St. Louis, MO
Posted - 02/28/2011 : 9:36 AM
Nothing, perhaps, illustrates the recklessness and incompetence that's reigned at Harley-Davidson over the past several years than a glimpse at the operating income from last year at this point to this year at the same point for Harley-Davidson Financial Services (HDFS).
As you see, in this particular area HDFS turned completely upside down to the profit it made in 2008 (which was lower than it was in 2005).
While this may appear to be the result of the recession, it's not-and neither is the lower shipments:
While both the recession and tighter credit requirements affected sales for a year, growth had been slowing since 2003 and had peaked in 2006.[i] The boom, then, was over for Harley at the end of 2006.[ii] By 2007, Harley's shipments had dropped by 2.7% at the same point in the year. In 2008 they had dropped by 9% and this year, shipments were down 17.5%.
Growth had slowed for the Big Four as well but the boom persisted for smaller marques. And it persisted for motorcycles that were neither cruisers, customs or tourers. Those weren't the kind of bike Harley made. It was, however, the kind of bike Buell made. The tiny subsidiary enjoyed an erratic growth while its huge brother was beginning to slide; Buell had 10% increase in shipments in 2006 with a 7.6% drop in 2007 and almost a 14% increase in 2008.
This indicates the Harley line had hit market saturation before the recession hit, while Buell-though shipments were minuscule-was still growing.
Iow, the recession and newborn bust cycle exacerbated rather than caused Harley's troubles now-and in the future. In fact, the bust and recession reveal the mismanagement of one of America's most famous brands.
Ten mistakes Harley-Davidson made
Five of them were bad business decisions-and some of them were shared by many corporations over the past few years. Some were simply errors in judgment-something shared by many businesses large and small:
* Subprime loan policy and dependency on securitization.
* Locking itself into a too-rigid conception of the brand;
* Buying MV Augusta too late then selling it as a temporary fix.
* Too slow to recognize the boom cycle and too slow to take advantage of it.
* Almost everything they did about Buell from first to last.
But five of them relate to a failure to understand motorcycling, which, after all is its core business:
* Mismanaging the dealer relationship;
* Misunderstanding how Harleys became Harleys;
* Inability to translate the brand for a new generation;
* Failure to produce an off-road bike;
* Failure to understand the Buell brand and how to position it;
These problems boils down to one simple thing: they treated Harley as if it was a business like any other.
Over the next few entries, we'll look more closely at where Harley went wrong-and what it can do to regain market share in the future.
[i] And that growth was inflated due to H-D's channel-stuffing and winter-financing that inflated 4Q growth and, when the boom ended, had an increasingly severe effect in 1Q and then 2Q shipments.
[ii] And then only because H-D was still channel-stuffing and offering winter financing and free storage to dealers. This inflated the number of shipments and making it appear to investors and stockholders that H-D was doing better than it really was. The overflow shipments from the prior year then deflated shipments in the first quarters-and then in the second as demand slowed.