between 1990 and 2009. Harley acquired MV Agusta, an
Italian manufacturer of premium, high-performance motorcycles in July 2008. On August 6, 2010, Harley sold it back
to its previous owner for €3 ($3.90).
3. The Indian plant was its second overseas assembly plant;
the first was established in Brazil in 1999.
4. G. Strauss, “Born to be Bikers,” USA Today (November 5, 1997).
5. M. Ballon, “Born to be Wild,” Inc. (November, 1997): 42.
6. Harley-Davidson, Inc., annual report (2000).
7. “Welcome Letter,” Blackstone Valley HOG Chapter, http://
www.blackstonevalleyhog.com/HTML/Welcome.php,
accessed July 20, 2015.
8. “Letter to Shareholders,” Harley-Davidson 2014
annual review.
9. Harley-Davidson, Inc., “Knowledge is Horsepower,”
annual report (2003).
10. Harley-Davidson, Inc. Second Quarter Update (July
24, 2018).
11. Harley-Davidson, Inc. 10K Report for 2017: 24.
12. https://www.bloomberg.com/news/articles/2018-01-30/
harley-davidson-is-making-an-electric-motorcycle-afterlivewire, accessed March 18, 2018.
13. brewcitybrawler.typepad.com/brew_city_brawler/2009/01/
screw-it-lets-ride-is-not-a-strategy.html, accessed March 18, 2018.
14. https://www.bloomberg.com/news/articles/2018-01-30/
harley-davidson-is-making-an-electric-motorcycle-afterlivewire. Accessed May 20, 2018.
15. “Harley-Davidson Needs a New Generation of Riders,”
Bloomberg Businessweek, August 27, 2018.

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