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HARLEY-DAVIDSON

Three Year Strategic PIan





Submitted by

Samantha Johnson
Jacob MaIiske
SheIIey Montanio


Prepared for

Professor DonaId Looney
BIack HiIIs State University

November 25, 2011
VISION STATEMENT
At Harley-Davison we wish to be the leading motorcycle company that best understands
and satisfies our customers, while offering great customer service and quality products.
MISSION STATEMENT
Harley-Davidson is dedicated to developing and distributing a wide variety of
motorcycles and accessories to all our customers who wish to experience the thrill of
motorcycling. Our company stays competitive in the motorcycle industry by using state of the
art technology to enhance performance, comfort, and quality. We strive to capitalize our
success on a global scale in an effort to maximize our stakeholders' wealth and financial growth.
t is of great importance that we operate and grow at a profitable rate through sound economic
decisions. Our employees are skilled, well compensated, rewarded, and offered fringe benefits
to help create and maintain an experienced and qualified taskforce.

EXTERNAL ASSESSMENT
ExternaI Audit
The purpose of an external audit is to assess the industry that Harley-Davidson operates
in and to list the opportunities that the firm could benefit from and be knowledgeable about the
threats that should be avoided. The recreational vehicle industry is particularly fragile and
companies in this industry are sensitive to intense competition. The three main obstacles to the
motorcycle industry are the economic recession and its worldwide inflation, the rising bike
prices, and the troubled housing industry, which is a key connection to bike buyers.
The U.S. motorcycle market is worth $14.6 billion (2007) and is expected to reach $21
billion as a whole by 2011.
1
The U.S. market accounts for 25% of the global motorcycle market.
arket value is expected to grow 7.1% from 2005 2010 with market volume expected to grow
7.5% in the same timeframe. nternational sales represented 33% of Harley's revenues in 2010.
The market value of motorcycles in Europe has declined .8% from 2001 2005 with market
volume also decreasing 1.6% in that timeframe.
2

The economic factors affecting the motorcycle industry are many. As listed above, the
economic recession with the addition of worldwide inflation being a key detriment to the industry
at this time. The lack of confidence in the current economy is directly proportional to the
purchasing of any consumer items, especially those that are purchased with discretionary
income.
The unemployment rate in the U.S. was 9.0% in October of 2011, down .1% from
September. Productivity in the U.S was 3.1% in October 2011, up 3.2 from September 2011.
3

Personal income rose 0.4 percent in October, exceeding private-sector forecasts of a 0.3
percent increase. Wages and salaries, the largest part of income, rose 0.5 percent. Real
consumer spending edged up 0.1 percent, compared to expectations of a 0.3 percent rise. This
followed a pickup of 0.5 percent in September.
4
f the upward trend in the U.S. continues, the
motorcycle industry may begin to experience an increase in sales.
There are also many social, cultural, demographic, and environmental factors
that influence the industry. Social factors are one of the most important non-economic factors
affecting the recreational vehicle industry. The average Harley-Davidson owner is a married, 47
year old male with an annual income of $85,000 per year. Over two thirds of Harley-Davidson's
sales are to buyers with at least one year of education beyond high school. Only 10% of Harley
owners are women, leaving a huge untapped segment that could be focused on. 31% of Harley
owners have at least 30 or more years of riding experience.
5

Cultural and demographic forces also play a role in Harley-Davidson's external
assessment. Americans 65 and over will increase from 12.6% in 2000 to over 20.0% by the year
2050. 23% of Harley owners are between the ages of 51 60, with an additional 7% being aged
61 70. The baby boom generation has driven the increase in consumer spending, and as this
group ages, their spending could shift to more retirement-type of purchases. This could be a
sign of market segment growth if Harley-Davidson is able to shift their focus to the younger
generations.
Political, legal, and governmental forces are also at play within the industry. Worldwide,
governmental forces may be the hardest that Harley-Davidson will have to contend with. any
cities in Asia and Europe have massive restrictions on motorcycles, including banning them
from elevated highways to curb noise and thefts. n China, motorcycles have been blamed for
many thefts by people on motorcycles driving by individuals and lifting their purses. This has
caused a decline in the allure of owning a motorcycle.
The EPA regulates noise and emissions of both automobiles and motorcycles, which is
an important consideration for many purchasers. Harley-Davidson's bikes are not up to the
regulations of many European and Asian nations across the globe, causing consumers in these
areas to shy away from purchasing them. There are also many taxes and tariffs in Asian
countries that are causing the price of the bikes to nearly double, causing many consumers to
not be able to afford them.
ey InternaI Assessment
Key nternal Forces
The Harley-Davidson Company was founded by William Harley and Arthur Davidson in a
small wood shed in 1903. Since then, the company has become one of the most successful
motorcycle dealers in the world because they were able to capitalize on their strengths and
minimize their weaknesses.
Harley-Davidson is a financially sound and expanding company. The company
specializes in, and is one of the global leaders for manufacturing and distributing heavyweight
motorcycles. The Harley-Davidson name has grown to be acknowledged as a brand name
producer whose products are associated with good quality. The company is recognized as the
world's largest producer of heavy weight motorcycles by market share. With continued
expansion the company now offers 35 different models, and has more than 650 stores in the
U.S. n 2006 it was reported that 80% of Harley sales were in the U.S. Recent numbers show
that sales are increasing in other countries, making the U.S. only accountable for only 60% of
total sales. At the end of the first quarter in 2011 Harley's international sales had increased by
11.3%, with sales in Europe alone increasing by 22.7%. Sales overall were up 2.5%.
anagement
The management for Harley-Davidson has clearly defined positions in which each of the
company's employee duties are clearly laid out. This helps the company to function properly
and in an organized manner. Harley also capitalizes on management strengths by trying to
incorporate employees in decision making and company involvement in an attempt to keep
employee morale at its highest.
Although Harley management has done a good job on capitalizing on their strengths,
there are a few weaknesses that the company could improve upon. The recent recession has
forced management into a tough position in which they could not find a profitable solution for.
anagement closed many dealerships and laid off thousands of workers. anagement has also
been slow and unsuccessful while expanding into ndia's markets, which is one of the
company's recent expansion goals.
Overall, Harley is a financially strong company, in part due to their effective
management.
arketing
Harley Davidson's marketing strategy has definitely benefitted the company. Certain
marketing slogans that the company uses to promote their products and deter the competition
have increased the company's success. These slogans include "Until you've been on a Harley-
Davidson, you haven't been on a motorcycle and "The Legend Rolls On. Harley's products
have grown to represent an American icon, and accounts for a large portion of Harley's
advertising in the U.S.
The company also tries to promote the Harley lifestyle to its customers which has been
successful thus far. The biggest and most successful advertising technique in the U.S. has been
promoting that the product is American made, and has evolved from among the first
motorcycles created. The brand image that Harley has built in the United States helps to
increase product awareness and also develop repeat customers.
Weaknesses in Harley's marketing technique would include a lack of emphasis on the
younger generation. Harley's prime customers are from the baby boomer generation and are
starting to decrease due to age. The majority of Harley's business comes from married males in
their late forties. Targeting youth could expand sales and offer a more sound future for the
company. Women are also becoming potential customers that the company should advertise to
as well. Women currently only represent 10% of Harley buyers, but that rate is expected to rise
over the next few years.
Harley-Davidson does not spend a great deal of money in advertising due to the
fact that they have such an established brand image. The implication here is that Harley is not
directly marketing towards women or the younger generation, which are areas they will have to
focus on in order to expand their market share. As the customers of the baby boomer
generation begin to decrease their recreational buying, it will be up to Harley to grab the
attention of the younger generations.
Finance/Accounting
Despite the recent recession and rough financial times for Harley Davidson they seem to
be getting back on the right track financially. Gross profit margin went from 20.3% in the fourth
quarter of 2009 to 29.6% in the fourth quarter of 2010. Harley also announced a 73.5% increase
in income from the first quarter of 2010 to the first quarter of 2011. A weakening U.S. dollar has
also helped increase international sales. Harley's total revenue from sales increased by 2.5% in
2011.
The recession hit Harley-Davidson quite hard financially, making many of the company's
financial weaknesses apparent. The recession's effects are still impacting the company. arket
share was down 1.9% in the first quarter of 2011. Total debt/equity ratios are higher in 2011 as
compared with the current 5 year average. Harley also finances about half of the bikes which
they sell. With the current recession still lingering around many of these customers are unable
to continue paying on their loans. This seems to be taking a toll on the company financially.
Production/Operations
When it comes to motorcycles Harley-Davidson takes great pride in being one of the
country's only all American made products. any of Harley's customers stay loyal to the
business for this reason, especially United States military veterans. The company also has
several production plants around the U.S. which produce new models, custom bikes, and
replacement parts. These plants use up to date technology and are set up to keep up with the
current market demand. Harley-Davidson has a reputation for producing products that are of
reliable quality.
Production weaknesses for the company include the fact that all productions are union
based in the U.S. This makes for expensive labor costs and potential strikes. Production of
these bikes cost more than competitors making the products more expensive for customers.
This turns many potential customers to cheaper competitors.
Harley will need to focus on the upcoming labor collective bargaining agreements to
ensure that there is no relocation of production facilities, work stoppage, or other labor disputes
adversely affect the company's business.
Research and Development
Harley-Davidson has two research and development factories. These facilities are
constantly improving their models making them more reliable and up to date. Harley takes great
pride in producing quality products through continuous improvement. The company is always
modifying and updating models, or even producing new ones to keep a competitive advantage.
Harley capitalizes on strengths such as creating new models to attract new customers. Just in
the past few years the company began producing trikes to retain and even attract new
customers. Harley has recently introduced new exhausts to reduce emissions, fuel injection,
and water cooled engines.
Harley-Davidson has failed in their attempts to enter certain new motorcycle markets
such as the light weight market and the sport bike market. n the sport bike market Harley
distributed their Buell models until production was ended in October of 2009. Competitive
research and development for the company is quite costly. Development of new models may
require new facilities or renovations of the existing ones, causing expenses to rise.


anagement nformation Systems
anagement information systems are an important tool when it comes to quality and
consistency for Harley-Davidson. With S, Harley can stay more organized and keep clear and
accessible records for its company. These may track sales habits, rising or falling demands, and
even productivity rates. S gives the company a better understanding of what is going on in
their business. Weaknesses of the systems include high purchase and maintenance costs.
System failures can also lead to data loss.
Financial Ratio Analysis
Ratio HarIey-
Davidson
2010
HarIey-
Davidson
2009
HarIey-
Davidson
2008
Ducati
Motor
Co.- 5
year
avg.
Industry
Average
Liquidity Ratios

Current Ratio 2.02 1.9 2.07 5.09 1.31
Quick Ratio 1.86 1.78 1.9 1.07 1.14
Leverage Ratios

Debt to Total-Assets Ratio 0.61 0.62 0.5 0 NA
Debt to Equity Ratio 2.61 2.67 1.86 0 115.83
Long Term Debt to Equity
Ratio 2.05 1.95 1.03

NA 69.52
Times nterest Earned Ratio

Activity Ratios

nventory Turnover 14.89 14.8 14.89 0 2.27
Fixed Assets Turnover 5.96 5.27 5.44 1.32 NA
Total Assets Turnover 0.52 0.5 0.69 0 0.19
Accounts Receivable
Turnover

ProfitabiIity Ratios

Gross Profit argin 0.36 2.98 0.34 3.04 4.7
Operating Profit argin 0.1 0.04 5.78 NA 5.45
Net Profit argin % 3 -1 10.99 -2.9 0.56
Return on Total Assets % 1.55 -0.6 8.4 -3.4 3.69
Return on Stockholders'
Equity % 6.64 2.61 30.9 0 2.22
Earnings Per Share 0.6 -0.2 2.7 -0.35 NA
Price Earnings Ratio



Growth Ratios

Sales % 11.1 -18 -7.7 0.46 -1.04
Earnings Per Share 0.11 0.23 0.34 0 23.24
Dividends Per Share 0.4 0.9 0.33 0 1.04

SWOT Analysis
Harley-Davidson Strengths
Harley-Davidson
Weaknesses

1. Additional job cuts have helped
improve profit margin from 2.98 in 2009
to .36 in 2010.
1. Not generating
enough of bikes for its
demand

2. arket Leader - commands 50% of
the industry of heavyweight motorcycles
in the US .
2. Bad Acquisitions
Hurt Harley Davison

3. ncrease in production by 8,452 units
over last year's third quarter.
3. Weak Online
presence

4. Company has cut supplier base by
80% since 1996 to manage increase
production internally and cut costs
4. Weak R&D

5. Strong brand recognition and
customer loyalty
5. 308,000 recalls cost
company 10 to 12
million dollars

6. n terms of non-US distribution, Harley
- Davidson has 71 full service
dealerships in Canada, 383 in Europe,
201 in Asia Pacific and 32 in Latin
America
6. ust rely on a
network of
independent dealers
and distributors to
manage retail
distribution of products
to meet financial
growth in revenues.

7. Financial Leverage - Harley Davison's
total assets increased by over
30,000,000 from 2009 to 2010
7. Dependent on
Unionized labor and
collective bargaining
agreements expires
arch 2012.

8. Operates in two segments - Financial
services and motorcycles with related
products.
8. Financial services
operations rely on
external sources to
finance a significant
portion of its
operations.

9. Technology Helps Harley Davison -
Company is aggressive in standardizing
its T systems to streamline operations
and reduce expense of multiple products
9. Operations
dependent attracting
and retaining skilled
employees and
management.

10. Strong anagement Helps Harley
Davison

11. nternational retail sales are
increasing

Opportunities SO Strategies WO Strategies
1. Fragmented arket
Provides Opportunities
1. Develop lower priced/ light weight
bike. Efficient in fuel consumption for
individuals who are interested in riding a
bike but cannot afford or ride the current
models.
1. Negotiate with
unions based on
economic status
(recession) to
eliminate increases.
2. Online arketplace Could
Provide Opportunities for
Hogs
2. Create another line for female riders 2. ncrease R & D by
10%
3. ore Financial Leverage
Could Help Earnings
3. Create an environmentally friendly
powerful bike with less fuel emissions.
3. Research how
Financial Services can
be self-reliant
4. New arkets and Services arket products to women and lower
ages.
4. ncrease quality
control by 10%
5. nnovation Could Help
Harley Davison

6. Emerging arket Have
Potential

7. nternational arkets
Provide Opportunities

8. Fuel Prices
9. Appealing to multi-
generational and multi-cultural
customers worldwide

10. Women purchasing
motorcycles have increased
52% from 2003 to 2008 and
still increasing.

11. ncreasing Technology in
Research and Development

12. Develop a environmentally
friendly powerful motorcycle

HarIey-Davidson Threats ST Strategies WT Strategies
1. Bad Economy Could Hurt
Earnings at Harley Davison
1. ncrease current promotional
campaign (product placement,
advertising, online newsgroup/press
releases, media ads) both in the US and
abroad.
1. Look for skilled
workers outside of the
US.
2. Change in Consumer
Tastes Could Hurt Bike Sales
2. ncrease production by 10% 2. Perform a market
analysis of wants and
tastes of today's
young bikers
3. Government Regulation is
Always a Threat
3. ncrease marketing targeting women
and ages 24 - 45

4. Substitute Products Could
Hurt Harley Davison

5. Volatile Currencies Could
Hurt ntl Sales


6. Volatile Revenue for Bike
Sales

7. nternational and US
Competition with greater
financial resources.

8. neffective collaboration
and agreements with Union

9. Absence of material issues
associated with workforce
reductions

10. Availability of and effective
use of third party service
providers

11. anufactures products
that create exposure to
product liability claims and
litigation

12. Tightening credit with
banks due to credit risks.

13. Failure to adjust to
production rate, inventory
levels and manage costs
associated with a more
aggressive retail sales pattern.

14. Honda, Yamaha and
Suzuki are more Diversified
than Harley in terms of
Product

15. Average edium income
for Harley Davidson buyers
was $85,000




Space atrix
inanciaI position Rating
Cash and equivalents dropped from $1.5 billion in 2010 to $1.4 billion in 2011. 2
Experienced a 95.9% rise in profits for the third quarter of 2011. 7
Restructuring expenditures reduced 81.6%. 6
Harley is recalling 308000 motorcycles, which will cost the company 10 to 12 million dollars. 1
By 2014 it is expected that more than 40% of revenues will come from international markets. 5
Debt to assets ratio has been steadily improving. 4
Stock price has soared 240% since 2009. 6
Total 31
Industry position ExternaI
World recession is currently in effect. 2
Plenty of potential for continued world expansion. 4
The market is large and lucrative with a cap of $8.09 billion. 5
The industry is becoming increasingly competitive. 2
Total 13
StabiIity position ExternaI
Current inflation rates are up. -5
The markets demographic continue to get older. -6
Younger generation is becoming more interested in lightweight imported motorcycles. -6
There is an increasing demand for diversified products. -2
Disposable income is on the rise. -1
Total -20
Competitive position
Harley has a large base of repetitive customers. -1
Harley Davidson commands roughly 50% of the US market. -2
The company is the market leader in producing and distributing heavy weight motorcycles. -2
About 60% of all motorcycle sales are in North America. -3
Harley's products are associated with high quality and durability. -2
Harley's products are also viewed as expensive. -6
Total -16
ConcIusion
SP Average is -20/5 = -5 P Average is 13/4 =3.25
CP Average is -16/6 =-2.67 FP Average is 31/7 = 4.45
Directional Vertical Coordinates: x-axis -2.67+3.25 = .58
y-axis -5+4.45 = -.55

Based on this space matrix Harley Davidson is in a position in which it should pursue
competitive strategies. The firm is considered to have major competitive advantages in an
industry that has a high growth potential. t would be wise for Harley to attempt to gain control of
its competitors by using horizontal integration tactics. Because Harley is strongest in their
competitive strategies they should also continue in market development to maintain their
competitive advantage. t would also be wise for the company to continue with related
diversification.
Long Term Objectives
Long term objectives