How the Harley blew it: 10 critical mistakes that will affect it both now and in the next boom cycle

Nothing, perhaps, illustrates the recklessness and incompetence that’s reigned at Harley-Davidson over the past several years than a glimpse at the operating income from last year at this point to this year at the same point for Harley-Davidson Financial Services (HDFS).

HDFS operating income YTD

As you see, in this particular area HDFS turned completely upside down to the profit it made in 2008 (which was lower than it was in 2005).

While this may appear to be the result of the recession, it’s not—and neither is the lower shipments:

H-D shipments YTD

While both the recession and tighter credit requirements affected sales for a year, growth had been slowing since 2003 and had peaked in 2006.[i] The boom, then, was over for Harley at the end of 2006.[ii] By 2007, Harley’s shipments had dropped by 2.7% at the same point in the year. In 2008 they had dropped by 9% and this year, shipments were down 17.5%.

Growth had slowed for the Big Four as well but the boom persisted for smaller marques. And it persisted for motorcycles that were neither cruisers, customs or tourers. Those weren’t the kind of bike Harley made. It was, however, the kind of bike Buell made. The tiny subsidiary enjoyed an erratic growth while its huge brother was beginning to slide; Buell had 10% increase in shipments in 2006 with a 7.6% drop in 2007 and almost a 14% increase in 2008.

This indicates the Harley line had hit market saturation before the recession hit, while Buell—though shipments were miniscule—was still growing.

Iow, the recession and newborn bust cycle exacerbated rather than caused Harley’s troubles now—and in the future. In fact, the bust and recession reveal the mismanagement of one of America’s most famous brands.

Ten mistakes Harley-Davidson made

Five of them were bad business decisions—and some of them were shared by many corporations over the past few years. Some were simply errors in judgment—something shared by many businesses large and small:

  • Subprime loan policy and dependency on securitization.
  • Locking itself into a too-rigid conception of the brand;
  • Buying MV Augusta too late then selling it as a temporary fix.
  • Too slow to recognize the boom cycle and too slow to take advantage of it.
  • Almost everything they did about Buell from first to last.

But five of them relate to a failure to understand motorcycling, which, after all is its core business:

  • Mismanaging the dealer relationship;
  • Misunderstanding how Harleys became Harleys;
  • Inability to translate the brand for a new generation;
  • Failure to produce an off-road bike;
  • Failure to understand the Buell brand and how to position it;

These problems boils down to one simple thing: they treated Harley as if it was a business like any other.

Over the next few entries, we’ll look more closely at where Harley went wrong—and what it can do to regain market share in the future.


[i] And that growth was inflated due to H-D’s channel-stuffing and winter-financing that inflated 4Q growth and, when the boom ended, had an increasingly severe effect in 1Q and then 2Q shipments.

 

[ii] And then only because H-D was still channel-stuffing and offering winter financing and free storage to dealers. This inflated the number of shipments and making it appear to investors and stockholders that H-D was doing better than it really was. The overflow shipments from the prior year then deflated shipments in the first quarters—and then in the second as demand slowed.

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Explore posts in the same categories: Culture, Harley-Davidson, History, Uncategorized

6 Comments on “How the Harley blew it: 10 critical mistakes that will affect it both now and in the next boom cycle”

  1. Pitterpatter Says:

    This is so far off-topic that I expect it to be pulled immediately, but I thought it was fun. Here goes:

    Channel-surfing the other day I saw World Series of Poker on ESPN (I think). The current chip leader is a logger from Maryland named Darvin Moon. The camera occasionally focuses on his wife, Wendy, as she watches from the audience.

    Just an interesting coincidence of names.

  2. wmoon Says:

    Odd that. No relation–and certainly no poker ability here : )
    W.

  3. Gunslinger Says:

    What I believe is missing in this equation is the effect the financial services division will have on the used HD motorcycle market. If HDFS repossessed the motorcycles that backed the sub prime loans they would have to rid themselves of them in order to recoup some of the loss. That’s provided the bikes weren’t trashed by the distressed owners. In all probability these bikes would be sold off at auction. At auctions, especially finance company auctions in most situations they will get what they can however there may be a minimum bit. If the bid is not met the bike would revert to the finance company but that becomes self defeating as it is trying to get rid of bike in the first place. The auction prices are most always under market. In a nut shell the one time ‘investment’ in buying a HD that will not lose a great deal of value over time just got eraced. It is interesting that HD without openly admitting it entered the used bike market and like everything else destroyed it by flooding it with repossessions. An acquaintance of mine who visits the HD auctions ‘bought right’ two 100th annaversary bikes plus a 105 one. So much for exclusivity. As I like to say and it seems quite true these days ‘…hogs get fat and pigs get slaughtered…’

  4. gymnast Says:

    Wendy, your reports on the Harley Davidson Motor over the past couple of years have been outstanding. Once again you present the information that the analysts willfully ignore.

    Chrysler, bankrupt. General Motors, bankrupt. Will Harley Davidson, a subject subject of hundreds of MBA research papers on the way up, receive equal attention on it’s way down? I kinda’ doubt it. Look at the price of used Harley Davidson “big twins” as winter goes on and one will have a pretty good idea of the state of the economy and the future of The Motor Company.

    Too bad that Harley didn’t buy the rights to the Volkswagon GX3 instead of burning $100,000,000 on MV Agusta. The GX3 would have been a far better and more practical product than Harley’s trike.

    Harley’s dependence on yesterdays demographic is having consequences that demonstrate how far out of touch HD is with today’s reality.

  5. vstromer Says:

    I have been saying for years that at some point the used market will overflow with Harleys, and priced at what they are actually worth. That is, not priced based on the unrealistic prices at which new bikes were selling. Looks like that time is near, if not here.

  6. blkharleyrider Says:

    I agree that Harley was mismanaged under the old ceo but the new one Keith Wandell has a whole new outlook it just takes time to change things


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