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Motorcycle manufacturer Harley-Davidson controls the definitive biker brand, summing up an image of America and free-wheeling independence unmatched by any other product. What else would you expect from the company that gave the world the original hog bike and the zippered black leather biker's jacket? Harley-Davidson still makes the ultimate in high-end heavyweight motorcycles and has successfully extended its brand into clothing, accessories and collectibles. Until recently, the company had also enjoyed an enviable financial record, notching up 20 straight years of revenue and earnings growth until the 2008 credit crunch. There has been recovery since then - revenues topped $6bn for the first time in 2016 - but performance remains mercurial, reflecting declines across the whole global motorcycle industry since 2014.
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Supported by its distinguished brand heritage, Harley-Davidson dominates the top end of the motorcycle market, a small sector by comparison with the rest of the global bike market, but one in which the company excels. Harley has demonstrated admirable restraint and exceptionally sound strategic direction since its management buyout, avoiding the temptation to diversify, and instead concentrating on what it does best. Nevertheless, the recent economic downturn presented a serious challenge to its financial performance.
Until very recently, Harley-Davidson was America's only major manufacturer of motorcycles. (A rival brand, Indian Motorcycles, which originally went out of business in the 1950s, was resurrected in 2013 by Polaris Industries). Harley specialises at the top end of the market for heavyweight touring and custom models with engine sizes ranging from over 600cc to more than 1800cc. Now heading into its 115th year, the brand has long enjoyed a rebellious rock 'n roll image, an association first made in 1953 by Marlon Brando's outlaw biker in The Wild One, and reinforced by two decades of motorcycle gangs, Hell's Angels and Easy Riders. Outlaw chic lies at the very core of Harley-Davidson's appeal, but the company is keen to play down that bad boy image, professing that "the vast majority of riders throughout the history of Harley-Davidson have been law-abiding citizens". In fact, despite the popular association, Brando's character was actually riding a Triumph, not a Harley. But for the record, Peter Fonda's drug-dealing hippie in Easy Rider was aboard a 1951 Harley-Davidson Panhead.
Nowadays, not many outlaw bikers could even begin to afford a new Harley-Davidson bike. Although there are now bottom-of-the-range models starting at $6,000, the real Harleys start at around $18,000 and can go above $70,000 including customization. Other bikers joke that the HD of Harley-Davidson stands for Hundreds of Dollars and Harley riders are sometimes nicknamed "Rubbers" - Rich Urban Bikers. Buyers tend to be aged in their mid to late Forties, affluent of course, and using a bike for recreation rather than as their principal means of transportation.
However sophisticated its customers may now be, Harley-Davidson remains the ultimate in hard-wearing, heavy-duty bikes. These machines are famed for their manoeuvrability, long-distance durability, loud engines and classic traditional styling. There are 34 core Harley-Davidson models, spread across five main families: from the lower-priced Sportster to high-end Dyna, Softail, Touring and V-Rod. A sixth, entry-level bike family, the Street range, was introduced in 2014, targeting a new, younger audience, and included a low-end 500cc model. The top-of-the-range three-wheel Tri-Glide touring model was launched in 2009 for the most discerning customers. The company divides the market into four segments: cruiser, touring, standard and sportbike. Harley-Davidson specializes in the top two markets, for individually styled custom bikes (accounting for around half of Harley-Davidson bikes shipped) and long-distance touring models (around a quarter of all bikes). Around half of all bikes sold each year are bought by existing Harley owners.
For several years, the group also owned the Buell brand, generally lower-priced but high performance models with modern styling for younger or first-time buyers. However, as a result of the continuing slide in sales during 2009, the group discontinued production of Buell at the end of the year. In 2010 it also sold Italian manufacturer MV Agusta, which it had acquired only a year earlier.
The recent recession has had a devastating effect on sales. From a high of 349,000 bikes in 2006, volumes had slumped by 2010 to 222,110 units, the lowest level since 2000. There has been some recovery since then, with volumes rising to 270,726 units for 2014. Harley-Davidson remains the global #1 within the comparatively small high-end motorcycle market. (Honda is the overall #1 motorcycle manufacturer with sales of more than 15m motorcycles annually). The US is by far Harley-Davidson's biggest market, with sales of just over 167,000 bikes in 2014, equivalent to 53% share of the heavyweight segment. Although motorcycle sales have fallen sharply since 2006, Harley's overall share has held because of a sharper decline among its main competitors, Honda. Kawasaki and Suzuki. Ironically, the company's second biggest market is now Japan, which overtook Canada in 2007. Sales in both Japan and Canada are small by comparison though, at 10,800 and 9,900 respectively in 2014. Intriguingly, sales in Europe actually increased in 2010 and 2011, peaking at almost 40,000 units in the latter year, before falling back. The figure for 2014 was 38,500 bikes, equivalent to 12% share.
Harley-Davidson Financial Services provides financing products to customers, as well as insurance and related products. The group also manufactures a range of protective clothing and accessories, sold under the MotorClothes brand. This business generated revenues of around $285m in 2014. The company derives significant royalty revenues from licensing, lending its name to a wide variety of T-shirts, footwear (by Wolverine Worldwide), leather goods, jewellery and other products.
The group has a strategic alliance with Ford Motor Company to promote each other's products, and sponsors two enthusiasts groups, Harley Owners Group (or HOG) with around 1m members worldwide. River's Edge: The Harley-Davidson Academy of Motorcycling offers training course for new riders. In 2008, a Harley-Davidson museum opened in Milwaukee.
After more than doubling between 1998 and 2006 to a high of $5.8bn, group revenues slipped for the following three years to a low of $4.3bn in 2009. There has been a solid recovery since then, with revenues for 2013 finally reaching anew record of almost $5.9bn. The figure for 2014 topped $6bn for the first time at $6.23bn. However the company has yet to exceed its record profit in 2006 of over $1bn. For 2014, net income jumped 15% to $845m.
Motorcycles and related products accounted for sales of $5.57bn, with the remaining $661m from financial services. The US remains by far the biggest market, accounting for 72% of revenues. The group still has sizeable debts, totalling $5.5bn at the end of 2014, but was able to restructure the most expensive part of this sum - a high-priced emergency loan from Warren Buffett in 2008 - in 2014, reducing its annual interest payments from over $45m in 2013 to just $4m, with a noticeable positive effect on profits.
Keith Wandell was parachuted in to Harley-Davidson in 2009 after a dramatic slump in performance in the credit crisis, and oversaw the rehabilitation of the then-struggling business, cutting production and distribution as well as almost a quarter of staff. With the recoevry on-course, Wandell stepped down in 2015 in favour of former COO Matt Levatich, now CEO.
Willie Davidson, grandson of co-founder Arthur Davidson, retired as chief styling officer in 2012, after almost 50 years with the company. He remains a brand ambassador for Harley-Davidson.
In 1901, 19-year-old William Harley produced a blueprint for an engine-powered bicycle. It took him two years to find funds to build the actual model, recruiting friend Arthur Davidson as his business partner. They sold the first model to a school friend, Henry Meyer, producing two further bikes over the course of the year. By 1907, Harley and Arthur Davidson had been joined by Arthur's two brothers William and Walter and the business was incorporated as The Harley-Davidson Motor Company, with its stock shared between the four founders. The company was now producing a four-horsepower single-cylinder motorcycle, nicknamed the Silent Gray Fellow. The bikes quickly earned a reputation for speed, performance and durability, winning a string of races across the US. The business gradually grew. The first V-Twin, carrying a second cylinder, was introduced in 1909; a year later, Harley-Davidson introduced its bar and shield logo for the first time, and by 1912 the company had amassed a network of 200 dealers around the country. That year, the first Harley-Davidson motorcycle was sold in Japan, and the company also began making protective leather coats and helmets.
At the time, Harley-Davidson was just one of literally hundreds of motorcycle manufacturers in the country. However the launch of Henry Ford's mass-produced Model T automobile in 1913 was a death blow to the industry. Priced at around half the cost of a motorcycle, the Model T revolutionized American transport. More than 250 motorcycle manufacturers across America went out of business in just a few years. Harley-Davidson was saved only by its reputation for speed and durability, which quickly attracted the attention of the US government. Police departments were among the company's biggest customers, and in 1916, the company sold its first bikes to the Army, a special contract for a model with sidecar-mounted machineguns. By 1918 almost half of all Harley-Davidson motorcycles were sold to the military, and two years later, the company was the largest motorcycle manufacturer in the world, selling through over 2,000 dealers in 67 countries. Yet this was at least partly a victory by default, since most of the competition had already gone out of business. By 1931, there was only one remaining competitor in the US, the Indian Motorcycle Company. Seeking growth in the international market, Harley-Davidson turned its attention to Japan, licensing its blueprints and machinery to Sankyo of Tokyo in 1935.
The US Military saved the day once again in 1941. As a result of America's involvement in World War II, Harley-Davidson suspended civilian production to produce more than 90,000 military bikes over the four year period. By the early 1950s, Harley-Davidson's dominance of the motorcycle business was virtually complete. Indian went out of business in 1953, leaving Harley-Davidson as the last remaining American manufacturer, a position it was to hold for more than 45 years (until Indian was resurrected in 1999). The developments of the next few years form the core of the modern Harley-Davidson legend; at the time however, they came close to putting the company out of business altogether.
In reality, motorcycles had little relevance in the mainstream of America's immediate postwar era. This was a time of family values, national prosperity, career ambition. The auto industry surged to cater to the huge demand for family cars and, with the exception of the country's police force and military, the demand for powerful single-rider motorcycles dwindled. One market did remain, a new breed who did not share the aspirational values of middle-class Americans. These were often rootless drifters, disaffected former soldiers, wandering through the country in search of cash-in-hand work. Motorcycles served their purpose perfectly (although few were able to afford a new Harley-Davidson), and these individuals began to group together into gangs.
In one now legendary incident, a gang of bikers terrorised the sleepy California town of Hollister in a beer-fuelled celebration of Independence Day. The event was captured by a Life magazine photographer, and those pictures became the inspiration for the 1953 movie The Wild One, with Marlon Brando as gang leader Johnny. This was a new figure in American culture, an outsider in a black leather biker jacket, rebelling against all mainstream American values. "What are you rebelling against, Johnny?" asks the clean-cut heroine in the movie. "Whaddya got?" comes Brando's reply. (Ironically, Brando doesn't ride a Harley in the movie, but his own imported British-made Triumph. The rival gang, led by Lee Marvin, ride Harleys). The Wild One image kickstarted rock 'n roll culture, but it was one most Americans found wholly repellent. Motorcycles became increasingly stigmatised over the next 20 years, coming to represent everything most Americans liked least about their fast-developing counter-culture, as it progressed from The Wild One through to the rise of the Hell's Angels during the 1960s, and finally Peter Fonda and Dennis Hopper's heroic hippies in Easy Rider.
None of this was good for business at Harley-Davidson. Shunned by mainstream buyers, the company struggled to diversify, producing a range of more family-friendly motor scooters and acquiring a controlling stake in boat manufacturer Tomahawk. But by 1969, the year of Easy Rider, Harley-Davidson was struggling, and the company was acquired by American Machine & Foundry (AMF), a maker of bowling equipment and other leisure machinery. A year later, the Harley-Davidson badge began appearing on a new range of snow-blowers. Yet ironically, the release of Easy Rider also marked a turning point in attitudes towards bikers. American counter-culture was rapidly turning into the mainstream, and the huge commercial success of Easy Rider inspired a whole new generation to want to experience the freedom that motorcycles seemed to represent. In 1971, the company responded to a new craze for customizing by introducing the Super Glide cruising model. Other models included the Low Rider, launched in 1977, and "Fat Bob", introduced in 1979.
However the rehabilitation of the motorcycle's image also brought with it new competitors, principally the Japanese companies first nurtured by Harley-Davidson back in the 1930s. Honda had begun importing their motorcycles to the US in 1959, adopting a clean-living wholesome image completely opposed to the one associated with Harley-Davidson. (No self-respecting outlaw bikers would ever have been seen dead on Japanese bikes, known disparagingly as "rice-burners"). As motorcycle sales began to climb in the 1970s, Honda and other Japanese companies were able to pick up an ever-increasing share of the growing market, supported by their lower prices and quality control far superior to Harley-Davidson. To cater to rising demand, Honda began manufacturing bikes in the US in 1979.
In 1981, with Harley-Davidson still struggling, AMF took the decision to sell the business to a management team which included Willie Davidson, a descendent of the original founding brothers. The fledgling company then canvassed the Reagan administration to introduce heavy tariffs on imported Japanese bikes for a five year period from 1983. This gave a substantial boost to Harley-Davidson's fortunes, allowing the company to re-establish itself before floating again in 1986. It overhauled production lines, substantially improving quality, and was able to drag itself back into profit. A determined move into the high end of the market assisted the company in achieving a steady increase in performance. In 1992, in order to get a foothold in the market for performance and everyday bikes, the company acquired a minority stake in Buell Motorcycle Company, before taking full control in 1998.
Last full revision 20th November 2015
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