04 Harley Davidson 1996 1era Evaluacion

5/14/2018 04 Harley Davidson 1996 1era Evaluacion

1/18

CASE23HARLEy-DAVIDSON-1996Fred R. David, Francis Marion UniversityCharles Shrader, Iowa State UniversityJoan Twenter, Iowa State University

http://www2.interpath.net/interweb/skybox/cardprod/c_harley/pages/main.htmlFrom 1985 to 1995 Harley-Davidson (414-342-4680) took itself from the brink of detion to becoming one of the most admired companies in the world. HeadquarterMilwaukee, Wisconsin, Harley is now winning the battle among the heavyweight mcycle competitors-Honda, Kawasaki, Suzuki, and Yamaha. Harley has gained a 6cent share of the heavyweight motorcycle market share in the United States and 15 pinternationally. However, the company has an unusual-and big-problem: Becauslack of plant capacity, Harley cannot meet demand for its motorcycles. Customers wwide who order a new Harley must wait at least a year for delivery. Dealers are upsehave no inventory. Consumers are upset. Harley plans to increase motorcycle shipfrom 95,800 units in 1994 to more than 100,000 units annually by 1995, but analysttend this planned increase is still far below demand.

The Harley-Davidson corporate vision statement is as follows:Harley-Davidson is an action-oriented, international company-a leader in its commitmentcontinuously improve the quality of profitable relationships with stakeholders (customers,ployees, suppliers, shareholders, governments, and society). Harley-Davidson believes theto success is to balance stakeholders' interests through the empowerment of all employersfocus on value-added activities.

At Harley-Davidson, we don't run our business on a quarter-to-quarter basis. We adon't run our business for Wall Street, ourselves, or even our customers. Our focus has band will continue to be on long-term growth, which we believe is attainable only by balancthe interests of all our stakeholders. This way we all grow. Together.

The Harley-Davidson story began in 1903 when William Harley, age 21 and a draftsma Milwaukee manufacturing firm, designed and built a motorcycle with the help ofDavidson brothers: Arthur, a pattern maker; Walter, a railroad mechanic; and William,maker. At first the brothers tinkered with ideas, motors, and old bicycle frames. Legenit that their first carburetor was fashioned from a tin can. They were finally able to m3-horsepower, 25-cubic-inch engine and successfully road-tested the first motored c

Operating out of a shed in the Davidson family's backyard, the men built and solmotorcycles. Production increased to eight in 1904, and in 1906 the company's firsting was erected on the current site of the main offices inMilwaukee. Harley-DavidsonCompany was incorporated in 1907, and Arthur set off to recruit dealers in New Englanthe South. William completed a degree in engineering (specializing in internal combengines) and quickly applied his expertise in the company; he developed the first V-twgine in 1909. He followed this with a major breakthrough in 1912-the first commersuccessful motorcycle clutch, which made possible the use of a roller chain to power thtorcycle. The first three-speed transmission was offered for sale in 1915.

During the early 1900s the United States experienced rapid growth in the motoindustry, with firms such as Excelsior, Indian, Merkel, Thor, and Yale growing and coing. Most of the early U.S. motorcycle companies turned out shoddy, unreliable pro
http://www2.interpath.net/interweb/skybox/http://www2.interpath.net/interweb/skybox/


2/18

Harley-Davidson-1996 T C-361But this was not considered to be true of Harley-Davidson cycles. Early continued successin racing and endurance made Harley a favorite among motorcyclists, and the company'sV-twin engines became known for power and reliability.

During World War I Harley-Davidson supplied the military with motorcycles and be-came the largest motorcycle company in the world in 1918. The company built a 300,000-square-foot plant in Milwaukee in 1922. In 1949 Harley first faced international competitionfrom British motorcycles, such as Nortons and Triumphs, which handled better and werecheaper, lighter, and just as fast, even though they had smaller engines. To counter the Britishthreat, Harley-Davidson improved the design of its engines and increased the horsepower ofitsheavier cycles. The result, in 1957, was the first modem superbike: the Harley Sportster.It was also during the 1950s that Harley developed the styling that is famous to this day.

In 1975 Honda Motor Company introduced the Gold Wing, which quickly becamethe standard for large touring motorcycles, a segment that Harley had owned. At the time,Harley's top-of-the-line touring bike sold for almost $9,000, while the comparable HondaGold Wing was approximately $7,000. Not only were Japanese cycles priced less than sim-ilar Harleys, but Japanese manufacturing techniques also yielded operating costs that were30 percent lower than Harley.Motorcycle enthusiasts began more than ever to buy Japanese products because of theirprice and performance advantages. Even some loyal Harley owners and police department con-tracts were lost. The company was rapidly losing ground in both technologicaladvances and the market. Starting in 1975 and continuing through the mid-1980s, Japanesecompanies penetrated the big-bore, custom motorcycle market with Harley look-alikes sport-ingV-twin engines. The Honda Magna and Shadow, the Suzuki Intruder, and the Yamaha Viragowererepresentative of the Japanese imitations. The Japanese captured a significant share of thelargecycle segment and controlled nearly 90 percent of the total motorcycle market.

Vaughn L.Beals, Jr., served as the Harley-Davidson manager during its six years un-der AMF control. Beals was uncomfortable with AMP's short-term orientation and unwill-ingness to confront the problems caused by imports. Consequently, in June 1981 a subgroupofHarley management, including Beals, completed a leveraged buyout of Harley-Davidsonfrom AMF. To celebrate, Beals and the management team made a Pennsylvania-to-Wisconsin motorcycle ride, proclaiming as their slogan, "The eagle soars alone."

Beals himself was an engineer who simply loved motorcycles. He surrounded him-self with a team that loved motorcycles as well. No longer was the company run by AMP's"finance guys." It was now run by a group of motorcycle riders. Under the management ofBeals, Richard Teerlink, and Thomas Gelb, Harley-Davidson adopted a very efficient ap-proach to manufacturing. Three major programs comprise Harley's manufacturing ap-proach: materials as needed (MAN) or just-in-time inventory; statistical operator control(SOC); and employee involvement.

Under the MAN system Harley suppliers must comply with the company's qualityrequirements. Harley offers long-term contracts to suppliers who do comply and who de-liver only the exact quantity needed for a given period of time. Harley also transports ma-terials from suppliers. When the Harley transportation company makes scheduled pickupsfrom suppliers, Harley has greater control over the shipments and is thereby able to cut costs.

Harley invests heavily in research and development. One payoff of this investment isa computer-aided design (CAD) system that allows management to make changes in the en-tire product line while maintaining elements of the traditional styling. Harley is recognizedas an industry leader in many aspects of production, including belt-driven technology, vi-bration isolation, and steering geometry.

Employee involvement at Harley means the full participation of all employees in thecontinuous improvement process. Decisions made in quality circles are a major source ofinput for quality improvement. Employees participate in meetings and have a stake in the


3/18

I c-362 T CASE 23success of the company through bonus programs that share financial rewardsEmployee Stock Purchase Program. The employee involvement practices at Harleyhigh morale, low absenteeism, and few grievances.

Harley's purchasing strategy includes working with suppliers that are close toown facilities. Nearly 80 percent of the company's suppliers are located within 180Milwaukee. Proximity to suppliers means that the MAN system and just-in-time inpractices are easier to implement. Plant productivity has continued to improve in thFor example, the York plant produced approximately 160 motorcycles a day in 1987a day in 1990, and it currently produces over 300 motorcycles a day. The concernity is transmitted to dealers as well. Harley mechanics at dealerships are expectedseries of qualifying examinations dealing with 24 motorcycle repair categories. Exations deal with categories such as transmission, suspension, and electronicsMechanics receive factory training and support, and dealers keep their customersof how well the local mechanics are doing.

Harley operates III two segments: (1) Motorcycles and Related ProductsTransportation Vehicles. Harley's Motorcycles and Related Products segmentmanufactures, and sells superheavyweight (engine displacement of 851 cc or aboving and custom motorcycles and a broad range of related products. Harley is the ojor American motorcycle manufacturer. The company's bike sales abroad exceededmillion in 1994, or 26 percent of thei.r $1.158 billion total.

The Transportation Vehicles segment consists of Holiday Rambler Corporatits subsidiaries. Holiday Rambler is a wholly owned subsidiary that manufacturesational vehicles, principally motorhomes and travel trailers, and specialized comvehicles. Holiday Rambler began manufacturing recreational vehicles in 1953 andquired by Harley in 1986. Holiday Rambler's recreational vehicle sales in 1994 in34.7 percent over 1993 to about $95.1 million. Holiday Rambler's commercial(marketed under the Utilimaster brand name), which include walk-in vans and palivery trucks, are built for a diverse range of specialized commercial uses.

Sales and operating profits (losses) attributable to Harley's two major businments are shown in Exhibit 23-1 (in thousands).

During 1994 the recreational vehicle industry reported sales increases of m20 percent from 1993. The increase was realized in motorhomes and towablRecreational Vehicle division generally targets its products toward the mid-to-uppesegment of the market.MOTORCYCLES AND RELATED PRODUCTS Harley's motorcycles emtraditional styling, design simplicity, durability, ease of service, and evolutionaryStudies indicate that the typical Harley motorcycle owner is a male in his late thirthas a household income of approximately $53,000, purchases a motorcycle for recrrather than transportational purposes, and is an experienced motorcycle rider. Approxtwo-thirds of Harley's sales are to buyers with at least one year of higher education.

The superheavyweight class of motorcycles comprises four types: (1) standardemphasizes simplicity and cost; (2) performance, which emphasizes racing and speed;ing, which emphasizes comfort and amenities for long-distance travel; and (4) customemphasizes styling and individual owner customization. Touring and custom modelonly class of superheavyweight motorcycle that Harley manufactures. Harley sells 20of touring and custom superheavyweight motorcycles, with suggested retail prices


4/18

Harley-Davidson-1996 T C-363

EXHIBIT 23-1 Sales and Operating Profits (Losses)1994 1993 1992

$1,158,991 $ 933,262 $ 822,929382,805 284,166 282,355$1,541,796 $1,217,428 $1,105,284

Income (Loss) from OperationsMotorcycles and Related Products $ 163,510 $ 136,217 $ 102,300Transportation Vehicles* 6,745 (59,533) 2,137General Corporate Expenses (9,948) (6,878) (7,240)

160,307 69,806 97,19744 (831) (4,912)

0 1,196 (3,249) (1,611)Transportation Vehicles 522 789 (1,865)

1,718 (2,460) (3,476)Income before Provision for Incomes Taxes,Extraordinary Items, and Accounting Changes $ 162,069 $ 66,515 $ 88,809'rncludes a $57 million charge related primarily to the write-off of goodwill in 1993.Source: Annual Report, 1994.

fromapproximately $5,000 to $16,000. The touring segment of the superheavyweight marketwas pioneered by Harley and includes motorcycles equipped for long-distance touring, withfairings, windshields, saddlebags, and Tour Pak. The custom segment of the market includesmotorcycles featuring the distinctive styling associated with certain classic Harley-Davidsonmotorcycles. These motorcycles are highly customized through the use of trim and accessories.Harley's motorcycles are based on variations of five basic chassis designs and are powered bythreeair-cooled, twin-cylinder engines of "V" configuration that have displacement of 883 cc,1,200cc, and 1,340 cc. Harley manufactures its own engines and frames.

The top of Harley's custom product line is typically priced at approximately twicethat of its competitors' custom motorcycles. The custom portion of the Harley product linerepresents the highest unit volumes and continues to command a price premium because ofits features, styling, and high resale value. Harley's smallest displacement custom motor-cycle (the 883 cc Sportster) is directly price-competitive with other comparable motorcy-cles.Surveys of retail purchasers indicate that, historically, over 80 percent of the purchasersof this Sportster model have owned competitive-brand motorcycles or are new to the sportof motorcycling. Domestically, motorcycle sales generated 63.3 percent, 64.2 percent, and52.8 percent of revenues in the Motorcycles and Related Products segment during 1994,1993, and 1992, respectively.

Harley's Motorcycle Products business consists primarily of parts and accessories andrider apparel. The major product categories for motorcycle parts are replacement parts, me-chanical accessories, rider accessories (MotorClothes), and specially formulated oil andother lubricants. Harley's replacement parts include original equipment parts generally madein the United States and a less-expensive line of imported parts introduced to competeagainst foreign aftermarket suppliers. Harley provides a variety of services to its dealers and


5/18

I C-364 ...CASE 23 retail customers, including optional extended-service contracts, insurance programs,training schools, delivery of its motorcycles, motorcycling vacations, membershipsowners club, and customized software packages. Harley has had recent success undegram emphasizing modem store design and display techniques in the merchandisingand accessories by its dealers. Currently more than 370 domestic and 90 internationaerships have completed, or are in the process of, store design renovation projects. Domotorcycle parts and accessories sales comprised 16.6 percent, 16.3 percent, and 1cent of net sales in the Motorcycles and Related Products segment in 1994, 1993, anrespectively. Net sales from MotorClothes, the fastest growing accessory segment, in33 percent from 1993 to 1994.The Buell motorcycle. The Eric Buell Motor Company makes high perfosuperbikes using Harley frames and engines. In the 1980s Eric Buell, a former Harleneer and motorcycle racer, left Harley to pursue his dream of building American sporBuell motorcycles sold well and in 1992 Harley purchased 49 percent of the small co

Production at Buell was stopped in 1993 and 1994 to completely redesign theStarting in 1995 Buell plans to make two models of sport bikes, the SI LightningS2 Thunderbolt, both built using the 1,200 cc Harley engine and frame. The redesignbrought about innovations in the weight distribution and frame rigidity of the bikes.is distributed near the center of the bikes making them faster. Other sport bike profocus on total weight and not on its distribution. Additionally, the Buell companyway to make the frames stronger and lighter. The result is a line of bikes that can cwith the Japanese Kawasaki and Italian Ducati. Buell plans to get heavily involveding with these new products.

There are 600 dealers around the United States that supply service and parts fomotorcycles. An organization called Pegasus, similar to the Harley Owner's Grobeen initiated for Buell riders.Licensing. In recent years Harley has endeavored to create an awareness of thamong the nonriding public by licensing the trademark Harley-Davidson through ption and sales of a broad range of consumer items, including T-shirts and other cltrading cards, jewelry, small leather goods, and toys. Although the majority of licenstivity occurs in the United States, Harley has expanded into international markets.

This licensing activity provides Harley with a valuable source of adveLicensing also has proven to be an effective means of enhancing Harley's image wisumers and provides an important tool for policing the unauthorized use of Harley'smarks. Royalty revenues from licensing accounted for approximately one percent ofsales from the Motorcycles and Related Products segment during each of the three ythe period ended December 31, 1992. Though net sales from licensing activities arethe profitability of this business is relatively high.Marketing and distribution. Harley's basic channel of United States dtion for its motorcycles and related products is approximately 600 independentlyfull-service dealerships. With respect to sales of new motorcycles, approximatelycent of the dealerships sell Harley motorcycles exclusively. All dealerships carry Hreplacement parts and aftermarket accessories and perform servicing of Harley mcle products.

Harley's marketing efforts are divided among dealer promotions, customermagazine and direct-mail advertising, public relations, and cooperative programdealers. Harley also sponsors racing activities and special promotional events andpates in all major motorcycle consumer shows and rallies. In an effort to encourageowners to become more actively involved in the sport of motorcycling, Harley fo


6/18

Harley-Davidson-1996 T C-365riders club in 1983. The Harley Owners Group (HOG) currently has in excess of 192,000members worldwide and is the industry's largest company-sponsored enthusiast organiza-tion. In addition, Harley is a national sponsor of the Muscular Dystrophy Association.International sales. International sales were $331 million, $263 million, and $240million, accounting for approximately 29 percent, 28 percent, and 29 percent of net sales ofthe Motorcycles and Related Products segment during 1994, 1993, and 1992, respectively.Harley believes that the international heavyweight market (engine displacements of 751 ccand above) is growing and is significantly larger than the U.S. heavyweight market. Harleyhas wholly owned subsidiaries located in Germany, Japan, and the United Kingdom. TheGerman subsidiary also serves Austria and France. The combined foreign subsidiaries havea network of over 200 dealers, of which approximately 43 percent sell Harley motorcyclesexclusively. Elsewhere, sales are managed through 17 distributors in 14 countries. These dis-tributors service approximately 280 additional countries who primarily seek fleet sales andparts orders. Germany, Japan, Canada, and France, in descending order, represent Harley'slargest export sales. Europe is the world's largest heavyweight motorcycle market.Competition. The United States and international superheavyweight/heavyweightmotorcycle markets are highly competitive. Harley's competitors-Yamaha, Honda,Suzuki, and Kawasaki-have financial and marketing resources greater than Harley's aswell as large overall sales volumes and a more diversified product line. During 1992 thesuperheavyweight segment represented 32 percent of the total United States motorcyclemarket in terms of units registered. The touring and custom segments of the superheavy-weight motorcycle market together accounted for approximately 56 percent and 58 percentof total superheavyweight segment retail unit sales during 1994 and 1993, respectively.Custom and touring motorcycles are generally the most expensive and most profitable ve-hicles in the market. Resale prices of Harley-Davidson motorcycles, as a percentage ofprice when new, are significantly higher than resale prices of motorcycles sold by the com-petitors. The primary reason for this is that production of Harley bikes is more than a yearbehind demand.

Harley estimates its worldwide competitive position to be as shown in Exhibit 23-2.Employees. As of December 31, 1992, the Motorcycles and Related Products seg-ment had approximately 4,000 employees. Production workers at the motorcycle manu-facturing facilities in Wauwatosa and Tomahawk, Wisconsin, are represented principallyby the Allied Industrial Workers (AIW) of the AFL-CIO, as well as the InternationalAssociation of Machinist and Aerospace Workers (lAM). Production workers at the mo-torcycle manufacturing facility in York, Pennsylvania, are represented principally by thelAM. The collective bargaining agreements with the AIW and the Wisconsin-lAM ex-pired March 27, 1994, and the collective bargaining agreement with the PennsylvanialAM expired February 2, 1994.TRANSPORTATION VEHICLESRecreational vehicles. The Recreational Vehicle division's motorhomes andtravel trailers are designed to appeal to people interested in travel and outdoor recreationalactivities. These recreational vehicles are distinct from mobile homes, which are manufac-tured housing designed for permanent and semipermanent dwelling.

Principal types of recreational vehicles produced by the Recreational Vehicle divisioninclude Class A, or conventional, motorhomes; Class C, or mini, motorhomes; and traveltrailers. Recreational vehicle classifications are based on standards established by theRecreation Vehicle Industry Association (RVIA). A motorhome is a self-powered vehiclebuilt on a motor vehicle chassis. The interior typically includes a driver's area, kitchen,


7/18

I IC-366 T CASE 23

EXHIBIT 23-2 751 cc Motorcycles Registration Data (Units in thousand1 9 9 4 1 9 9 3 1 9

North America"Total Registrations 124.9 109.5 9Harley- Davidson Registrations 69.5 63.4 5Harley-Davidson Market Share Percentage 55.7 57.9 6

Europe"Total Registrations 128.7 129.8 12Harley- Davidson Registrations 14.2 13.1 1Harley-Davidson Market Share Percentage 11.0 10.1

Japan/Australia?Total Registrations 34.0 31.8 2Harley-Davidson Registrations 73.6 6.6Harley-Davidson Market Share Percentage 22.3 20.9 1

"Includes the United States and Canada."lncludes Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Switzerland, and United Kingdo'Data for Queensland, Northern Territory, and South Australia not available.

bathroom, and dining and sleeping areas. Motorhomes are self-contained, with theilighting, heating, cooking, refrigeration, sewage-holding and water-storage facilitiethat they can be lived in without being attached to utilities. As such, they generally qas second homes for income tax purposes. Although they generally are not designed tvide complete facilities for permanent or semipermanent living, motorhomes do prcomfortable living facilities for short periods of time.

Class A motorhomes are constructed of medium-duty truck chassis, which archased with engine and drive-train components. The living area and driver's compartare designed, manufactured, and installed by the Recreational Vehicle Division. Clmotorhomes are built on a van or small truck chassis, which are purchased with engindrive-train components and a finished access to the driver's compartment.

Travel trailers are nonmotorized vehicles designed to be towed by passengermobiles, pickup trucks, sport utility vehicles, or vans. They are otherwise similar ttorhomes in features and use. Harley provides both conventional and fifth-wheeltrailers. Conventional travel trailers are towed by means of a bumper or frame hittached to the towing vehicle. Fifth-wheel trailers, designed to be towed by pickup tare constructed with a raised forward section that is attached to the bed area of the ptruck. This design allows a bilevel floor plan and additional living space.

Harley's premium lines of recreational vehicles are marketed under the Naviand Imperial brand names. Models in these lines are manufactured with high-qualityrials and components, including entertainment centers, solid oak cabinetry, and brastures, and may be equipped with luxury features such as microwave-convection owasher/dryers, and built-in vacuum cleaner systems. These models are generally purcby people who previously have owned recreational vehicles. The Navigator is a busmotorhome that carries a suggested retail price of $193,000 to $220,000. In Ha


8/18

Harley-Davidson-1996 ~ C-367Imperial line, suggested retail prices of motor homes generally range between $105,000 and$125,000, and of travel trailers between $37,000 and $64,000.

Harley also produces motorhomes and travel trailers for the midrange market underthe Aluma-Lite brand name. These models are produced with fewer standard features thanthe Imperial. Suggested retail prices for the Aluma-Lite line range between $48,000 and$95,000 for motorhomes and between $18,000 and $54,000 for travel trailers. Also in themidrange market, Harley produces the Endeavor and the Vacationer motorhome models,whose suggested retail prices range between $47,000 and $76,000.

The Recreational Vehicle division's sales (including retail, wholesale, and othersales) were $274.5 million, $192.5 million, and $202.1 million in 1994, 1993, and 1992, re-spectively. Sales of the Recreational Vehicle division accounted for 71.7 percent, 67.8 per-cent, and 71.6 percent of the Transportation Vehicle segment's revenues for the years endedDecember 31, 1994, 1993, and 1992, respectively.Competition and other business considerations. The recreational vehi-cle market is highly competitive among a number of manufacturers. Competition is basedonprice, design, quality, and service. The primary external factors affecting the recreationalvehicle industry are the consumer's perception of health of the economy, interest rates,availability of retail financing, and the availability of gasoline. Harley believes that all ofthese items have played significant roles during the recent, three-year down-cycle in therecreational vehicle industry.

Fifteen manufacturers account for approximately 87 percent of total units sold in therecreational vehicle market classifications in which the Recreational Vehicle division com-petes. The remaining units include products manufactured by approximately 50 additionalmanufacturers. Fleetwood Enterprises, Inc. accounts for approximately 37 percent and 28percent of the Class A and travel trailer markets, respectively. Harley's share of the Class Aand travel trailer markets is 5.3 percent and 2.6 percent, respectively. Harley ranks fourthin Class A market share and ninth in travel trailer market share. Coachmen and Winnebagoare two other large competitors in this market.Marketing and distribution. The Recreational Vehicle division markets its recre-ational vehicle products through a network of approximately 140 dealers located through-out the continental United States, including 12 company-owned Holiday World dealers.Holiday World dealers also stock previously owned vehicles and new recreational vehiclesmanufactured by certain of Holiday Rambler's competitors. Holiday World dealers provideHoliday Rambler with valuable knowledge regarding consumer preferences and informa-tion regarding products of its competitors, as well as other marketing information. HolidayRambler's sales and service agreements require dealers to maintain a service departmentand a supply of recreational vehicle parts, supplies, and accessories. These agreements aresubject to renewal on an annual basis.

Holiday Rambler is gearing its marketing effort to be more responsive to its cus-tomers' needs. Holiday Rambler has redesigned a number of its stores, expanded its rosterof dealers, and continues the development of new product offerings.

Holiday Rambler's new owner questionnaires indicate that approximately 68 percentofpurchasers of Holiday Rambler's new recreational vehicles are 56 years or older, a grow-ing segment of the U.S. population. Customer loyalty is reinforced by Holiday Rambler'ssponsorship of the Holiday Rambler's Recreational Vehicle Club, Inc., a not-for-profit cor-poration. The club is open only to owners of Holiday Rambler's recreational vehicles andhas approximately 12,500 members. The club holds 34 club-sponsored rallies and caravanseach year and is provided with administrative and promotional assistance by HolidayRambler. Holiday Rambler receives valuable feedback from its customers at these events.


9/18

C-368 T CASE 23

Through its Utili master Corporation subsidiary, Harley builds truck bodies for speciacommercial uses. Sales of Harley's commercial vehicles and truck bodies accounte24.8 percent, 27.8 percent, and 24.0 percent of the Transportation Vehicle segment'senues in 1994, 1993, and 1992, respectively.

Utilimaster currently installs truck bodies on chassis of various sizes suppliethird parties. The truck bodies are offered in aluminum or fiberglass-reinforced plyw(FRP) construction and are available in lengths of 9 feet to 28 feet. Harley's productscluding chassis) range in price from $2,300 to $34,000, although special service vehcan sell as high as $55,000.PRINCIPAL TYPES OF COMMERCIAL BODIESParcel delivery vans. Aluminum or FRP parcel delivery van bodies are inson chopped van chassis supplied by major Detroit truck manufacturers. These parcelivery van bodies that are manufactured by Harley range in length from 10 feet to 1and are primarily used for local delivery of parcels, freight, and perishables.Standard walk-in vans. Utilimaster manufactures its standard walk-in vansvans) on a truck chassis supplied with engine and drive-train components, but withcab. Harley fabricates the driver's compartment and body using aluminum panels. Usthese vans include the distribution of food products and small packages.Truck bodies. Utilimaster's truck bodies are typically up to 28 feet in length withpainted aluminum or FRP panels, aerodynamic front and side comers, hardwood floorsvarious door configurations to accommodate end-user loading and unloading requiremThese products are used for diversified dry freight transportation. Harley installs itsbodies on chassis supplied with a finished cab.Mobile rescue and special use emergency vehicles. Utilimaster ba variety of specialty use vehicles for the fire and rescue industry. These vehicles ranlength from 10 to 22 feet and usually require extensive customization to meet the neethe local emergency agencies.Aeromate. The Aeromate was developed for customers needing a midsize delvehicle that offered maneuverability, front-wheel drive, fuel efficiency, a large cargoand driver comfort, features not available from production vans and larger deliveryIts six-cylinder engine, automatic transmission, and drive train are purchased from aparty in the automotive industry and refitted to the Harley-built chassis. The all-alumtruck body can hold 317 cubic feet of cargo, weighing up to one ton.MARKETING AND DISTRIBUTION Utilimaster markets its commercial vehand bodies directly to 450 fleet accounts and to single commercial vehicle purchthrough a network of 900 automobile and truck dealers. This network is distinctHarley's recreational-vehicle dealer network. Harley does not provide financing todealers or fleet accounts.COMPETITION Though the Commercial Vehicle division experiences some comtion from the large automotive manufacturers, which traditionally have offered a narrolection of standardized commercial-vehicle body options for their truck chassis, its princompetition is from a small number of manufacturers with the resources to satisfy thume requirements and specialized needs of commercial-vehicle fleet customers. These


10/18

Harley-Davidson=Iviui w C-369ufacturers include Grumman Corporation, Union City Body Company, Inc., and SupremeCorporation. Competition among manufacturers is based on price, quality, and responsive-ness to customer requirements both in design and tinting of delivery.

Exhibit 23-3 is a summary of the principal properties of the company's Motorcycles andRelated Products segment.

The Motorcycles and Related Products segment has three facilities that perform man-ufacturing operations: Wauwatosa, Wisconsin, a suburb of Milwaukee (motorcycle powertrain production); Tomahawk, Wisconsin (fiberglass parts production and painting); andYork, Pennsylvania (motorcycle parts fabrication, painting, and assembly). Harley com-pleted the transition to a new paint facility at its York, Pennsylvania, location during 1992.

Harley anticipates that the size of the existing facilities should be adequate to meetits current goal of being able to produce 100,000 motorcycles annually by 1996.

Exhibit 23-4 is a summary of the principal properties of the Transportation Vehiclesegment.

EXHIBIT 23-3 Principal Properties of the Motorcycles and Related Products Segment' f ,YPE OF FACILITY LOCATION SQUARE FEET STATUS

502,720 Owned317,734 OwnedTomahawk, WI 70,327 Owned

Manufacturing York, PA 949,380 OwnedMotorcycle Testing Talladega, AL 11,500 Lease Expiring 1996Office &Warehouse Morfelden- Walldorf, Germany 50,880 Lease Expiring 2001Office Tokyo, Japan 3,090 Lease Expiring 1993Warehouse Tokyo, Japan 6,282 Lease Expiring 1993

Brackley, England 2,845 Lease Expiring 1995Brackley, England 1,122 Lease Expiring 1995

EXHIBIT 23-4 Principal Properties of the Transportation Vehicle SegmentTYPE OF FACILITY LOCATION SQUARE FEET STATUSExecutive Offices Wakarusa, IN 51,178 OwnedManufacturing &War.ehouse Wakarusa, IN 842,367 OwnedFactory Service Center Wakarusa, IN 41,138 Owned

Wakarusa, IN 23,850 OwnedWak IN 38,120 OwnedVarious 8,290 LeasedNappanee, IN 169,711 OwnedMishawaka, IN 16,180 Owned

Retail Dealership Facilities Various 201,900 OwnedRetail Dealership Facilities Various 2,724 Leased


11/18

The Transportation Vehicle segment's units are manufactured in approximately 3arate buildings. Additionally, the segment owns 20 buildings used for administrative,age, and other purposes. Substantially all of the facilities are located on three sites at othe Transportation Vehicle segment's corporate headquarters in Wakarusa, Indiana. Howns all of the production facilities and the underlying parcels of land. Because recreaand commercial vehicles are produced largely through a labor-intensive assembly prthe facilities do not house extensive capital equipment. The Transportation Vehicle segmpresent facilities are generally adequate for their current intended use. Capacity incmay be achieved at a relatively low cost, largely by adding production employees.

C-370 ...CASE 23

Harley's financial performance improved steadily from 1988 to 1994. Harley has beeto reduce its long-term debt from $168 million in 1988 to $29 million in 1994. Harlported worldwide net sales during 1994 of $l.5 billion. Worldwide motorcycle decontinues to outpace production, and dealers throughout the world remain on an alloprogram that limits the number of motorcycles that may be ordered. Harley expects wwide motorcycle demand to outpace production through 1996.

Harley holds more than 60 percent of the superheavyweight segment (enginplacement of 851 cc and above) of the domestic motorcycle market during 1994. Althdefinitive market share information does not exist for many of the smaller foreign maHarley estimates that it holds an average market share of approximately 13 percentheavyweight segment (751 cc and above) of the foreign markets in which it comOutside of the United States, registration data are generally not available for theheavyweight classification.

Total international revenues in the Motorcycles and Related Products segmecreased 26 percent to 331.2 million during 1994. Over the past three years, approxim30 percent of all motorcycle unit production has been allocated and shipped to intional markets.

Worldwide the motorcycle parts and accessories business reported a 28.8-perevenue increase over 1993. The MotorClothes line of rider accessories increasedpercent due in part to the introduction of the Biker Blues denim clothing line, whichtributed an incremental $3.7 million" during the same period. The MotorClothes linbegun to attract nontraditional customers and is increasing floor traffic at dealerMargins on the MotorClothes line are slightly lower than the margins generated by themajor parts and accessories lines.

The Transportation Vehicle segment reported a $98.8 million (34.7 percent) reincrease compared to 1993. The Recreational Vehicle division provided the majorityincrease. Improvements in market conditions, as well as introductions of several newucts during the year, contributed to the Recreational Vehicle division's revenue increasedivision began shipping the new bus-style Navigator motorhome at the end of the squarter, which generated the division's largest single source of revenue increase during

The Motorcycles and Related Products segment reported a $66.4 million (22.cent) increase in gross profit in 1994. Motorcycle volume increases accounted for apmately one-half of the change. Improvements in the gross profit percentage were primthe result of a shift in motorcycle mix toward higher-margin custom units. The shift inuct mix accounted for approximately one-third of the segment's increase in gross profiTransportation Vehicles segment reported a $17.9 million (39.6 percent) increase inprofit compared to 1993. The gross profit percentage for the segment improved to 16.cent during 1994 from 15.9 percent in 1993.


12/18

THE HAR GE

Harley-Davidson=-Lvvti w C-371Harley-Davidson reported second quarter 1995 EPS of $0.45 per share, up 12 percent

from $0.40 in 1994, which excludes a nonrecurring tax gain associated with recognizingHoliday Rambler as a limited liability corporation. Motorcycle production was raisedagain, to 430 per day, up 13 percent from 1994. Consequently, management appears moreoptimistic and is increasing its stated minimum production level for December 1995 fromatleast 100,000 units to at least 103,000 units. Additionally, management now expects dailymotorcycle production rates of 470 units by December 1996, which should render its orig-inalexpectation of producing an average of 470 units per day in December 1997 overly con-servative. Equally important almost all of the anticipated increases in production (470 vs.430 per day) should come from greater output of big-twin engines, which are used to pro-duce higher margin custom and touring motorcycles. Owing to record low factory inven-tory levles and new product introductions in August, management expects HolidayRambler to break-even in the second half of 1995.

Second quarter 1995 revenues rose 21 percent to $486.5 million due to similar gainsin each segment. The 20 percent gain in the Motorcycle segment to $355.6 million re-flected a 13 percent gain in units to 28,167 a 6-percent rise in average prices ($9,822) anda 17-percent increase in parts and accessory sales. Transportation segment sales rose 25percent to $130.9 million due to a 46-percent increase at Utilimaster, which was supple-mented by a 24-percent rise at Holiday Rambler. Positively, demand for Utili master re-mains strong. Consolidated operating margins declined form 12.1 percent to 11.0 percentprimarily due to a decline in contribution from the Transportation segment (operating in-come was down $3.7 million or $0.03 per share and margins were 0.8 percent vs. 4.5 per-cent) as the company incurred unusually high promotional expenses ($2.9 million morethan last year) and costs to open a new facility ($1.0 million) to accommodate record de-mand at the profitable Utilimaster unit.

Few motorcycle companies can elicit the name recognition and brand loyalty of Harley-Davidson. Harley's appeal is based on the thrill and prestige of owning and riding the kingof big bikes. Harley's are known as sturdy, powerful, macho bikes that are not for wimpsand kids-true bikes for the open road.

Part of the Harley image is built on an appreciation of tradition. Harley bikes are con-sidered to be of classic design. The teardrop gas tanks, the soft-tail suspensions, and the low,uneven rumble of Harley engines are believed to be the substance of fundamental motor-cycling. The company has a knack for combining the old and the new. For example, Harleyrecently offered a bike with a springer front-end fork, even though the spring fork had notbeen offered on Harley motorcycles since 1949. Harley made major technological im-provements in the fork but maintained the original look and offered it on a limited-edition model. The springer fork was made to appeal to someone who wanted traditionalstyle and custom design as well as modern advancements.

A worrisome problem with the Harley image, on the other hand, is the perceived con-nection between Harleys and outlaw groups. The negative image associated with the RoadWarrior films affected sales in some areas to such a degree that the company has initiateda public relations campaign. The campaign gently attacks the biker image by directing themajority of advertising at young professionals. The message is that Harley-Davidson rep-resents fun, recreation, and reliability. The company trumpets the fact that famous profes-sionals such as the former baseball star Reggie Jackson ride Harleys, and advertisementspicturing these celebrities atop their hogs further help the company's image. The campaignseems to work. More doctors, lawyers, and dentists have begun to purchase Harleys.


13/18

C-372 T CASE 23I Harley also put tighter controls on licensing its name, ensuring that it is not uobscene ways. Harley is careful not to alienate its loyal biker customers, however. Acompany continues to promulgate--even enhance-its tough image through advertismotorcycle magazines. For example, one ad pictures a group of rather tough-lookingers with the caption, "Would you sell an unreliable bike to these guys? We don't!" Aad shows a junkyard filled with scrapped Japanese bikes. The caption is, "Can youHarley in here?"

A related image problem for Harley is that it has not been able to attract many wcustomers. Harleys are very big and heavy. The Harley low-rider series attractswomen customers because the bikes are lower and easier to get on. Notwithstandinpartial success, some Japanese companies introduced smaller, lighter, low-riding, insive Harley look-alikes in a straightforward attempt to attract women buyers. HRebel (250 cc) and Yamaha's Route 66 (V-twin, 250 cc) are two such bikes that hacome fairly successful with women.

Perhaps the most objective indictor of the strength of the image came fromlikely source-Japan itself. The Japanese have made numerous attempts toMilwaukee designs. For example, Suzuki's Intruder (1,400 cc) went to great lengthsthe radiator, because Harleys were air-cooled. Yamaha's Virago (1,100 cc) and KawaVulcan (1,500 cc) were V-rwin street bikes conspicuously styled in the Harley traNevertheless, some analysts feel that Japanese imitations only serve to strengthen thtique of the original. The more the Japanese try to make look-alike bikes, the more tthing increases in value.

According to Jeffrey Bleustein, Harley's chief operating officer, there is no singlefor Harley's success (see the financial statements in Exhibits 23-5 to 23-9). Ratheremphasis on a number of basic management concepts that has led Harley throughthe greatest turnarounds in American corporate history.

Bleustein's set of management concepts, often referred to as the "engine of Hsuccess" include the following:

1. Motivated and involved employees2. Quality products3. Customer price/value perception4. Aggressive marketingThese factors work together to form the basics of Harley's strategy. Bleustein

that all parts of the "engine" must be implemented simultaneously; one or two panot enough.MOTIVATED AND INVOLVED EMPLOYEES First, Harley workers arevated by intense loyalty to a very emotional product. Employees are deeply involvedproving the manufacturing methods. Everyone on the line is expected to come up wisaving and quality ideas. Quality is not inspected into the bikes; it is designed andfactured in. Employees are trained in manufacturing methods as well as in statisticalods to measure quality. They are also organized into self-directed work teams. Themake quality recommendations and cross-functional decisions, and the team focallowed the corporate structure to be flatter and less hierarchical than in the past.

The company takes the idea of involvement one step further and tries to get moreholders involved in the business as well. Harley has adopted a set of corporate values thbrace the notion of involvement. A belief in telling the truth, fair treatment of employe


14/18

Harley-Davidson-1996 T C-373

EXHIBIT 23-5 Motorcycle Unit Shipments and Consolidated Net Sales1994 1993 1992

Motorcycle Unit Shipments 95,811 81,696 76,495Net Sales (In minions)Motorcycles $ 902.6 $ 734.3 $ 667.2Motorcycle Parts and Accessories 256.3 199.0 155.7Total Motorcycles and Related Products 1,158.9 933.3 822.9

Recreational Vehicles 274.5 192.7 202.1Commercial Vehicles 95.1 78.9 67.9Other 13.3 12.5 12.4Total Transportation Vehicles 382.9 284.1 282.4

Consolidated Harley-Davidson, Inc. $1,541.8 $1,217.4 $1,105.3Source: Annual Report, 1994.

EXHIBIT 23-6 Consolidated Gross Profit 1993 Compared to 1992 (Dollars in millions)% OF 1994 SALES

30.916.527.3

1994$358.463.1$421.5

1993$292.045.2$337.2

1992$250.046.4

$296.4Motorcycles and Related ProductsTransportation VehiclesConsolidated Harley-Davidson, Inc.Source: Annual Report, 1994.

customers, respect for the individual, and superior stakeholder satisfaction are among the val-uesHarley espouses.QUALITY PRODUCTS AND CUSTOMER PRICE VALUE PERCEPTIONHarley motorcycles elicit an emotional response from their makers as well as their owners.One important thing about Harley bikes is that each one is slightly unique from another.Even two bikes of tbe same model year will have some variation, some small difference inthe chrome, handlebars, grips, or something that will make it unique to its owner. Therefore,Harley's are in effect mass-customized. This phenomena creates a great deal of loyalty onthe part of owners and makers.

Harley's big bikes are not the lowest-priced bikes on the market, but they retain theirvalue. Many bikes even increase in value over time and demand is generally greater thansupply. Dealers sell the motorcycles years in advance of having them in stock. A $500 to$1,000 deposit is necessary to place an order-and it is rumored that customers sometimesspeculate and make a profit selling their deposit to a higher bidder.

In 1994 Harley shipped approximately 96,000 bikes to dealers, and that total will in-crease to 100,000 in 1995. This is a far cry from 1982 when the company lost $20 million.1994 total revenue was $1.2 billion and profit was $154 million.


15/18

C-374 T CASE 23

199$ 933,641,292,(162,129,1,

((3,127,50,76,

(57,18(32,1,

$ (11

1.26 $ 1.111.371.37 $.14 $

AGGRESSIVE MARKETING Harley is promoting its motorcycles, accessorimotorclothes in a more aggressive fashion than in the past. The company's ads areon a more humorous and engaging tone. One ad exclaims, "Thank God they don'tanymore!" Another ad, for the new "Cow Glide" states, "It tends to mosey."

The Harley Owners Groups or HOG clubs began in 1983 and, promoted by thpany, are growing by leaps and bounds. The clubs offer owners opportunities to get toto have fun. The Stamford, Connecticut, HOG chapter has a homepage on the Internlists national HOG events, a calendar including rallies, motorcycle shows, andmeetings. HOG membership is at 584 chapters and 227,000 members domestically achapters and 46,000 members internationally.


16/18

Harley-Davidson=Lvvti w C-375EXHIBIT 23-8 Harley-Davidson, Inc. Consolidated Balance Sheets (In thousands, except per

share amounts)

IIinanceProperty, , and ipment,Deferred Income TaxesGoodwillOther AssetsNet Assets from Discontinued Operations

YEARS ENDED DECEMBER 31,ASSETS

InventoriesDeferred Income TaxesPrepaid ExpensesNet Assets from Discontinued OperationsTotal Current As

Current LiabilitiesNotes PayableAccounts PayableAccrued Expenses and OtherCurrent Maturities of Long-term Debt

1}

Long-term LiabilitiesPostretirement Health Care BenefitsCommitments and ContingenciesShareholders' EquitySeries iorComm ck,Additional Paid-in CapitalRetained EarningsCumulative Foreign Currency Transaction Adjustment

ok, Non~Jssued .~. ..hares Issned in 1995 and 1994,Respectively

Less d 1994,.RespectiV'e1y),t Cost

1995 1994

$ 31,462 $ 57,884134,210 116,26184,427 89,88019,805 14,34710,786 8,49956,548 57,256337,238 344,127213,444284,775 214,03822,415 19,05443,25644,534 45,81455,008 53,630

$1,000,670 $676,663

$2,327 $1,086102,563 48,828127,956 104,510

364 345233,210 154,769164,33044,991 28,37963,570 60,283

773 772154,533 150,728381,897 283,010

583 1,174537,796 435,684(41,903) (1,581)(1,324) (871)

494,569 433,232$1,000,670 $676,663


17/18

C-376 T CASE 23

1995 1994 1993

$112,480 $104,272 $(11,885

42,329 32,863 27,459(6,284) (4,689) (23,2894,201 11,993 57,3961,413 611 570276 (56) 1,427

2,525 (25,025) 52,57412,132 (37,006) (7,99656,592 (21,309) 108,131169,072 82,963 96,246

(112,985) (88,666) (52,436(44,113) (10,350(17,922)(8,449) (6,055) (3,134(1,547) (1,856) (1,116

(185,016) (96,577) (67,036

1,241 (2,510) 3,59633,267(731) (1,227) (861

(13,593) (10,672) (4,555(39,972)2,716 12,202 5,5426,594 (434) 72 9

(10,478) (2,641) 4,451(26,422) (16,255) 33,66157,884 74,139 40,478

$ 57,884 $ 74,139

EXHIBIT 23-9 Harley-Davidson, Inc. Consolidated Statements of Cash Flows (In thousands)YEARS ENDED DECEMBER 31,0ash''liflows from Operating AotivitiesNet Income (Loss)Adjustments to Reconcile Net Income (Loss) to Net CashProvided by,OR7ratin~Activitie~Depreciation and AmbrtizaiionDeferred Income TaxesLong-term Employee BenefitsLoss on Disposat of :I);ong-tennAssetsEquity in Net (Income) Loss of Joint VenturesNet Change in Discontinued OperationsNet Changes in Other Current Assets and Current Liabilities

" '0 ~ . " . : . . ' : tTotal AdjustmentsNet Cash Provided by Operating Activities

ash .flows from.InvestingiActiyjtiesNet Capital ExpendituresInvestment in Joint VenturesFinance Receivables, NetNet Change in Disetmtinued (OperationsOther-Net

Net Cash Used in Investing Activitiesash Flows from Financing Activities'Net Increase (Decrease) in Notes PayableNet Increase in Finance DebtPayJ;tlents.onUong7(errnDebt ,Dividends Paid . ,Stock RepurchasesIssuance of Stock under Employee Stoc~ PlansNel:Change iti"Diseontinued OperationsNet Cash Provided by (Used in) Financing Activities

Net Increase (Decrease) in Cash and Cash EquivalentsGash and


18/18

Harley-Davidson=Ivvti w C-377Yet Harley jealously maintains loyalty to its core customer. Ninety-eight percent of

Harley motorcycles are sold to men. Bleustein notes, "We want to reach out to new cus-tomers but not lose sight of our roots and where we came from."

During 1992 Harley shipped 3,000 motorcycles to Japan and could have sold many more.Harley is one of only a few firms actively apologizing to its dealers for not being able tomeet demand. Virtually no Harley dealers in the United States or overseas have any retailinventory of Harley bikes. Consumers must get on a one- to two-year waiting list to pur-chase a new Harley. Harley must expand capacity. The major questions are Where? How?andWhen? Harley's top management plans to reach their 100,000 annual motorcycle out-put goal in 1996 by boosting production at existing facilities, rather than by hiring addi-tionalemployees or building new facilities. Some analysts believe that is impossible.

Divesture of HoJiday Rambler is another strategic issue being considered by Harley'smanagement. Potential revenues from this sale could be used to finance plant expansion.Winnebago and Coachmen likely would be interested in Holiday Rambler. Proceeds couldbeused to build another manufacturing facility, perhaps in Europe.

Another strategic issue concerns Harley's 49-percent-owned Eagle Credit subsidiary.Eagleis attempting to provide one-stop financial services to Harley dealers and customers,including a credit card, floor-plan financing, and consumer loans. Formed in January 1993,EagleCredit has become very successful in the $700 million motorcycle loan business. TheHarleycredit card, introduced in 1993, has over 20,000 cards approved.

1 . Should Harley diversify further into the consumer finance market?2. How does it continue its success?3. Develop a strategic plan for Richard Teerlink, Harley's president and chief executive officer.

04 Harley Davidson 1996 1era Evaluacion

Documents

Transcript of 04 Harley Davidson 1996 1era Evaluacion