Introduction : 

It’s a story no one on Earth could have made up. Lets have a look at the journey of one of the greatest companies on the planet…… The Unruly
“Harley Davidson” Introduction

Harleys- Experience : 

Harleys- Experience Harleys are, just like fun stuff for people with money and appearance. So, "rich" customers rule the market. These days, in
America, Harley Davidson owns 72 % of the market of motorcycles with 850 CC or more !! Harleys aren't the fastest and manageable cycles,
riding a Harley is not at all comparable with riding any other bike ...

History speaks!! : 

1901: William S. Harley, age 21, completes a blueprint drawing 1903: William S. Harley and Arthur Davidson make available to the public the
first production Harley-Davidson® motorcycle. 1904: Sells one of the first three production Harley-Davidson motorcycles ever made. 1905: A H-
D motorcycle wins a 15 mile race in Chicago with a time of 19:02. In Milwaukee, the first full-time employee is hired.  1906: A new factory is
built. Staff size is increased to six full-time employees. 1907: Factory size is doubled as well. Dealer recruitment begins, targeting the New
England region. History speaks!!

The past : 

1910: The famed "Bar & Shield" logo is used for the first time. 1918: Almost half of all Harley-Davidson motorcycles produced are sold for use
by the U.S. military in World War I. At War's end, it is estimated that the Army used some 20,000 motorcycles in their efforts, most of which
were Harley-Davidsons. 1920: Harley-Davidson is the largest motorcycle manufacturer in the world. 1922: Harley-Davidson riders sweep all
eight National Championship races.  1929: One of the 2 companies survived in great depression The past

Times gone by…. : 

1931: All of Harley-Davidson's remaining American competition is now gone except Indian motorcycle manufacturing company. 1933: An art-
deco "eagle" design is painted on all gas tanks. 1936: HD introduces ‘Knuckle head’ 1941: Production of civilian motorcycles is almost entirely
suspended in favor of military production. 1945: World War II ends, and Harley-Davidson has produced almost 90,000 WLA models for military
use. 1950: Harley-Davidson riders win 18 of 24 National Championships and set six new racing records. 1952: HD launched Sportster Times
gone by….

What went before.. : 

1953: Harley-Davidson celebrates its 50th Anniversary in style. An attractive logo is created, depicting a "V" in honor of the engine. 1960:
Harley-Davidson purchases a half interest in Aeronatica-Macchi, forming Aermacchi Harley-Davidson, a European division that will produce
small, single cylinder motorcycles.  1964: The three-wheeled Servi-Car becomes the very first Harley-Davidson motorcycle to receive an electric
starter. 1969: Harley-Davidson merges with the American Machine and Foundry Company (AMF), a longtime producer of leisure products.  
1971: A new class of motorcycle, the cruiser, is born. 1981 13 executives- leveraged buyout (LBO). Struggled under heavy loans . 1982: The
Materials As Needed (MAN) application is introduced to production. This dramatically lowers production costs and improves quality. What went
before..

History continues.. : 

1985 Came within 4 hr bankruptcy-CEO Richard Teerlink convinced new creditors for restructuring …. IPO 1986: Harley-Davidson releases the
Heritage Softail®. 1987: Harley-Davidson is listed on the New York Stock Exchange. 1990: Upon its introduction, the Fat Boy® almost
instantaneously becomes a modern legend of motorcycle design. 1992: JV with Buell 1993: Harley-Davidson celebrates its 90th Anniversary in
Milwaukee with a Family Reunion. An estimated 100,000 people ride in a parade of motorcycles. History continues..

Slide 10: 
1998: Harley-Davidson celebrates its 95th Anniversary. 140,000 plus riders are warmly received by Milwaukee to help with the celebration. A
new assembly facility opens in Manaus, Brazil, the first operations outside of the U.S. 2003: More than 250,000 people come to Milwaukee for
the final stop of the Open Road Tour and the Harley-Davidson 100th Anniversary Celebration and Party. 2005: Harley-Davidson and the
Muscular Dystrophy Association (MDA) mark the 25th anniversary of their partnership. 2006: Harley-Davidson unveils plans for an all-new
museum in Milwaukee, opened in 2008… 2008: 105th anniversary Celebration Time…..

2008 – 105th Anniversary : 

2008 – 105th Anniversary

Image dilution by Bikers : 

Rowdy & rebellious image of bikers 1947- outlaw image- ‘Life’ magazine photographs 1954- ‘Wild One’ movie Hells Angels made many people
fearful & put bikers under close scrutiny 1969- murder by a one of Hells Angels members Hells Angel, Pagans, Banditos & outlaws- rode only
Harleys Honda exploited Harleys image with slogan – “You meet the nicest people on Honda”- largest seller in U.S. in 1960s and 1970s Hells
Angels image spilled over entire industry & contributed to decline in sales of bikes in U.S & Europe Image dilution by Bikers

Image building started : 

Launch of movie “Easy Riders”- aided to change the image as rebellion image & appealed to young people in U.S. & Europe. Harley “ Captain
America” chopper ridden in movie by peter Fonda’s Wyatt character helped Harley to break outlaw image & come to represent less malevolent
rebellion Image building started

Industry condition in 2007 : 

2007- more than 516000 units registered in U.S.& 403000 in Europe.(651+cc) Rising income level in emerging countries- major industry growth
drive force Demand for heavyweight bikes outpaced smaller in U.S. from late 1990s till 2003. In 2007, Demand for heavyweight motorcycles
decreased by 6.2 % in US and increased by 13.7% internationally. ( Net effect - decrease in 1.8% sales internationally ) 651+ cc accounted for
largest portion of demand in North America & Europe Industry condition in 2007

New registrations in 651+cc Segment : 

New registrations in 651+cc Segment

Current Data - : 

Current Data -

Segmentation within 651+ cc category : 

4 categories- standard, performance, custom, touring Segmentation within 651+ cc category

Competition in Global Motorcycle Industry……… : 

Rivalry criteria- performance, styling, breadth of product line, image, reputation, quality of after sales services, price. Difficulty U.S & European
Manufacturers had in attracting price sensitive European market Competition in Global Motorcycle Industry………

Slide 20: 

Market share in 651+cc segment

Regulations and Legal challenges : 

European parliament and European countries- reduce pollutants by 60% after 2003 & more 60% after 2006 Europe- implementation of euro-
prices increased substantially in many countries e.g. Germany U.S.- producers are subject to certification by Environmental protection Agency
( EPA) California Air Resource Board (CARB)- new tailpipe emission standards Safety standards-NHTSA Health insurance problem & AMA
attempt to pass the bill in U.S. senate in 2003 Regulations and Legal challenges

Harley Davidson’s Strategy for competing in motorcycle industry… : 

After LBO company felt need to rebuilt from ground Products were unreliable & had poorer performance relative to less expensive Japanese
motorcycle Greasy & run- down shops Management realized that a strong alliance to Harley brand by many bilkers was the only strength Market
research to know customers- negative feedback Harley Davidson’s Strategy for competing in motorcycle industry…

Slide 23: 

Japanese management practices Promotions at motorcycle rallies improving dealer network Pilot program – clean & attractive showrooms to
showcase Harley’s improved motorcycles & display apparel & other merchandise Pilot program led to new remodeled dealership network 1400
dealers- 75% space for accessories & earned 25 to 40 % of their earning from sale of apparels & accessories

HOG program……. : 

Harley owners groups (HOG) from 1983- loyal clubs -to socialize & ride with bike owners Primary aim- to create sense of community Free
membership to HOG HOG also organized rides, raised money for charities HOG membership started with 33000 membership in 1983 & now
grown to 7,93,000 in 1200 chapters in 2003 Co. sponsored about 100 HOG rallies in 2003 Currently over 1 million members HOG program…….

Harley Image & Appeal to Baby boomers : 

Traditional bikers – blue collar workers Co. successfully added upscale consumers ( white collar) to its list of consumers Rationalized co.’s image
with upscale baby boomers with comments as “ There’s lot of beaners but they’re out on the motorcycle which is a beautiful thing” AARP
Magazine- “ Baby boomer purchase Harley to feel forever young” Harley Image & Appeal to Baby boomers

Distribution & sales in North America, Europe & Asia Pacific : 

Dealers responsible for promoting rallies for local HOGs. E.g. 10000 member BRAG was also supported by dealers 2003- 644 dealers for Harley,
of which 436 for Buell in U.S 161 dealers in Japan 50 dealers & 3 distributors in Australia/ Newzealand market 7 in southeast Asian markets
European region- 436 dealers Distribution & sales in North America, Europe & Asia Pacific

Recent News : 

In August 2008, Harley-Davidson acquired Mv Agusta Group(Italy) expanding presence in Europe @ $108 millions Accenture is helping HD to
create more strategic HR functions. 105th anniversaryAug 29th, 2008 StockScouter rating : 8 – extremely good performance Recent News

The statements : 

Mission: “We fulfill dreams through the experiences of motorcycling, by providing to motorcyclists and to the general public an expanding line
of motorcycles, branded products, and services in selected market segments. Vision: “Harley-Davidson is an action-oriented, international
company, a leader in its commitment to continuously improve (its) mutually beneficial relationships with stakeholders (customers, suppliers,
employees, shareholders, government, and society). Harley-Davidson believes the key to success is to balance stakeholders’ interests through the
empowerment of all employees to focus on value-added activities The statements

Differentiation : 
V-Twin, Twin Cam Engine Ruggedness, independence, and individuality Motor Clothes Parts and accessories Power, Style & Freedom An
embodiment of identity and lifestyle. Resale Value (Some of the old bike are sold at Rs. 99,000 – Rs 1,55,000 – Source – www.bikefinder.com)
Brand recognition - Brands advertising and promotion have long been the primary means of influencing and reinforcing customer perceptions
responsibility Differentiation

Slide 32: 

Harley creates value for its customers through providing test ride facilities at its dealerships, financing, driving instruction, insurance, service and
repair facilities, owners’ club activities, and various sponsored events for Harley riders. “Harley sells lifestyles and not motorcycles”- competitors

The SWOT analysis : 

Strengths: Domestic & International Market share Financial status Product quality Strong brand loyalty & HOGs Strong distribution network
Weaknesses: Harley Davidson does not emphasize price in its product. Harley Davidson has had difficulty gaining market share in some
European countries. The SWOT analysis

SWOT continued… : 

Opportunities: The international heavy weight market is growing and is almost as large as the U. S. heavyweight market The European demand
for Harley Davidson is the highest in the international market and represents the single largest motorcycle market in the world. Women and
younger riders are increasingly becoming interested in bikes. - Japan have more female HOG members Alliances with other automobile
manufacturers are possible. Industry registrations of domestic heavyweight motorcycles are increasing.(Except last year – due to economy
recession) Market share increasing in Europe and Asia for the last two years. Increasing demand in US markets for bikes. Customers value
quality parts. SWOT continued…

Swot continued… : 

Threats: Harleys ongoing capacity restraints caused a shortage supply and a loss in domestic market share in recent years Harleys average buying
age is 46 years old and increasing. The European Union’s motorcycles noise standards are more stringent than those of Environmental Protection
Agencies in the U.S and increased environmental stand. Some competitors of Harley Davidson have larger financial and marketing resources and
they are more diversified. Shifts in buyers needs and tastes. Customer loyalty in European and Asian Countries. Costs could become expensive
from international importing.- for example – in India 60% tax on total cost for importing an automobile and 30% road tax Swot continued…

Slide 37: 

And The Great story on Earth continues its Majestic Journey… Thank You
Harley Davidson (HOG : 37.76, 0.21 ) reported 2nd quarter earnings before the open this
morning, and while the stock is rallying powerfully today big problems are lurking beneath the
surface.  Worldwide retail sales of Harleys decreased 30% compared to the year ago period
resulting in a 27% decrease in revenues.

Even more worrying, Harley is taking on increased risk on its balance sheet as it has been
unable to sell its securitized motorcycle loans to investors since the 1st quarter of 2008.  Finance
receivables held on Harley’s balance sheet, the motorcycle loans, have grown from $3.2 billion
at the end of 1Q2008 to $5.1 billion at the end of the current quarter.  This has been made
possible by increasing debt from $2.1 billion to $4.7 billion. 

Harley is playing a dangerous game here.  Unable to sell the loans it makes to its customers to
investors, it has elected to continue making these loans at a high rate, finance them by debt,
and hold them as investments on its own balance sheet.  Should these loans perform poorly,
Harley is now on the line to suffer a lot more of the losses.

In fact, it looks like they started to realize their course was unsustainable as finance receivables
did not grow in the just completed quarter.  My guess is they reigned in the financing they offer
to customers and that is a big reason sales dropped so precipitously. 

If this is right and the plug has been pulled on company provided financing, expect Harley
sales to continue to drop in the 30% range over the next year or so.  That should mean a
declining stock price as well.

Disclosure: Top Gun has no position in Harley Davidson (HOG) shares - but I’d short ‘em if I
could find some supply.
Strengths:

• It has approximately 70% market share regarding the heavy weight motorcycle market.

• It has its operation in manufacturing motorcycles, and it also operates in providing financial
services.

• The only American brand for heavy weight motorcycle manufacturers.

• It has a strong brand name and is well established in the mind of the consumer with the image
of ‘freedom & strength’.

• BRAG (Buell Riders Adventure Group), formed to endorse the brand and involve customers to
tap their loyalty level.

• Motorcycles customization makes up a major amount of revenue for Harley Davidson.

• Excellent relationship with the supplier, due to which integrity of the work and cost
effectiveness is achieved without expensing out the quality.

• Strong image regarding the good-will factor (The firm got its employees to join in with
communities to give a helping hand).

• Strong and long lasting relationship with the employees.

• The firm supports BCNS (Breast Cancer Network of Strength).

• It also supports the MDA (Muscular Dystrophy Association) and it has in many ways aided the
association regarding it research and development by providing financial resources.

• Strong marketing and distribution channel in the U.S.

• Enlisted in Fortune 500.

• Customer loyalty foremost strength of the firm (Once a customer purchases a bike, the jacket,
bandanas, etc. become a part of him).

Weaknesses:

• Price charged is quite high.

• Losing market share continuously, especially in the European market.

• Analyzing the future need of producing heavyweight bikes is weak, due to which the required
production amount is not met.
• Poor marketing techniques which is not attracting new customers in the international market.

• Many people also fear of being categorized as ‘hooligans’ in the society if they started riding
bikes.

Opportunities:

• The demand for Harley Davidson is the highest in Europe regarding the international market.

• They must market their products more competitively, especially in the Europe market.

• India is a big and untapped market for motorcycle as well.

• Female and teenagers are showing more inclination towards riding bikes.

• International market for bikes is much larger than the U.S. market.

• Customer value parts in the international market.

• Even at regions where the economy is at a low level, Harley can exploit this opportunity
because of the thinking of the customer that at that given situation, bike is a more economical
way of travelling, which would be favourable for Harley.

Threats:

• Capacity restraints and supply shortage has anticipated loss in the recent years.

• The average buying age according to a research is 42 years old and increasing.

• Increased environmental regulations.

• Increased standards in the European market.

• Some of the competitors of the firm are using more resources in marketing their product line
(bikes) and it is a threat as they can shift their risk factor because of having diversified product
line.

• Buell division should continue under Harley’s umbrella.

• Due the low cost of making a motor bike and the high profit margin involved, it is obvious that
more competition may be involved, especially the ones who are already in the market making
automobiles.