This is about a 3 beer read. So be prepared or just skip it.

The announcement yestereday from Harley Davidson concerning the ongoing problems at the York, Pa. assembly plant and the liklihood that it might be closed drew many comments. One thing for sure is that Harley owners are a tremendously loyal bunch of consumers. Most of us would be perfectly happy if nothing were to change in the future. But, unfortunately the world that we live in today does not operate on that premise. Thing are changing all the time.

We now live in a flat world. Simply, that means that there are no borders or limitations as to how business gets done. You can now operate from a two hole outhouse in BFE and do business all over the world. It is important to realize what has driven this phenomenon. The computer and the internet. Thank Bill Gates and yes, Al Gore for changing the way the world does business. Manufactures can now source supplies from any corner of the world in seconds. Buyers can buy from any corner of the world in seconds. You can save money by purchasing on the internet. Whoever sell for the least amount sells the most.

Next let's look at some historical figures to put things into perspective. These numbers will be for over head valve production bikes which were made for the public, starting in the early years of HD.

Year 1936-1704 61 inch, 40 horsepower bikes produced.
1939- 2909 bikes produced.
1940- 4069 bikes produced.
1941- 5149 bikes produced.
1942- 1743 bikes produced. WW II was going on.
1943- 303 bikes produced.
1945- 1430 bikes produced. War is winding down and things ramping up.
1946- 6746 bikes produced.
1947- 11,648 bikes produced. Whooho, they are kicking bo-bo.
1950- 10,174 bikes produced.
1954- 4754 bikes produced. Last of old HD family dies out. Many funerals.
1957- 8000 bikes produced. British bikes are very popular.
1963- 5700 bikes produced. Those rice burners are coming to America.
1965- 10,700 bikes produced. 12 volt systems make debut.
1969- 15,100 bikes produced.
1970- Enter AMF
1971- 22,150 bikes produced.
1972- 34,350 bikes produced. AMF starts aggresive marketing program.
1974-40,450 bikes produced.
1976- 47,700 bikes produced. The AMF factories running into problems.
1979- 38,975 bikes produced. AMF models are old and stale.
1980. AMF Chairman recommends AMF be sold. Not going anywhere.
1981- Select management buys Harley back from AMF.
1982- 28,800 bikes produced. Economy is starting to go into recession.
1984- 37,850 bikes produced. Shovelheads are out. Evolution engines in.
1988- 50,517 bikes produced.
1991-68,626 bikes produced.
1992-76,495 bikes produced.
1994-96,387 bikes produced.
1998-157,100 bikes produced. Buys Buell motorcycles.
2000-209,635 bikes produced.
2003-301,000 bikes produced.
2006-359,143 bikes produced. This is the peak.
2007-340,059 bikes produced. New Twinkies with FI arrive.
2008-312,674 67+hp bikes produced. Economy is going down fast.
2009- Year is not over. Production is going South, bigtime. Ya, bigtime.

OK, now that we have covered that stuff, it is time to realize that business in the United States operates under a free market economy. That means that you can pretty much charge whatever you want as long as the traffic will bear it. Very few contraints exist. For the most part, the government will not intervene unless you do something increadibly stupid and really screw the pooch. It is as wide open as a butcher knife. Anything goes!

Now let's talk about private companies and public companies. The reason a company wants to go public is to have ready access to new capital. New capital is necessary in order to expand production capacity and yes spend more money on research and development. Also when you go public it is something akin to having a credit card for a whorehouse in your pocket. You can spend, spend, spend. Management can even give itself a fat raise because in theory at least, shareholders are stupid and won't really know how much we pay ourselves, unless they take the time to look and most do not. But you have to get and keep that share price up.

Now it is time to throw a little cold water on this lovefest with business. You can only grow your stock price and therefore have more shareholders invest in your company by showing some profit. By Wallstreet standards you must increase your stock price every three months or quarter. As long as your stock price keeps going up every quarter, Wallstreet loves the ground you walk upon and will eat your dirty shorts. But...if you somehow don't make your numbers and your stock price slides, you are dead, dead, dead, dead. Wallstreet will sell off your stock in a heartbeat when you fail to increase your stock price. There are many reasons why you might not be able to increase your stock price every quarter. Some of them might be that the country as a whole is suffering a downturn and people are not buying as much. Another scenario could be that the CEO has stolen money and bought a ticket to the South Pacific where he expects to live out the rest of his life in the lap of luxury. There are many reasons why you might not always be able to grow your stock price but they all lead to the same results. If for whatever reason your stock price goes down you are personal non grata on Wallstreet. You live and die by that stock price each and every day. Probably the worst thing about going public is the fact that you loose control of your company. Instead of making decisions based upon years of business experience, suddenly you have a board of directors breathing down your nethr regions reminding that you serve at their pleasure and when the stock prices is no longer going up, they no longer like you and will hire someone else. The only good thing about going public is all the new money you have, but only if you can show positive results every quarter.

Man, this is getting to be a tome. It is time to draw this to a close.
Harley Davidson, a favorite to all of us, started about 6 or 7 years ago to put pressure on it's dealer network to build new million dollar show place dealerships. The MOCO had adopted a new business plan, complete with new higher costs for the dealers. The idea was that in order to sell more motorcycles and thus increase shareprice and compensation to upper management, they needed a new business model. If a dealer had an old timey shop with a dirt floor in it, he or she was told privately (hinted) that in order to have a ready supply of new motorcycels in the coming boom cycle they would have to put up a new monument to their ego in the form of a multi million dollar dealershop complete with signs and high dollar real estate. To make it easier, the MOCO would even loan them the money and help with the construction. In order to do this the MOCO would have to come up with new supplies of money in which to loan to both potential new buyers and dealers alike. They did just that. Dealers who drank the Kool-Aid immediately started construction on new buildings which would hold a "bunch" of new shiny Harley Davidson Motorcycles. Some dealers even built two or three new buildings. These guys got drunk drinking the Kool-Aid.
For a few years this business model worked wonders. The economy was booming and everybody who wanted a job had one. Operating costs at the dealerships were high, but so were sales. Consumers had ready access to easy credit and could get anything they wanted just by telling the salesman "I want it". Dealers loved it and were smiling all the way to the bank. It was easy to make those high monthly mortgage payments on their monuments. Life is good, yes?

Fast forward to today. OK, everyone knows what happens when the whole country lives beyond it's means and there is no regard how we are going to pay for any of this. Housing prices don't go up forever do they? Neither do stock prices.
Now Harley finds itself in the same boat as lots of businesses. In order to expand and grow they once again have to find a way to sell more and more motorcycles. The one thing that has changes now is that the supply of money in which to loan to potential buyers has dried up to zilch or pretty near zilch. Lenders are scared stiff that buyers won't have the means to pay for their purchases and have raised credit requirements.
Add to this mix is the fact that the MOCO is loosing key management people for a host of reasons. They are in a tight. But they have lots of company in that iceberg seeking ship.

This gets us to the present dilema that Harley finds itself in; that being how to increase sales or cut costs so they can pay the bills at the manufacturing plants. Most of the bills you have in business are fixed. They don't change much from month to month. The one thing that you can do is to build a cheaper product using cheaper labor and cost of materials. How do you do that? Not in your own backyard obviously, because that is precisely where you have been for the last 106 years. In order to survive you start thinking "we have to move production to a place where it costs far less to produce our widgets. That does not necessarily mean that you will sell your product for less if it is produced in a foreign land with cheaper labor and shipped back to the U.S.A. for sales. After all, you don't want to take a pay cut. All you really want to do is decrease costs while increasing sales. You don't want to cut the retail price. Heaven forbid.
You can accomplish this in one of two ways. One way is to close plants in high labor cost areas and move production to lower cost states that have lower production costs as in no unions or much less effective unions. This is the short term solution because in 10 years or so your production costs will rise again and you will be back facing the same monster that got you in trouble in the first place. The second and more popular solution is to move all your production offshore and let the chips fall where they may. Holly molly. To think all this started with the advent of the computer. Where is Bill Gates? Somebody get a rope!
THE END...or maybe not. Once again, time will tell.

 

Wow how depressing. I hope they pull through this mess in the recognizable form that we all love. Only time will tell so we shall see...

 

Just one more reason I plan on keeping my '04.

 

Impressive read. thanks. GM can be summed up the same way.

 

wow very imformative thanks for the info-ride safe

 

Thanks for taking the time to summarize market/business trends especially regarding MOCO. I feel you have provided some significant information specific to MOCO and the York plant for us here while painting a glimpse of current conditions that have been created lately in corporate America, not just MOCO.

It is my opinion that economy is cyclical as are business trends. I only hope that it does not take years to come back full circle to what i feel are well run, organized, cost effective dealers that actually cared about the consumer and not just meeting numbers established by outside influences, needs. or shareholders.

Bring back the small dealerships with written business plans. Keep cost and overhead low. Have short, mid and long range goals that are continuosly monitored. Be financially accountable.
Use the profits and expand if possible. When the time is right, and the funds or decent loan rates are available. All expenses must fall within the business plan.

Obviously I am no business or financial expert. But what I do know is that some of the companies I see that are surviving these tough economic times have always employed the philosophy of conservative business practices.
Not that this will work for all businesses. Several of these smaller businesses were put out of business due to the larger quantity, lower margin companies. Wally World, etc.

My point is maybe it is time to get back to business basics and fundamentals. It takes money to earn money in a business. Risk/reward if you will. What risk do the CFO's/CEO's of the multibillon $ companies have other than job security? None! What have they done to build the company? How many night did they spend trying to resolve a customers problem or idea? No sweat equity on their part.

If my parents or even myself for that matter had a dealership or any business for that matter, would I hire somebody without experience, knowledge or a history of running other companies into the ground to make financial or spending decisions?
We have lost touch of basic business principals. Respect, appreciate and thank your customers. Maintain their confidence and respect. Stick with your business plan, financial goals and interests. Appreciate, respect and thank your employees while continuing to educate their businss knowledge and sence. Promote from within based on performance and interest.

This may seem old school "business", but I still see several old school businesses and companies around that have seen their competition come and go 2 or 3 times.
In summary, I would like to provide this quote my father told me when I started my own business many years ago:
If you fail to plan...you better plan to fail.
Sorry this was so long. It just sparked an old flame of yester-year.
Ride safe and may all businesses prosper and grow.

 

what will they think of next maybe stop making replacement parts to force you to buy a newer moder just like the Metric bikes ,they are good for the first 5 years then the parts start drying up by 10 years you cant get anything for that bike

 

plain and simple harley is a greedy bastard!!!!!!!!!!!!!! 7 words done.

 

A few things to keep in mind. Harley is still in the black, even in these tough times. Over the last 20 years Harley has made about ten times the return for investors based on S&P's average return, and the last couple of times that HD announced layoff's, the stock went up in value.

The management is proving that they are good at keeping the company strong, so an offshore move, when they know that the company strength is being "American" just doesn't make sense to me.

 

as alot of american made companies have done....HD is likely to do something as well. IMHO i think "having items produced in the far east" has been in the works at HD for a while. all of us who are buying HD parts for your bike....you see where they are made....China, Tiawan, India. 9 out of 10 HD items (engine covers, wheels, chrome front ends) I buy for my Ultra ARE NOT MADE IN THE USA.

like it or not...it is coming!