Harley-Davidson 2009

Forest David: Francis Marion University

A.

Case Abstract
Harley-Davidson is a comprehensive business policy and strategic
marketing case that includes the companys year-end 2004 financial statements,
competitor information, and more. The case time setting is the year 2008.
Sufficient internal and external data are provided to enable students to evaluate
current strategies and recommend a three-year strategic plan for the company.
Headquartered in Milwaukee, Wisconsin, Harley-Davidsons common stock is
publicly traded on the New York Stock Exchange under the ticker symbol HDI.
There is something about the power of a Harley motorcycle that intrigues
both men and women. The way this company connects with its customers is
extraordinary. The Harley name and logo epitomize symbols of American
individualism and a bit of American rebelliousness. Many customers have the
famous Harley bar & shield logo tattooed on his or her arm. The company
sponsors rides and rallies everywhere from Daytona to Houston and in
international cities like Saint-Tropez, Sungwoo, and Lillehammer. From Mexico
to Mount Fuji and Austria to Australia, Harley riders get together at events in
more than 100 countries. For some riders, however, the thrill may just be the back
roads and riding alone on a lazy Saturday afternoon. The distinctive sound of a
Harley-Davidson roars. Even the Harley Web site roars. No other motorcycle has
this sound. The sound, however, is annoying and obnoxious to many
noncustomers.

B.

Vision Statement (proposed)

To be recognized as the best motorcycle company in the world.

C.

Mission Statement (proposed)

Harley-Davidson is committed to providing the highest quality products and
financial services to men and women worldwide (1, 3). The Harley name stands
for customer satisfaction (7) and we would like all Harley customers to relay their
satisfaction to all motorcycle dreamers. Harley-Davidson uses advanced
technology to produce the superior motorcycles (4). Our philosophy is to conduct
business with utmost integrity while serving our customers, employees, and
shareholders (6). We appreciate the hard work of our employees (9). We push
excellence though our Harley-Davidson bar and shield logo and the Harley

144

Owners Group (HOG) (7). We continue to do our part in supporting all

environmental laws in every country we do business (8). Harley-Davidson
intends to stay committed and determined.
1.
2.
3.
4.
5.
6.
7.
8.
9.

Customer
Product or services
Markets
Technology
Concern for survival, growth, profitability
Philosophy
Self-concept
Concern for public image
Concern for employees

Mission Statement (actual)

We fulfill dreams through the experience of motorcycling, by providing to
motorcyclists and to the general public an expanding line of motorcycles and
branded products and services in selected market segments.

D.

External Audit
Opportunities
1. The international heavyweight motorcycle market is growing and is now
larger than the US heavyweight market
2. European demand for Harleys is the highest in the international market and
represents the single largest motorcycle market in the world.
3. Gas prices are high; motorcycles get good gas mileage.
4. Women and younger riders are increasingly becoming interested in bikes.
5. Alliances with Ford Motor Company or other automobile manufacturers are
possible.
6. Industry registrations of domestic heavyweight motorcycles are increasing.
7. Market share increasing in Europe and Asia for the last two years.
8. Increasing demand in US markets for bikes.
9. Customers value quality parts.
Threats
1. Harleys ongoing capacity restraints has cut supply and resulted in a
loss in domestic market share in recent years.
2. Harleys average buying age is 42 years old and increasing.
3. The European Unions motorcycles noise standards are more
stringent than those of Environmental Protection Agencies (EPA).

145

4. Some competitors of Harley-Davidson have larger financial and

marketing resources and are more diversified.
5. Environmental protection laws.
6. Shifts in buyers needs and tastes.
7. Customer loyalty in European and Asian countries low for American products.
8. Costs could become expensive from importing.
9. Perception of Harleys among noncyclers is often not good.
Competitive Profile Matrix
Critical Success Factors
Advertising
Product Quality
Price Competitiveness
Management
Financial Position
Customer Loyalty
Global Expansion
Market Share
Total

Weight
0.20
0.15
0.10
0.10
0.15
0.10
0.15
0.05
1.00

Harley
Rating
Weighted
Score
4
4
2
3
4
3
2
3

0.80
0.60
0.20
0.30
0.60
0.30
0.30
0.15
3.25

Honda
Rating Weighted
Score
2
3
2
2
3
2
2
2

Yamaha
Rating
Weighted
Score

0.40
0.45
0.20
0.20
0.45
0.20
0.30
0.10
2.30

2
3
2
2
2
2
2
2

0.40
0.45
0.20
0.20
0.30
0.20
0.30
0.10
2.15

EFE Matrix
Key External Factors
Opportunities
1. The international heavyweight market is growing and is now larger than
the US heavyweight market
2. The European demand for Harley-Davidson is the highest in the
international market and represents the single largest motorcycle market in
the world
3. Gas prices are high.
4. Women and younger riders are increasingly becoming interested in
bikes.
5. Alliances with Ford Motor Company or other automobile manufacturers
are possible.
6. Industry registrations of domestic heavyweight motorcycles are
increasing.
7. Market share increasing in Europe and Asia for the last two years.
8. Increasing demand in US markets for bikes.
9. Customers value quality parts.
Threats
1. Harleys ongoing capacity restraints has cut supply and resulted in a loss
in domestic market share in recent years.
2. Harleys average buying age is 42 years old and increasing.
3. The European Unions motorcycles noise standards are more stringent
than those of Environmental Protection Agencies in the U.S and increased
environmental stand.
4. Some competitors of Harley-Davidson have larger financial and

146

Weight

Rating

Weighted Score

0.150

0.300

0.150

0.300

0.100
0.100

2
4

0.200
0.400

0.025

0.025

0.050

0.150

0.025
0.025
0.025

3
4
3

0.075
0.100
0.075

0.100

0.200

0.050
0.050

2
2

0.100
0.100

0.025

0.025

marketing resources and they are more diversified.

5. Environmental protection laws.
6. Shifts in buyers needs and tastes.
7. Customer loyalty in European and Asian countries.
8. Costs could become expensive from international importing.
9. Perception of Harleys among noncyclers is often not good
Total

E.

0.025
0.025
0.025
0.025
0.025
1.00

3
3
2
2
3

0.075
0.075
0.050
0.050
0.075
2.38

Internal Audit
Strengths
1. Net income in 2004 was $889 million, which was 53 percent higher than in
2002.
2. Strong relationships built on trust and respect with suppliers and dealers.
3. The standard and performance segments of Harley-Davidson make up 70% of
the European heavyweight motorcycle market.
4. Harley-Davidson operates in two principal business segments: Motorcycles
and Related Products, and Financial Services.
5. Harley-Davidson is the only major American motorcycle manufacturer.
6. Strong brand name.
7. The company has continued to focus its capital expenditures on capacity
expansion at its new and previously existing facilities.
8. The Harley Owners Group (HOG) is the industrys largest company
sponsored motorcycle enthusiast organization, which currently has
approximately 430,000 members worldwide.
9. Harley-Davidson offers a custom segment that allows owners the opportunity
to customize their bikes, this division makes up the highest number of HarleyDavidsons sold.
10. Harley-Davidson has a strong marketing department, which sponsors and
participates in all major motorcycle consumer shows and rallies.
Weaknesses
1. Harley-Davidson does not emphasize price in its product.
2. Harley-Davidson has had difficulty gaining market shore in some European
countries.
3. Registrations for the Asia/Pacific market are decreasing.
4. Facing ongoing capacity constraints.
5. Only a small portion of the company's annual capital expenditures relate to
equipment, which has the sole purpose of meeting environmental compliance
obligations.
6. The top Board of Directors for Harley-Davidson are all men.
7. The leadership strategy council is comprised completely of vice presidents.
8. Difficult to attract and retain talented employees.
9. Lack of opportunity for advancement.
10. Loss of benefits.

147

11.
Financial Ratio Analysis (January 2008)
Growth Rates %
Sales (Qtr vs year ago qtr)
Net Income (YTD vs YTD)
Net Income (Qtr vs year ago qtr)
Sales (5-Year Annual Avg.)
Net Income (5-Year Annual Avg.)
Dividends (5-Year Annual Avg.)
Price Ratios
Current P/E Ratio
P/E Ratio 5-Year High
P/E Ratio 5-Year Low
Price/Sales Ratio
Price/Book Value
Price/Cash Flow Ratio
Profit Margins
Gross Margin
Pre-Tax Margin
Net Profit Margin
5Yr Gross Margin (5-Year Avg.)
5Yr PreTax Margin (5-Year Avg.)
5Yr Net Profit Margin (5-Year Avg.)
Financial Condition
Debt/Equity Ratio
Current Ratio
Quick Ratio
Interest Coverage
Leverage Ratio
Book Value/Share
Investment Returns %
Return On Equity
Return On Assets
Return On Capital
Return On Equity (5-Year Avg.)
Return On Assets (5-Year Avg.)
Return On Capital (5-Year Avg.)
Management Efficiency
Income/Employee
Revenue/Employee
Receivable Turnover
Inventory Turnover
Asset Turnover
Adapted from www.cnbc.com

Harley
10.00
7.20
15.70
12.95
24.76
34.98

Industry
2.40
(13.10)
8.80
8.04
14.84
12.04

SP-500
14.20
15.90
15.10
4.78
11.04
4.61

16.1
44.8
14.0
2.78
5.07
12.60

20.7
57.5
16.0
1.33
4.24
14.60

19.0
64.8
17.4
1.53
2.93
12.50

42.1
27.9
18.0
40.1
23.3
15.1

24.9
12.0
6.7
25.5
9.5
5.9

47.3
12.1
8.3
47.3
9.4
5.9

0.27
3.1
2.7
65.0
1.6
10.42

0.25
2.1
1.3
35.9
1.9
8.66

1.07
1.4
0.9
3.5
5.8
13.21

32.8
20.0
25.8
26.1
15.2
21.3

21.2
11.3
17.0
18.3
9.6
15.7

15.9
2.8
7.7
12.0
2.0
5.7

105,000
587,000
4.3
12.9
1.1

20,000
295,000
8.0
7.1
1.7

30,000
366,000
7.7
7.8
0.4

148

Date
Avg. P/E
12/04
18.20
12/03
17.50
12/02
26.30
12/01
30.80
12/00
35.50
Adapted from www.cnbc.com

Price/Sales
3.57
3.10
3.42
4.89
4.13

Date
Book Value/ Share
12/04
$10.94
12/03
$9.81
12/02
$7.38
12/01
$5.80
12/00
$4.65
Adapted from www.cnbc.com

Debt/Equity
0.25
0.23
0.17
0.22
0.25

Price/Book
5.55
4.85
6.26
9.36
8.55
ROE (%)
27.6
25.7
26.0
24.9
24.7

Net Profit Margin (%)

17.7
16.5
14.2
13.0
12.0
ROA (%)
16.2
15.5
15.0
14.0
14.3

Interest Coverage
61.8
67.3
59.7
NA
NA

Net Worth Analysis (year-end 2004 in millions)

1. Stockholders Equity $3,218
2. Net income x 5 = $889 x 5
3. Share price = $52 /EPS = $3.28 x Net Income $889
4. Number of Shares Outstanding X Share Price = 274 x $52
Method Average

$
$
$
$
$

3,218
4,445
14,093
14,248
9,001

IFE Matrix
Key Internal Factors
Strengths
1. Net income in 2004 was $889 million, which was 53
percent higher than in 2002.
2. Strong relationships built on trust and respect with
suppliers and dealers.
3. The standard and performance segments of HarleyDavidson make up 70% of the European heavyweight
motorcycle market.
4. Harley-Davidson operates in two principal business
segments: Motorcycles and Related Products, and Financial
Services.
5. Harley-Davidson is the only major American motorcycle
manufacturer.
6. Strong brand name.
7. The company has continued to focus its capital
expenditures on capacity expansion at its new and previously
existing facilities.
8. The Harley Owners Group (HOG) is the industrys largest
company sponsored motorcycle enthusiast organization,
which currently has approximately 430,000 members
worldwide.
9. Harley-Davidson offers a custom segment that allows
owners the opportunity to customize their bikes, this division
makes up the highest number of Harley-Davidsons sold.

149

Weight

Rating

Weighted
Score

0.075

0.300

0.075

0.300

0.065

0.260

0.050

0.150

0.050

0.150

0.050
0.040

4
3

0.200
0.120

0.040

0.120

0.030

0.090

10. Harley-Davidson has a strong marketing department,

which sponsors and participates in all major motorcycle
consumer shows and rallies.
Weaknesses
1. Harley-Davidson does not emphasize price in its product.
2. Harley-Davidson has had difficulty gaining market shore
in some European countries.
3. Registrations for the Asia/Pacific market are decreasing.
4. Facing ongoing capacity constraints.
5. Only a small portion of the company's annual capital
expenditures relate to equipment, which has the sole
purpose of meeting environmental compliance obligations.
6. The top Board of Directors for Harley-Davidson are all
men.
7. The leadership strategy council is comprised completely of
vice presidents.
8. Difficult to attract and retain talented employee.
9. Lack of opportunity for advancement.
10. Loss of benefits
TOTAL

F.

0.030

0.090

0.075
0.075

1
1

0.075
0.075

0.060
0.055
0.050

1
1
2

0.060
0.055
0.050

0.045

0.090

0.040

0.080

0.035
0.030
0.030
1.00

2
2
2

0.070
0.060
0.060
2.51

SWOT Matrix
Strengths

Weaknesses

1. Net income in 2004 was $889

million which was 53 percent
higher than in 2001.
2.
Strong relationships built
on trust and respect with
suppliers and dealers.
3. Harley-Davidson operates in two
principal business segments:
Motorcycles and Related
Products, and Financial
Services.
4. Harley-Davidson is the only
major American motorcycle
manufacturer.
5. Strong brand name.
6. The company has continued to
focus its capital expenditures on
capacity expansion at its new
and previously existing facilities.
7. The Harley Owners Group
(HOG) is the industrys largest
company sponsored motorcycle
enthusiast organization, which
currently has approximately
430,000 members worldwide.
8. Harley-Davidson offers a custom
segment that allows owners the
opportunity to customize their
bikes, this division makes up the

1.

150

Harley-Davidson does not

emphasize price in its product.
2.
Harley-Davidson has had
difficulty gaining market share in
some European countries.
3.
Registrations for the
Asia/Pacific market are
decreasing.
4.
Facing ongoing capacity
constraints.
5.
Only a small portion of the
company's annual capital
expenditures relate to
equipment, which has the sole
purpose of meeting environmental
compliance obligations.
6.
The top Board of Directors
for Harley-Davidson are all men.
7.
The leadership strategy
council is comprised completely
of vice presidents.
8.
Difficult to attract and retain
talented employees.
9.
Lack of opportunity for
advancement.
10. Loss of benefits.

highest number of HarleyDavidsons sold.

9. Harley-Davidson has a strong
marketing department, which
sponsors and participates in all
major motorcycle consumer
shows and rallies.
Opportunities
1. The international heavyweight
market is growing and is now
larger than the US heavyweight
market
2. The European demand for
Harley-Davidson is the highest
in the international market and
represents the single largest
motorcycle market in the world.
3. Gas prices are high.
4. Women and younger riders are
increasing becoming interested
in bikes.
5. Alliances with Ford Motor
Company or other automobile
manufacturers are possible.
6. Industry registrations of
domestic heavyweight
motorcycles are increasing.
7. Market share increasingly in
Europe and Asia for the last two
years.
8. Increasing demand in US
markets for bikes.
9. Customers value quality parts.
Threats
1. Harleys ongoing capacity
restraints has cut supply and
resulted in a loss in domestic
market share in recent years.
2. Harleys average buying age is 42
years old and increasing.
3. The European Unions
motorcycles noise standards are
more stringent than those of
Environmental Protection
Agencies in the U.S and
increased environmental stand.
4. Some competitors of HarleyDavidson have larger financial
and marketing resources and they
are more diversified.
5. Environmental protection laws.
6. Shifts in buyers needs and tastes.
7. Customer loyalty in European
and Asian Countries.

S-O Strategies
1. Expand production into Europe
(S1, S2, O2, O3)
2. Partner with an apparel maker to
produce Harley apparel; joint
venture in Europe (S5, O4)

W-O Strategies
1. Hire two women to Board of
Directors (W6, O4)

S-T Strategies
1. Increase strong brand name (S6,
T9).
2. Promote smaller Harleys in
Asian countries (S9, T7, T8)

W-T Strategies
1. Improve employee relationships
(W7, T4)
2. Build a new manufacturing plant
in the USA (W4, T1)
3. Build a new manufacturing plant
in Europe (W2, T1)

151

8. Costs could become expensive

from international importing.
9. Perception of Harleys among
noncyclers is often not good.

G.

SPACE Matrix

y-axis = FS + ES = 5.8 + (-3.2) = 2.6

x-axis = CA + IS = -1.8 + (+5.0) = 3.2

H.

Grand Strategy Matrix

152

RAPID MARKET
GROWTH
Quadrant II

Quadrant I
Harley

WEAK
COMPETITIVE
POSITION

STRONG
COMPETITIVE
POSITION

Quadrant III

Quadrant IV
SLOW MARKET
GROWTH

1. Forward Integration
2. Backward Integration
3. Horizontal Integration
4. Market Penetration
5. Market Development
6. Product Development
7. Related Diversification

I.

The Internal-External (IE) Matrix

The IFE Total Weighted Score

High
3.0 to
3.99

The EFE Total

Weighted Score

Medium
2.0 to
2.99

Strong
3.0 to 4.0
I

Average
2.0 to 2.99
II

Weak
1.0 to 1.99
III

IV

VI

Harley

Low
1.0 to
1.99

VII

VIII

Hold and Maintain

153

IX

Region
USA
Europe
Japan
Canada
Other
Total

J.

Revenue
$4,097M
$478M
$193M
$$138M
$110M
$5,016

QSPM

Strategic Alternatives
Key Internal Factors
Strengths
1. Net income in 2004 was $889 million, which was 53
percent higher than in 2002.
2. Strong relationships built on trust and respect with
suppliers and dealers.
3. The standard and performance segments of HarleyDavidson make up 70% of the European heavyweight
motorcycle market.
4. Harley-Davidson operates in two principal business
segments: Motorcycles and Related Products, and
Financial Services.
5. Harley-Davidson is the only major American
motorcycle manufacturer.
6. Strong brand name.
7. The company has continued to focus its capital
expenditures on capacity expansion at its new and
previously existing facilities.
8. The Harley Owners Group (HOG) is the industrys
largest company sponsored motorcycle enthusiast
organization, which currently has approximately
430,000 members worldwide.
9. Harley-Davidson offers a custom segment that
allows owners the opportunity to customize their bikes,
this division makes up the highest number of HarleyDavidsons sold.
10. Harley-Davidson has a strong marketing
department, which sponsors and participates in all
major motorcycle consumer shows and rallies.
Weaknesses
1. Harley-Davidson does not emphasize price in its
product.
2. Harley-Davidson has had difficulty gaining market
share in some European countries.
3. Registrations for the Asia/Pacific market are
decreasing.
4. Facing ongoing capacity constraints.
5. Only a small portion of the company's annual capital
expenditures relate to equipment, which has the sole
purpose of meeting environmental compliance

154

Weight
0.075

Joint Venture in
Europe
AS
TAS
4
0.300

Increase Brand
Name Promotion
AS
TAS
3
0.225

0.075

0.150

0.030

0.065

0.260

0.130

0.050

---

---

---

---

0.050

---

---

---

---

0.050
0.040

2
---

0.100
---

4
---

0.200
---

0.040

0.080

0.120

0.030

---

---

---

---

0.030

---

---

---

---

0.075

---

---

---

---

0.060

0.240

0.055

---

---

---

---

0.050
0.045

-----

-----

-----

-----

0.120

obligations.
6. The top Board of Directors for Harley-Davidson are
all men.
7. The leadership strategy council is comprised
completely of vice presidents.
8. Difficult to attract and retain talented employees.
9. Lack of opportunity for advancement.
10. Loss of benefits
Total

Key External Factors

Opportunities
1. The international heavyweight market is growing and
is now larger than the US heavyweight market
2. The European demand for Harley-Davidson is the
highest in the international market and represents the
single largest motorcycle market in the world
3. Gas prices are high.
4. Women and younger riders are increasing becoming
interested in bikes.
5. Alliances with Ford Motor Company or other
automobile manufacturers are possible.
6. Industry registrations of domestic heavyweight
motorcycles are increasing.
7. Market share increasing in Europe and Asia for the last
two years.
8. Increasing demand in US markets for bikes.
9. Customers value quality parts.
Threats
1. Harleys ongoing capacity restraints caused a shortage
supply and a loss in domestic market share in recent
years.
2. Harleys average buying age is 42 years old and
increasing.
3. The European Unions motorcycles noise standards are
more stringent than those of Environmental Protection
Agencies in the U.S and increased environmental stand.
4. Some competitors of Harley-Davidson have larger
financial and marketing resources and they are more
diversified.
5. Environmental protection laws.
6. Shifts in buyers needs and tastes.
7. Customer loyalty in European and Asian Countries.
8. Costs could become expensive from international
importing.
9. Noncustomer perception is low.
SUBTOTAL
SUM TOTAL ATTRACTIVENESS SCORE

155

0.040

---

---

---

---

0.035

---

---

---

---

0.030
0.030
0.075

-------

------1.130

-------

------0.825

Weight
0.150

Joint Venture in
Europe
AS
TAS
4
0.600

Increase Brand
Name
AS
TAS
2
0.300

0.150

0.600

0.300

0.100
0.100

3
---

0.300
---

4
---

0.400
---

0.025

---

---

---

---

0.050

---

---

---

---

0.025

0.050

0.025

0.025
0.025

-----

-----

-----

-----

0.100

---

---

---

---

0.050

---

---

---

---

0.050

0.200

0.150

0.025

---

---

---

---

0.025
0.025
0.025
0.025

----3
3

----0.075
0.075

----2
2

----0.050
0.050

0.025

0.025
1.925
3.055

0.100
1.375
2.200

K.

Recommendations

L.

Form a joint venture with a European motorcycle company. This would enable Harley to
infiltrate the European market in a more cost effective way, and allow Harley to stay
more informed on European Union Laws dealing with noise and emissions. Also joint
venture with a European apparel maker to produce and market Harley apparel. Total Cost
expected of $2.5B.
Expand the brand name of Harley through increased advertising, trade shows, and bike
rallies. Total cost $500M.

EBIT/EPS Analysis
$Amount Needed: $3,000M
Stock Price $52
Tax Rate 35%
Interest Rate 7%
Shares Outstanding 274M

M.

Epilogue
On January 19, 2008, Harley-Davidson Inc. reported that fourth-quarter
profit rose 10 percent as the company benefited from higher sales overseas,
pushing its results above Wall Street expectations. The year 2007 was Harleys
twentieth straight year of record revenue, earnings, and retail motorcycle sales. Its
shares closed up $2.56, or almost 5 percent, to $54.05 on the New York Stock
Exchange.
Quarterly earnings grew to $230 million, or 84 cents per share, for the
October-December period from $209 million, or 71 cents per share, a year earlier.
156

Revenue grew 10 percent to $1.34 billion from $1.22 billion, with motorcycle
revenue up 10 percent to $1.09 billion. The company said U.S. retail motorcycle
sales increased 0.7 percent, while international sales rose 13 percent.
For the full year 2007, Harleys net income rose 8 percent to $959.6
million, or $3.41 per share, from $889.8 million, or $3 per share, in 2004.
Revenue grew 7 percent to $5.34 billion from $5.02 billion in the prior year. The
company maintained its forecast for wholesale unit growth in the range of 5 to 9
percent annually and an annual earnings per share growth rate of 11 to 17 percent.
It kept its motorcycle shipment target for 2008 of between 348,000 to 352,000
units, with planned wholesale shipments of 79,000 motorcycles during the first
quarter.
However, Gary Cooper, an analyst with Bank of America, said U.S. sales
in the fourth quarter were disappointing and meant inventories at U.S. dealers had
nearly doubled to an estimated 65,000 units, a record high. The company sells 80
percent of its motorcycles domestically. "This high level of inventory exists at the
same time that industry motorcycle sales are decelerating and the U.S. economy is
slowing," Cooper said in a research note. "To our eyes, this is not an appropriate
time to be carrying an all-time high level of inventory." Ziemer said, while the
company aimed to reduce wait times and retail prices for motorcycles at U.S.
dealers, inventories were piling up at northern climate dealers but were tight in the
South. "Putting inventory in the right place at the right time has been
challenging," he said. "We have not found a short-term silver bullet solution."
Harleys worldwide retail sales grew 3.0 percent in the fourth quarter and
6.2 percent for the full year to 317,169 units; the company said. For the year,
U.S. sales grew 4.2 percent to 253,414 units, European sales grew 19.9 percent to
29,482; Japan was up 11.1 percent to 11,420; Canada rose 4.1 percent to 11,660;
and all other markets grew 19.4 percent to 11,193.

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