Who’s Managing the HOG Farm? – (Harley-Davidson) – #25

The President of Harley in the 1980’s was assigned to keep the company from financial ruin and to keep one of America’s oldest and strongest brands alive. He passed recently at the age of 90, but 40 years ago the Marketing and Financial Management folks kept insisting that it was the Japanese that were causing the problems that Harley was experiencing. Vaughn Beals decided to ask the four questions covered in Blog #2 and found out that “The Problem Was Us” in the form of inefficient factories and slipshod quality.

He immediately declared war on defects, slashed production costs and aimed marketing at a colossal opportunity: Baby Boomers, which they had totally missed. These Boomers were reaching middle age, were itching for a way to feel young and rebellious again, if only on weekends. As part of the effort to attract Customers who didn’t fit the old Hells Angels image. Harley made the motorcycles more comfortable for both the rider and the passenger on the back seat. It reduced vibration on touring bikes by mounting engines on rubber. Mr. Beals was also a good judge of value as he paid $.25 a share to buy Harley from AMF due to the bowling-ball manufacturer not wanting to invest in new engines for Harley. He believed, and had Harley Managers and Investors help raise $80MM that paid a healthy return of $11.00 a share as Harley went public in 1986, and today (10/31/18) it is trading at $37.76.

Motorcycle buyers were invited to join local Harley Owners Groups, or HOG’s, featuring group rides and instant camaraderie. As a Regional VP, I was on a review trip with Bill Lane Jr. Chairman of the Board of GBC Inc., when he spent an entire dinner telling me about how Mary (wife) and he rode their Harley to a diner on Hwy. 41 to meet with a group of fellow riders to have breakfast and go riding. Bill claims that they did this every Sunday which led me to the question of why? His answer was sharp and very direct – the Harley group was the only time during the week, in which he didn’t have to play the role of a major executive of a Fortune’s 1000 company. The group frankly didn’t give a damn, except for the fact, that Mary and Bill were great people that fit into the group, and they loved their HOG.

Today, Harley is again facing problems in slow domestic Sales and they are seeking new global markets. A few weekends ago, I was driving to Wisconsin to see the fall colors change, and I was doing my usual thing in watching a series of groups driving Harley’s pass me. My observations were as follows: A bunch of long-haired (gray) tattooed elders with women on the backs of bikes clearly showing the same features. The backs of the leather jackets highlighted a variety Club names, but in three or four groups I only saw a few if any persons representing the Millennial’s or Z-generations. Therefore, is Harley late again, as it seeks new markets, outside of the domestic market? The domestic segments are represented by demographic groups that continue to ride manual bicycles and scooters, live with parents, don’t own cars, use Uber and Lyft, buy furniture at IKEA, and will not invest in a home, rent everything, and have no appreciation for value and the spending that approach requires. Where would they park the Harley?

This is where Harley got into trouble with the present global situation and the administration. Management simply has no contingency plan for a global shift in regards to U.S. policies. On the surface, it is difficult to understand “why” Harley would be closing their Kansas City Plant and moving production to Thailand, but in support of my citing that they have no plan as well as their belated comments supporting their logic, it is clear that Harley is experiencing a situation that results in difficulties no-matter what. Here are some facts:

  1. In seeking new markets, Harley was hit with a tariff on motorcycles by the EU – raising the present rate from 6% to 31% on September 1st. This meant a price increase of $2200 per bike to EU dealers – when normal dealer markups were added – the price level would be a deal breaker.
  2. Harley had to move operations abroad to avoid paying an additional $90-$100MM a year in tariffs. They are already paying $10-20MM each year due to increased tariffs on metal.
  3. Harley’s marketing needs a new domestic as-well-as international market outlook and to start identifying new markets that will bring excitement and profitability to the Harley brand.
  4. Harley needs to appoint a PR Agency who’s main responsibility will be to have timely answers and explanation of strategy. Close coordination between Marketing and the PR Agency will have to be on-going and intense.
  5. Studies have to be conducted on competitive activity as well as gender trends and demographics. Customers (Dealers) have to be consulted and asked the following questions:
    1. How does Harley help you make money NOW?
    2. How can we help you make more money NOW and in the FUTURE?
    3. How much money have you made with Harley products on annual basis-in the last 3-5 years?
    4. How much money do your competitors make? Who are your top 5 motorcycle competitors?
  6. Answers to the above questions from Domestic as well as International Dealers on a Regional and Country basis, should provide enough data to start a preliminary planning process which is outlined in BLOG #10
  7. Unions need to be informed on a timely basis, so that they are not caught by surprise on matters such as closing of the Kansas City Plant while opening a new plant in Thailand. They want to know whether Harley is committed to
    manufacturing in the U.S.? Have they lost their veracity, allure and effect?
  8. Dave Cottalier V.P. U.S. Sales needs to make it very clear that motorcycles produced for the U.S. market will always be produced in the U.S.
  9. Relationships with the White House should be at a level to avoid any twitter exchanges between the President and the current Harley CEO whether real, as was the case of the twitter from the White House. or the fake news one,
    which disparaged the President’s understanding of trade and economics and was attributed to Harley’s CEO. Our President’s love affair with Harley as an “American Icon” has taken the form of a bad breakup within a matter of months.
  10. A strong PR firm could have avoided all this bad publicity – they could have gotten the message out that Harley was not replacing the Kansa City plant with a plant in Thailand. They were consolidating domestic manufacturing in their York, PA plant due to a slowing of domestic demand and excess capacity.
    The 800+peopleaffected by this plant closing will be out of a job if they don’t relocate to York, PA. If the Union and the whole KC network was involved early in the planning process, the transition might have happened in a smoother manner.
    “It Starts and Ends With Management” applies to the fact, of where were they when the favorable tide was there? This situation would have demanded future planning with worst “case” downside contingencies aimed at protecting as many employees as business conditions allowed. We hope that a plan such as we recommend (BLOG #10) was in place. How about new and innovative products – has Harley introduced any during the last few years? We hope to hear from our subscribers as they are in a position to provide real-time examples of Harley’s product array.

The lesson from this Blog rests in the fact that Harley had some excellent years due to the role of Demographics working in their favor both in domestic and key international markets. Over 50 years of Management neglect in their responsibility to the Customer and their Employees has finally hit them – as it has a series of Companies on a global basis. Basic need for a plan is evident, growth in revenue and profitability is a must, new products and innovation are the roots for continued growth. We can and should use Harley-Davidson as an example of various successes such as the years that Vaughn L. Beals was the CEO and equally focus on the years of less success that recently really affected the company. What Management has to identify and accept is the fact that Vaughn was right in coining the statement ”The Problem Was Us”. In addition, Harley Management has to learn not to fight the White House – ask for help and provide the support needed. Most importantly, try to get all the favorable publicity you can generate. A good PR Agency, will keep the positives working for your business in so many ways.

One thing that Harley shouldn’t change: The sound from the tailpipe. “It makes my heart thump a bit” every time I hear the sound. Featuring that capability could only enhance the brand.