SECTION E International Issues in Strategic ManagementCase.docx

SECTION E International Issues in Strategic Management
Case 9 Harley Davidson: An Overreliance on Aging Baby
Boomers
Alan N. Hoffman
Bentley University
Natalia Gold
Northeastern University
The authors thank Barbara Gottfried, and Bentley University
MBA students Cristina Montalvo, Robert Bondy, Michael
Ferriero, and John O’Rourke for their research and
contributions to this case. Printed by permission of Dr. Alan N.
Hoffman. Please address all correspondence to: Dr. Alan N.
Hoffman, Dept. of Management, Bentley University, 175 Forest
St Waltham, MA 02452, [email protected].
Company Background
In 1903, William S. Harley and Arthur Davidson produced the
first Harley-Davidson motorcycle in a 15’ x 10’ wooden shed
with the words ‘Harley-Davidson Motor Company’ etched into
the door. The warehouse was located in Milwaukee, Wisconsin,
the company’s headquarters to this day. They were soon joined
by Arthur’s brother Walter, and by 1910, the company had
begun to establish itself, using its current “bar and shield” logo
for the first time; the logo that it trademarked with the U.S.
Patent Office In 1911. In 1981, Harley-Davidson, Inc.
purchased the Harley-Davidson Motorcycle Company from AMF
Incorporated via a management buyout, incorporated, then went
public in 1986. Over the years, Harley-Davidson had made a
name for itself as the most well known producer of heavyweight
motorcycles in the North American market; and, although its
international sales were not significant until the late 1990s, the
company then quickly became the most renowned brand in the

world.
Harley-Davidson, Inc., a publicly traded company listed on the
New York Stock Exchange as “HOG,” divided its operations
into two segments: Motorcycles & Related Products, and
Financial Services. The Motorcycles & Related Products
segment designed, manufactured, and sold wholesale
heavyweight motorcycles, motorcycle parts, accessories, and
general Harley-Davidson merchandise to retail customers
through a network of independent dealers in North America,
Europe, Middle East, Africa, Asia Pacific, and Latin America
(Exhibit 1). The Financial Services segment, known as Harley-
Davidson Financial Services (“HDFS”), provided wholesale and
retail financing as well as insurance-related services. HDFS
customers were primarily end-users from the Harley-Davidson
retail stores, drawn from its networks primarily in the United
States and Canada.
Exhibit 1
Harley-Davidson’s U.S. and International Dealerships
FULL SERVICE DEALERSHIPS AND SRL’S
2012
2011
2010
2009
2008
2007
2006
USA
695
706
729
758
787
788
679
Canada

73
74
74
74
74
76
75
Europe region
371
370
364
369
381
370
354
Asia Pacific region
281
274
272
254
200
194
178
Latin America region
47
44
40
40
45
49
31
Totals
1,467
1,468
1,479
1,495

1,487
1,477
1,317
Strategic Direction
Harley-Davidson’s mission was to design and manufacture
premium motorcycles for the heavyweight market. As of 2013,
the company offered seven different models: Sportster, Dyna,
Softail, V-Rod, Touring, CVO, and Trike. Each model was
highly customizable, made to order to customer specifications,
creating a Harley-Davidson mystique. As the company’s motto
so aptly put it:
The company’s vision promoted a comprehensive motorcycling
experience across a wide demographic through events, rides,
and rallies. Its rallies, a crucial part of Harley-Davidson culture,
were a way for motorcycle enthusiasts to come together at
different locations and tour with each other. Ideally, Harley-
Davidson wanted every motorcycle owner to wear a Harley vest,
a Harley helmet, and Harley boots, then meet up with other
Harley motorcycle owners wearing the same attire—the events,
rides, and rallies made this vision come true.
Harley-Davidson’s main objectives were: (1) to provide a
quality and reliable product; and (2) to allow for highly
customized, stylish products. The company was so sure of the
quality of its products that it offered a two-year warranty on
new motorcycles, and let customers know they came first:
At Harley-Davidson, customers not only purchased a
motorcycle, they bought the “rebel” lifestyle Harley signified.
This rebel image took a long time to develop and constituted a
major competitive advantage for Harley. Nothing promised the
same excitement as being on the open road on a Harley, its
engine roaring, the wind whipping, the great open spaces of
America just down the road. The company also considered the
availability of a line of motorcycle parts, accessories, and
general merchandise and of financing through HDFS part of its
competitive advantage. No other motorcycle company offered
its own financing under the same company umbrella.

Harley-Davidson specifically targeted a narrowly defined
market of middle-aged males with disposable income. However,
as U.S. baby boomers got older, the company recognized that it
must look to new markets and demographics to expand sales.
Competition
Harley-Davidson’s main competitors were Honda, Suzuki,
Yamaha, Ducati, Kawasaki, BMW, and Polaris. Most of
Harley’s competition was international in focus unlike Harley’s
more U.S. domestic presence. Other than Honda, most of the
other competitors focused on lightweight, sporty, speed bikes.
Harley historically targeted the larger, luxury motorcycle
market.
According to Popular Mechanics magazine, the top 10 best buys
for bikes in 2103 were:
1. 2013 Kawasaki Ninja 300
2. 2013 BMW S1000RR HP4
3. 2013 Victory Judge
4. 2013 Harley-Davidson Seventy-Two
5. 2012 Honda NC700X
6. 2013 Ducati Monster 696 Anniversary
7. 2012 Yamaha Super Tenere
8. 2013 Moto Guzzi V7 Racer
9. 2013 Suzuki SVF 650
10. 2013 Zero S
The Japanese company Honda was always Harley’s biggest
competitor: Harley-Davidson had the greater domestic market
share but Honda had the largest international market share in
the entire motorcycle industry, with a history of providing
quality products at cheaper prices than comparable American
made products. Honda’s best selling motorcycle in the United
States was the GoldWing. The Harley management was very
much aware of Honda as its biggest competitor and consciously
strove to stay ahead of Honda in the industry.The Motorcycle
Industry
As with all motorcycle companies, Harley-Davidson operated in
a highly regulated industry and had to ensure that it complied

with U.S. EPA standards and the National Highway Traffic
Safety Administration’s National Traffic and Motor Vehicle
Safety Act. In most states, motorcyclists had to have a separate
license. Some promoters of motorcycles worried that consumers
might not want to go through the process of getting a special
license to use a motorcycle, which they considered a threat
given that any laws implemented against the use of motorcycles
could directly affect the acquisition of a motorcycle.
Motorcycle safety regulations were also historically created and
implemented at the state level. Each state had a set of individual
requirements for motorcycles including: helmet requirements,
state funded rider education, eye protection, passenger
regulations, and lighting. Even though states had safety
regulations in place, trends evidenced an increasing number of
motorcycle accidents. A study conducted by the University of
Southern California (USC) attributed this increase to two major
factors—lack of detection of motorcycles by passenger vehicle
drivers and uneducated motorcycle riders. According to the
USC study, 92% of motorcyclists who were involved in
accidents had no certified training and had not participated in a
rider education program. Although some states offered state
funded rider education, many did not. Beginning in the 1990s,
the rate of motorcycle-related accidents steadily increased, from
61,451 in 1997 to 79,000 in 2003; and fatalities increased from
2,116 to 3,661. This increased risk, it was feared, could deter
consumers from purchasing a motorcycle and push them to a
safer option such as a small car.
In addition, as baby boomers, Harley-Davidson’s main target
audience, aged, their concerns about the safety risks of riding a
motorcycle grew, which was seen as potentially detrimental to
the motorcycle industry as the federal government could then
decide to mandate increased safety requirements. Most bikers, it
was believed, chose to ride a motorcycle for the cool image;
thus, being forced to wear protective gear, helmets, and use
extra safety features could hurt the industry’s image and sales.
If this trend continued, many felt, there could be a potential

threat to Harley’s ability to retain current customers and attract
new ones. The industry could lose profitability, and sales of
motorcycles could decrease.
On the other hand, industry leaders argued, rising fuel prices
might prompt consumers to switch to motorcycling and
bicycling to save money on transportation costs, a trend
underpinned by a consumer shift toward eco-friendly practices
requiring less (or no) fuel consumption. Thus, demand for these
products was expected to rise. By capitalizing on these trends
and opening up to a broader consumer market, the industry was
expected to grow at an annualized rate of 1.3% to $7.1 billion in
the five years leading up to 2018 (IBIS World, 2013).
By the same token, however, the loud vroom Harley-Davidson
motorcycles made, once seen as an advantage, became a threat
for the brand. While once that noise was seen as a sign of
power, customers began to find it both annoying and a sign of
conspicuous consumption. Harley needed to see customer
dissatisfaction as an opportunity to design new motorcycles that
minimized sound to decrease the perception of loud noise and
promote a more eco-friendly image.
Finally, while technological enhancements enabled Harley-
Davidson to produce a constant stream of appealing
technological innovations such as video cameras, GPS, airbag
systems, and increased fuel efficiency for its bikes, adding new
tech often resulted in higher manufacturing costs, thus higher
prices for consumers.Marketing
One of the primary reasons for Harley-Davidson’s success over
the past few decades was the positioning of its brand as an
American icon. That iconic status was crucial to creating
tremendous brand recognition and a strong reputation
throughout the world for producing the highest quality bikes in
the marketplace. Owners of Harley-Davidson motorcycles swore
by them and were extremely unlikely to seek a competitor
brand. The brand was so strong the company was even able to
generate significant sales of non-motorcycle branded
merchandise, including hats, t-shirts, and other household items.

Harley was seen as a true “American” brand, something baby
boomers supported and were willing to stand behind.
Additionally, a sense of community and culture contributed to
Harley’s brand strength. The company promoted motorcycle
rallies, where Harley owners could meet and ride with other
Harley owners; and encouraged riders to share their positive
experiences through word-of-mouth or online forums set-up for
that purpose.
Through all this, the main challenge Harley-Davidson faced
from a marketing standpoint was its inability to generate
interest and sales from demographics other than its traditional
target market: middle-aged men. In 2012, over 65% of sales
were made to Caucasian men over 35 (Research and Markets,
2013). The baby-boomer generation had been the main driver of
Harley-Davidson sales for more than 20 years, but as boomers
aged and lost their desire to purchase and ride, Harley needed to
find ways to attract new customers. The younger generation was
more attracted to colorful, lightweight bikes, similar to those
sold by Kawasaki and Suzuki, two of Harley-Davidson’s main
competitors, and on top of that, they saw Harleys as appealing
to an older demographic, something their fathers would ride but
they wouldn’t. Thus, the best way for Harley to attract the
younger generation was to continue to improve its
customization and technological options to appeal to a
generation committed to customizing or altering a product to
best suit its own needs and desires. Harley-Davidson had been
offering customization options for some time, and this allowed
potential buyers on its website to build their own Harleys to
whatever specifications they desired. Adding yet more
customization options in the form of colors and styles, it was
hoped, could benefit Harley and increase its chances of
attracting new riders. However, some of Harley’s competitors
such as Kawasaki and Honda were already “on it,” offering
technological features such as high-quality sound systems, rear-
viewing cameras, and GPS system add-on availability for their
bikes, a sure-fire way to appeal to younger consumers.

A further challenge for Harley-Davidson was promoting the
safety of its bikes versus those of its competitors. Motorcycle
riders had become much more safety-conscious than those of
previous generations, and as motorcycles were traditionally
considered one of the most dangerous forms of transportation,
Harley had to meet the challenge of potential buyers’ resistance
on the grounds of safety in its bid to increase sales.Operations
By the end of 2012, Harley had over 695 full service
dealerships in the United States and 73 in Canada, and another
700 full service dealerships in Europe, the Middle East, Asia,
and Latin America (Exhibit 1). The availability of full service
dealerships was considered the best way to promote sales as it
allowed customers to come into a local shop, test drive a bike,
look at options, and understand their financing options before
actually making a purchase, all of which were crucial for an
investment as expensive as a Harley.
Harley-Davidson also believed that flexible manufacturing
processes and supply chains combined with cost-competitive
and flexible labor agreements were critical to allowing the
company to respond to customers in a cost effective manner,
restructuring its U.S. manufacturing plants accordingly to
maximize efficiency, cost saving, and customer satisfaction.
The company also fostered long-term, mutually beneficial
relationships with its suppliers. Through these collaborative
relationships, the company gained direct access to technical and
commercial resources for product design, development, and
manufacturing initiatives greatly improving product quality,
technology integration, and faster new-vehicle introductions
(Research and Markets, 2013).
One of Harley’s weaknesses from an operational standpoint was
its inability to generate revenue streams from product lines
other than motorcycles. Harley had attempted to market various
supplemental products in the past, including motorcycle-related
parts, Harley-branded trucks, Harley branded snowmobiles and
all-terrain vehicles, but all of these ventures proved only

marginally successful. Harley also had to face the difficulty that
in some regions of the country, especially the Northeast, its
products could only be used for a limited number of months per
year. As the Northeast was a very large market, critics noted
that it would be helpful for Harley to have supplemental
products available for sale during the winter months, when
riding a motorcycle was not particularly feasible.Restructuring
Plan
Between 2009 and 2014, Harley undertook a number of different
restructuring initiatives with the goal of streamlining operations
and reducing production costs while maximizing efficiencies. A
major restructuring project within its U.S. holdings was the
consolidation of its motorcycle production into a single line at
the company’s motorcycle manufacturing facility in York,
Pennsylvania. Additionally, the company ratified a new, more
flexible labor agreement at all of its U.S. manufacturing
locations. In the first half of fiscal year 2013 the company
began implementing “flexible” production capabilities at its
York facility by adding flexible workers. By doing this it
increased manufacturing production in the first half of 2013 to
more closely mirror retail demand for its products.
The company also restructured operations internationally to
reduce costs and maximize output, closing one of its major
international manufacturing facilities in New Castalloy,
Australia, a plant that manufactured the majority of the wheels
for the company’s products. Instead, the company decided to
source these components through existing suppliers, as that
would be more efficient and cost effective (Research and
Markets, 2013).Finance
For 2014, Harley-Davidson’s main financial objective was to
find ways to increase sales and profits and expand sales to new
market segments. The company continued to see strong year-
over-year growth in sales and net income (Exhibits 2 and 3). It
also maintained a strong commitment to research and
development expenditures, indicative of its drive to continue to
search for ways to improve and expand through R & D. While

some companies used net profits to pay dividends to investors,
Harley-Davidson, like many successful companies, determined
that the key to continued success and longevity was
reinvestment of profits in the company to fund new product
development and improve established products. Another
financial strength for Harley was its return of sales and revenue
to strong positions after temporary downturns in 2011,
following the reorganization and restructuring plans. Finally,
the company generally maintained strong cash positions,
enabling it to stay liquid and pay down debt balances, should
high debt ever become an issue.Exhibit 2
Income Statement
Harley-Davidson, Inc.
Condensed Consolidated Statements of Income
Unaudited
Year Ended December 31, 2013 (In Thousands. Except Per
Share Amounts)
Q1
Q2
Q3
Q4
TOTAL
Motorcycles and related products revenue
$ 1,414,248
$ 1,631,466
$ 1,180,284
$ 4,225,998
Gross profit
519,442
601,870
416,315
1,537,627
Selling, administrative and engineering expense

239,743
249,502
240,198
729,443
Restructuring expense
2,938
(5,297)
646
(1,713)
Operating income from motorcycles and related products
276,761
357,665
175,471
-
809,897
Financial services revenue
156,965
162,841
163,434
483,240
Financial services expense
85,420
88,685
87,366
261,471
Operating income from financial services
71,545
74,156
76,068
-
221,769
Operating income

348,306
431,821
251,539
1,031,666
Investment income
1,615
1,770
1,161
4,546
Interest expense
11,391
11,238
11,369
33,998
Income (loss) before income taxes
338,530
422,353
241,331
-
1,002,214
Provision (benefit) for income taxes
114,401
150,314
78,615
-
343,630
Income (loss) from continuing operations
224,129
271,739
162,716
-
658,584
Income (loss) from discontinued operations, net of tax

-
-
-
-
Net income (loss)
$ 224,129
$ 271,739
$ 162,716
$ -
$ 658,584
Earnings (loss) per common share from continuing operations:
Basic
$ 1.00
$ 1.22
$ 0.73
Diluted
$ 0.99
$ 1.21
$ 0.73
Weighted-average common shares:
Basic

224,429
223,052
221,936
Diluted
226,148
224,470
223,486
Cash dividends per common share
$ 0.21
$ 0.21
$ 0.21
Exhibit 3
Balance Sheet
Harley-Davidson, Inc.
2013 Quarterly Condensed Consolidated Balance Sheets
Unaudited (In thousands)
ASSETS
March 31,2013
June 30, 2013
Sept 29, 2013
Current assets:
Cash and cash equivalents
$1,018,759
$1,300,690
$1,029,955
Marketable securities
135,246
133,631

122,234
Accounts receivable, net
259,673
253,819
290,158
Finance receivables held for investment net
2,074,036
2,010,974
1,829,612
Inventories
416,050
307,717
401,199
Restricted cash held by variable interest entities
197,025
212,004
194,329
Other current assets
232,190
235,636
225,188
Total current assets
4,332,979
4,454,471
4,062,675
Finance receivables held for investment net
3,959,903
4,214,612
4,355,278
Other long-term assets
1,042,239
1,038,115
1,036,055
$ 9,335,121
$ 9,707,198

$ 9,484,008
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable & accrued liabilities
824,335
794,670
885,940
Short-term debt
687,705
525,745
394.460
Current portion of long-term debt
715,143
776,274
721,316
Total current liabilities
2,227,183
2,096,689
1,981,716
Long-term debt
3,892,469
4,234,352
4,067,733
Pension liability and postretirement! healthcare benefits
426,729
420,096
412,482
Other long-term liabilities
131,692
134,822

140,230
Total shareholders’ equity
2,657,048
2,821,239
2,881,847
$9,335,121
$9,707,198
$9,484,008
Harley-Davidson’s main weakness from a financial, and
company-wide, perspective was its dependence on a single
customer demographic: middle-aged men, its’ primary customer
base. As boomers aged out of the motorcycle market Harley had
to meet an enormous challenge: how to maintain its high sales
and revenue volume and grow and diversify its base to replace
those boomers. Another challenge was the company’s debt to
equity ratio, which continued to rise over the five years from
2009 to 2014 as the company took on more and more debt from
its restructuring. The high debt balance undercut company
flexibility and, it was feared, could present serious problems in
the future. Inventory levels also increased at a rate slightly
higher than sales, which suggested that sales were not meeting
projected levels, resulting in excess inventory. Finally, in recent
years, more and more customers chose to pay for their
motorcycles through the company’s financing program rather
than purchase them outright, suggesting that buyers were
struggling to afford Harley-Davidson’s steep price tag, and
perhaps indicating a weakness in the buyer market for Harleys.
Nevertheless, Harley-Davidson sales increased from $5.3 billion
in 2011 to $5.6 billion in 2012 while net income increased from
$599 million to $624 million during the same time period. Thus,
both sales and net income appeared to be trending positively, a
good financial sign. Harley also saw some strong percentage
sales increases in its international markets during 2012. The
units sold in the United States increased 6.6% from 2011 to
2012, compared to a 39% increase in the Latin America region,

and a 19.9% increase across the Middle East and Africa.
International sales turned out to be a significant growth and
expansion opportunity for Harley-Davidson as long as it found
ways to participate in international markets without driving
costs and related expenses of doing business up too much.
Harley-Davidson’s leading position in the U.S. motorcycle
market was further attributable to its commitment to research
and development. Harley always had a reputation in the industry
for its continued investment in research and development. The
company even maintained a secret Product Development Center
in Milwaukee where it spent hundreds of millions of dollars
focusing on the Harley sound, the Harley engine, and various
avenues for future motorcycles:
Total research and development expenses were $143.1 million,
$136.2 million, $145.4 million and $137.3 million for 2009
through 2012, respectively (sec.gov). Significantly, these
research and development figures stayed relatively consistent on
a year-over-year basis, even during the recession of 2009 when
plagued by sluggish sales and increasing debt,, underscoring the
company’s unwavering dedication to intracompany investment
in research and design, and in the improvement and expansion
of its business and product offerings. The hope was that R & D
would lead to new models of bikes, new styles, new ways to
control emissions, new metals or materials to use on bikes to
make them lighter, new ways to improve the safety of the bikes,
and any number of other possible improvements that would only
strengthen the brand, the product, and the company. The
company understood that the lack of the necessary R & D
expenditures would quickly be exposed by the competition, as
its products would rapidly become outdated.Ethics: A Priority at
Harley Davidson
As a longstanding, well-known American corporation, Harley-
Davidson felt it had a responsibility to its shareholders and to
the public to maintain a strongly ethical corporate culture. Its
human resources and ethics policies were based on five main
practices: diversity and inclusion, safety in the work

environment, accurate advertising, employee attainment and
retention, and environmental awareness.Diversity and Inclusion
As Harley-Davidson continued to expand its business
internationally, the company understood that it was critical to
maintain a reputation of diversity and inclusion in its work
force. From an external perspective as well, it was important to
maintain a public image as a company that promoted diversity,
and was not biased in any way with regard to any particular
minority group or cause.Safety in the Work Environment
Maintaining a safe work environment was particularly important
for Harley-Davidson as it expanded internationally. Although in
the United States there were strict laws governing workplace
safety, foreign expansion countries did not necessarily have
similarly stringent guidelines, making it even more important
that Harley held itself to the same strict regulations
internationally as it did nationally.Accurate Advertising
Harley’s success was heavily dependent on its marketing
strategies and word-of-mouth buzz. To uphold and build upon
this success, Harley recognized that it was imperative to
continue to maintain high standards of accurate advertising, as
inaccurate advertising was widely regarded as creating negative
brand connotations that could deter customers, thus affecting
sales and operations.Employee Attainment and Retention
Employee attainment and retention was a particular concern for
the company following the restructuring plans of 2010–2011.
The restructuring plans involved letting go thousands of
employees both domestically and internationally, which, it was
feared, would be detrimental to employee morale, motivation,
and production. After the implementation of restructuring,
Harley made it a priority to emphasize the importance of
employee retention and attainment, increasing efforts to boost
employee morale and encourage long-term
employment.Environmental Awareness
As with automobile manufacturers, it was especially important
for Harley-Davidson to be aware of and abide by environmental
emission regulations. Harley prided itself on the fact that its

products constantly met or exceeded all emission laws and
regulations. Consistent funding for research and development,
even in the face of losses, demonstrated Harley’s unwavering
commitment to product improvement, especially the never-
ending pursuit of ways to cut the environmental impact of
emissions.Core Competencies: A Strong Brand Image
Over more than 100 years, Harley-Davidson established its
reputation by building on the core competencies that constituted
its competitive advantage: the Harley brand image, its dominant
position in the U.S. marketplace, the company’s emphasis on
research and development, and its extensive international
network.
Harley-Davidson created one of the most powerful and
recognizable brands in America. Its brand name became an
American icon that screamed toughness, masculinity, and
quality. Harley developed this brand over many decades through
a unique marketing approach. The company spent only 15% of
its marketing budget on traditional media outlets, focusing
instead on fostering the Harley culture through rallies and
events1 sponsored by the company with the intent of
encouraging bonding between riders. Harley believed that these
events would bring riders from all different paths of life
together to share riding stories and create connections, further
strengthening loyalty to the brand. Harley riders span a wide
cross section of the population that includes owners with leather
jackets and tattoos to doctors and lawyers. A major contributor
to this culture was the Harley Owners Group program created in
the early eighties with the intent of organizing groups of Harley
enthusiasts for rallies and rides. The group grew to over one
million members with local chapters around the world through
which Harley owners connected and made plans to meet up with
other owners. This successful branding work focused
specifically on baby boomers, those born in the post World War
II era from 1946 to 1964. The company targeted that generation,
reputedly the wealthiest ever, when they reached their 40s and
50s, marketing Harleys to them as a way to recapture their

youth. Harley Davidson successfully tapped into the baby-
boomer market at the right time, which led to tremendous
growth and two-year waiting periods for its motorcycles in the
late 1990s, a success made possible through effective branding.
Capitalizing on its strong brand name, Harley-Davidson
dominated the U.S. heavyweight motorcycle market.
Another core competency for Harley-Davidson was its vast
international network. As shown in Exhibit 1, Harley
established an increasing number of dealerships outside the
United States from 2006 to 2012. The company particularly
planned to focus on the Asian-Pacific and Latin America
countries as growth markets for motorcycle sales. Growth of
disposable income from continued development and prosperity,
and emphasis on fuel efficiency made these regions particularly
desirable markets. As reported in the Chicago Tribune in 2013,
“From late 2009 through March 2013, [Harley] added 99 new
international dealers in emerging markets such as India, China
and Brazil as well as in established markets, in line with [its]
objective to add 100–150 international dealers through 2014.”2
Harley’s expanding footprint across the globe garnered
increasing sales as its quality products wooed and wowed new
markets.
These core competencies and competitive advantages were the
driving factors of Harley-Davidson’s success in the 1990s and
early 2000s. As the company recovered from the Great
Recession, it became imperative for it not merely to return to
those core competencies and competitive advantages, but to
make them the backbone of its future endeavors.Opportunities
in India, China, and Asia-Pacific
While Harley confronted a saturated heavyweight motorcycle
market in the United States and the weakened economy of the
EU, sales of lightweight motorcycles in India, China, and the
entire Asia-Pacific region experienced double-digit growth after
2010, with India the second largest motorcycle market behind
China, where annual sales exceeded 10 million bikes.
In January 2014, Harley-Davidson launched its first lightweight

motorcycle since it discontinued the Sprint (350cc) in 1974. The
new Street 750 and 500 series were specifically designed for
stop and go city traffic with higher street clearance and a better
suspension system to accommodate less than perfect Indian
roads.
Harley faced stiff price competition from Suzuki, Ducati,
Yamaha, and Honda in India. However, the company decided to
assemble the new Street 750 in Bawal, India to avoid high
import tariffs, thus allowing Harley to be more competitive. The
Street 750 price was set at $8,000.Challenges Ahead
As Harley-Davidson looked forward, its key challenges included
its highly leveraged financial position, attributable in part to
recent failed mergers and acquisitions; its high inventory levels;
its struggle to connect with a younger generation of riders; and
its reliance on a strong economy.
Harley-Davidson’s debt levels increased significantly over the
10 years since 2002, and in recent years were seen as a deterrent
to future growth. The increased debt derived from restructuring
charges; discontinuation of certain operations; and defaults
associated with the company’s lending practices. In the early
2000s, as the demand for Harleys soared, executives determined
to increase production, and sustained that increase through
2008, even when demand began tapering off due to the
economic downturn. By the end of 2008, at the onset of the
Great Recession, the company noticed the inventory building
and overhead costs increasing, and implemented a restructuring
plan particularly focused on manufacturing. As reported in the
Chicago Tribune, “Harley has been revamping its manufacturing
operations to cut costs, become more efficient and introduce
flexibility in its workforce.”3 The restructuring called for a
reduction in employees and plants, and an overall shift to align
supply with demand. The restructuring cost Harley-Davidson
several hundred million dollars over a three-year period. In
2009, Harley also decided to discontinue the Buell line of sport
bikes and focus instead on promoting the Harley-Davidson
brand, which led to $125 million in shutdown costs, mostly

incurred in 2009.4 In addition, Harley sold MV Augusta in early
2010, an expensive Italian sport bike company, to the owners
they had purchased it from two years earlier with an eye to
expanding its network in Europe and attracting younger riders.
The plan failed, primarily due to the recession and Harley’s lack
of knowledge of the European motorcycle marketplace.5
Ceasing to produce the Buell line and selling MV Augusta back
to its original owners between 2009 and 2010, led to $325
million in shutdown and write-down charges and gave the
public a glimpse of the financial trouble Harley-Davidson was
facing during the Great Recession.
Compounding these difficulties were losses incurred by Harley-
Davidson’s financial arm. Similar to the problems leading up to
the housing crisis of 2008, Harley Davidson’s loose lending
policies, particularly no-money-down loans, led to significant
losses for the company. This resulted in Harley-Davidson
writing off $80 million of long-term debt. The mounting losses
and increasing expenses eventually led the company to reach
out to iconic investor Warren Buffet as a last resort. As part of
a one billion dollar debt financing deal, Warren Buffet
purchased $300 million of Harley-Davidson’s unsecured debt
and “In exchange for his good name and millions, Mr. Buffet
demanded 15 percent interest from Harley on his investment,”6
an investment very much needed, both financially and from an
investor confidence perspective.
In addition to the high levels of debt associated with the failed
mergers and acquisitions and excess inventory, the company
also struggled with attracting a younger generation of riders.
The company’s core customer base was middle-aged men with
the means and desire to purchase heavyweight motorcycles for a
premium price. However, as its core consumer base aged the
company struggled to tap into the younger generation who
preferred lighter sport bikes at inexpensive prices from foreign
vendors such as Kawasaki and Honda. Harley-Davidson had
tried in the past to market a sports bike to tap into this niche
market but failed, primarily because the bikes were expensive

compared to those of competitors.
It became clear that Harley-Davidson’s future success depended
on its addressing the weaknesses identified. In 2013, as Harley
continued to recover from the Great Recession, the company
needed to understand the mistakes and circumstances that led to
its high level of debt, failed mergers and acquisitions, excess
inventory, inability to attract a younger customer base, and
overreliance on the overall state of the economy.
Comprehending the import of those weaknesses, it was hoped,
would allow Harley to make more prudent business decisions
that would lead to a future of strong growth and earnings.Aging
Baby Boomers
Well-documented throughout the financial media world, and
specifically recognized by the company, Harley-Davidson’s
main concern was certainly its aging customer base and struggle
to recruit a new pool of younger, more diverse riders. Many of
Harley-Davidson’s current customers are “baby boomers” over
the age of 50.
Over the past two decades leading up to 2014, Harley-Davidson
focused its entire strategy on the baby-boomer generation, and
was very successful in doing so. However, as boomers hit
retirement age, they no longer wanted expensive, heavyweight
motorcycles—that phase of their lives was over. The company
knew it needed to establish a new strategy that would continue
to foster the quality and exclusivity of owning a Harley, but
also embrace the tastes and desires of the younger generation,
the motorcycle market dominated by the kids of the baby-
boomer generation. By connecting with that generation, Harley
could hope for another wave of loyal riders that would purchase
Harleys throughout their riding lives. In short, to retain its
market position and continue to grow, Harley needed to find
new demand for its bikes and market toward that demand as it
did so successfully with the boomers.
Works Cited
· Barrett, Rick. “Harley-Davidson takes a Beating on MV
Augusta.” August 16, 2010. December 1, 2013

http://www.jsonline.com/blogs/business/100759404.html.
· Baskin, Jonathan Salem. “Harley-Davidson Will Be A Case
History In Social Branding.” Forbes, July 12, 2013. December
1, 2013.
http://www.forbes.com/sites/jonathansalembaskin/2013/07/12/h
arley-davidson-will-be-a-case-history-in-social-branding/
·
http://www.forbes.com/sites/greatspeculations/2014/01/16/harle
y-davidsons-street-750-debuts-in-india/
· “Findings from the Hurt Study: Motorcycle Accident Cause
Factors and Identification of Countermeasures,”
http://www.magpie.com/nycmoto/hurt.html
· Garrett, Jerry. “Harley-Davidson to Discontinue Buell Sport
Bikes.” The New York Times, October 15, 2009. Accessed on
December 1, 2013.
http://wheels.blogs.nytimes.com/2009/10/15/harley-davidson-
to-discontinue-buell-sport-bikes/?_r=0
· Hamner, Susan. “Harley, You’re Not Getting Any Younger.”
The New York Times, March 21, 2009. December 1, 2013.
http://www.nytimes.com/2009/03/2/business/economy/22harley.
html?pagewanted=all
· “Harley Davidson 2012 10-K Annual Report.” Sec.gov. N.p.,
n.d. Web. December 19, 2013.
· “Harley-Davidson – Demographics.” 2013. December 1, 2013.
http://investor.harley-
davidson.com/phoenix.zhtml?c=87981&p=irol-
demographics&locale=en_USbmLocale=en_US
· “Harley-Davidson in China Encounters Barriers of Entry for
Two Wheels: Cars.” Bloomberg.
http://www.bloomberg.com/news/2011-09-18/harley-davidson-
finds-milwaukee-beats-china-as-leisure-motorcycle-market.html
· Harley-Davidson Official U.S. Online Site. Web. December
19, 2013. www.harleydavidson.com
· “Harley Davidson SWOT Analysis.” Research and Markets.
N.p., n.d. Web. December 19, 2013.
· “Harley Davidson Timeline,” http://www.harley-

davidson.com/en_US/Content/Pages/HD_Museum/explore/hd-
timeline.html
· “Harley Earnings on Target as Restructuring Pays Off.”
Chicago Tribune. 25 April 25, 2013. December 1, 2013.
http://articles.chicagotribune.com/2013-04-25/business/chi-
harley-earnings-20130425_1_harley-davidson-inc-winnebago-
industries-sales-volumes.
· “IBIS World Industry Outlook.” December 16, 2013.
http://clients1.ibisworld.com/reports/us/industry/industryoutloo
k.aspx?entid=856
· “Motorcycle Accident Statistics,”
http://www.accidentattorneys.com/motorcycle-accident-
lawyer.cfm
· “10 Best Buys In 2013 Motorcycles,”
http://www.popularmechanics.com/cars/motorcycles/news/10-
best-buys-in-2013-motorcycles?click=main_sr#slide-1
· “Product Development Center: Harley-Davidson Motor
Company, Milwaukee, WI.” Emprise Corporation. 2010.
December 1, 2013. http://www.emprise-usa.com/test-
facilities/product-development-center/index.php
· Richer, Mark-Hans. “Harley-Davidson CMO: We Aren’t an
Auto Brand.” July 10, 2013. Ad Age: CMO Strategy. December
1, 2013. http://adage.com/article/cmo-strategy/cmo-harley-
davidson-lifestyle-transportation/242952/
· “State Motorcycle Laws,”
http://americanmotorcyclist.com/Rights/State-Laws-Database
· “The U.S. Market for Motorcycles,”
http://www.marketresearch.com/product/display.asp?productid=
1097893&g=1Notes
1. 1. Mark-Hans Richer, “Harley-Davidson CMO: We Aren’t an
Auto Brand,” July 10, 2013. Ad Age: CMO Strategy. December
1, 2013 http://adage.com/article/cmo-strategy/cmo-harley-
davidson-lifestyle-transportation/242952/
2. 2. ‘Harley-Davidson–Demographics,” 2013. December 1,
2013, http://investor.harley-
davidson.com/phoenix.zhtml?c=87981&p=irol-

demographics&locale=en_US&bmLocale=en_US
3. 3. “Harley Earnings on Target as Restructuring Pays Off,”
Chicago Tribune, April 25, 2013. December 1, 2013.
http://articles.chicagotribune.com/2013-04-25/business/chi-
harley-earnings-20130425_1_harley-davidson-inc-winnebago-
industries-sales-volumes
4. 4. Jerry Garrett, “Harley-Davidson to Discontinue Buell
Sport Bikes,” The New York Times, October 15, 2009.
December 1, 2013.
http://wheels.blogs.nytimes.com/2009/10/15/harley-davidson-
to-discontinue-buell-sport-bikes/?_r=0
5. 5. Rick Barrett, “Harley-Davidson takes a Beating on MV
Augusta,” August 16, 2010. December 1, 2013.
http://www.jsonline.com/blogs/business/100759404.html
6. 6. Ibid.

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