Harley Davidson Case Notes.docx

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Rotman Commerce
Professor Spike Lee

 In 2003, 50% market share in the United States and 32% globally  Honda began benign, family-oriented approach in advertising motorcycles  Harley ranks among America’s top growth stocks since its 1989 IPO  Ad campaign, “You meet the nicest people on a Honda,” = communal, cute  Average age of Harley riders rose from 35 to 47 years in past decade  Honda focused on smaller, faster, quieter, less-expensive motorcycles  Younger Americans preferred lighter Suzuki, Honda, Yamaha, and Kawasaki  State by state, introduced lower-powered bikes, then high-powered ones  2005, company’s stock price declined 17%  By 1965, one out of every two motorcycles sold in US was Honda  Other Japanese firms, Yamaha, Suzuki, and Kawasaki, soon followed The Early Years  Marketed smaller, quieter, fuel-efficient, low-maintenance motorcycles  Reputation of company linked to Walter Davidson’s riding a bike to victory in a 1908  Harley motorcycles weighed between 450 and 800 pounds  Attracted younger riders, women, and older riders; people who could not afford Harley race; also, innovations such as V-twin engine, clutch, internal expanding rear brake, and three-speed transmission that the company pioneered bikes, that couldn’t maintain them, or couldn’t muscle them around steep curves  During 1920s, Harley-Davidson invested in research and development  With Japanese entry, size/demographics of U.S. motorcycle industry changed  During 60s/70s demand for motorcycles grew rapidly, and Japanese manufacturers  V-twin design, new four-cylinder engine, improved reliability of its machines, developed electric starter, balloon tires, front brakes, standardized parts, improved accounted for more than 85% of U.S. motorcycle sales  Japanese manufacturers skilled at mass-producing motorcycles efficiently product quality  Post World War II, sales declined and pressure from imports from Europe  Improved products to counter threats, reduced time to introduce newer models  Remained profitable by introducing larger, more powerful motorcycles and—60%  During this time few technological improvements made to Harley motorcycles  Despite increasing sales, Harley’s overall market share declined market share  In 1965, to raise capital firm went public after 60 years of private ownership The Harley-Davidson Mystique  Shortly after going public, Harley-Davidson acquired in a friendly takeover by AMF  Image of “raw power,” became major selling point Imitating the Japanese  Most distinctive feature = V-twin engine  Gave aggressive appearance of raw power, could deliver broad but low-torque power  New capital from AMF allowed HD to expand production  Allowed owners to tinker with their engines  Less-skilled workers were added to the production lines, quality issues were overlooked  Heavy use of chrome, low-profile appearance, styled tail fenders, and the chop of the front fork also highlighted firm’s unique image—also sounded unique  In early ‘80s, Harley’s reputation for reliability fell steeply with market share (23%)  Rather re-evaluate approach, AMF managers added new features  1930s, Harley adopted “image and lifestyle” approach to marketing  Advertised in “biker” magazines and promoted mainly by word of mouth  AMF hired Benton & Bowles to create advertising for Harley motorcycles  U.S. military, patrol officers, Hell’s Angels, James Dean/Marlon Brando, “Elvis” types  Removed Harley’s advertisements from certain previously successful outlets  Alienated Harley’s traditional customers (magazines like Easy Rider)  Advertisements = leather-clad, military dispatch riders, police officers on motorcycles  Cultivated “tough image”, Harley associated with “breaking the mold” The Japanese Target Harley-Davidson  Became part of American iconography (associated with flag + bald eagle)  Resulted in brand loyalty among U.S. customers, continues to this day  In 1975, Honda introduced the Goldwing, a 1000-cc motorcycle  Typical owner cites American manufacture/character as most  Most technologically sophisticated and complex heavyweight motorcycle available on attractive/distinguishable feature the market; Kawasaki followed suit  HD share of the heavyweight segment began to decline The Japanese Enter the U.S. Market  By late 1970s, economic downturn, motorcycle demand dropped  1959, Honda uncovered market of older males and younger women  All manufacturers competing for a bigger share of a stagnant market  Japanese manufacturers continued w/ newer and larger motorcycle  Segment not well suited to the “tough” Harley motorcycles  Between 1970-80, Harley-Davidson’s share declined by over 80% Transforming Harley - Benchmarking Honda  1993 HD acquired minority interest in Buell Motorcycle Company  Hoped to enter select niches within “performance” motorcycle market,  Senior managers visited Honda’s Ohio plant in United States  Assembly line = neat, uncluttered, minimum paperwork Emergence of Harley Ownership Group  Inventory controlled through JIT system = no computers or automation  Moreover, motorcycles were built to order rather than for inventory  Harley differentiated from Japanese manufacturers by offering support to various enthusiast and social groups  Differences b/w Harley-Davidson and Honda were striking  5% of Honda bikes failed final quality inspection vs. 50% of Harley’s  Harley-Davidson Owners Group (HOG), becoming the industry’s largest company- sponsored motorcycle enthusiast organization  Japanese productivity was over 30% greater than at Harley-Davidson  HOG worldwide membership = 900,000 at the end of 2004  Contrast to Honda’s Gold Wing Road Riders Association = 75,000 members The Productivity Triad  Interest among women riders cultivated through “The Ladies of Harley”  HD implemented productivity triad: (a) employee involvement, (b) use of JIT inventory  Jeffrey Bleustein continued Harley’s transformation through new product practices, and (c) statistical operator control (SOC) development, upgraded manufacturing technology, capacity and processes, a  Line workers encouraged to contribute to decision-making process modernized and strengthened dealer network, and ‘close to the customer’  Workers required to participate in newly formed quality circles that were made marketing—conceived and implemented through employees empowered to operate directly responsible for improving motorcycle quality to their full potential  Materials-as-needed (MAN) program (version of JIT) implemented to free up much-  HD revenues grew from $1.5 billion in 1996 to $5 billion in 2004 needed cash by reducing WIP inventory  Net income grew from $143 million to $890 million over the same period  Under SOC, employees taught to see how quality problems developed and how they could be traced and corrected during the production process Preparing for the Next Century  In 1983, Harley-Davidson sought tariff protection from US gov’t  Prior to MAN, HD turned inventory 2x/year, increased to 17 times a year  Heavyweight motorcycle = robust growth from 1996 to 2000  Growth in touring and cruising market slowed considerably in second half of 2002 and  Productivity impr
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