FORTUNE -- Harley-Davidson was the feel-good turnaround story of the
1990s and then the poster-boy for brand values in the 2000s. How often
did you read that Harley was the only consumer brand whose customers
were so loyal they wore the company's logo tattooed on their chest?
But after expanding exuberantly in the last decade, Harley has fallen
on hard times. Now it is struggling against a foe that not even
cost-cutting nor brand loyalty can overcome: demographics. Its current
owners are getting old, and not enough younger ones are coming up
behind them.
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Harley's core customer is a middle-aged white American male, a group
that will contract in the coming decade. As one blogger wrote, "The
60-70-year old riders have trouble lifting a leg over the seat because
of arthritis. And finger joints hurt with the cold air and engine
vibration." Women represent just 11% of Harley buyers, and penetration
in the African-American and Hispanic markets is similarly limited.
Harley's need to readjust its aspirations was driven home this week by
the news that the company had forced its Wisconsin labor unions to
accept wage and benefit concessions by threatening to move its
factories out of the state. New contracts will allow the company to
cut 325 employees and convert 150 to 250 other workers to temporary or
"casual" status, meaning they have fewer benefits and will work on an
"as-needed basis.
The cutbacks come as Harley (HOG, Fortune 500) scales back in the face
of a sharply shrinking market. As recently as 2008, Harley built
303,000 motorcycles, nearly double the 159,000 it assembled in 2000.
This year it expects to make between 201,000 and 210,000 bikes. Since
new CEO Keith Wandell arrived on the scene in May, 2009, Harley has
consolidated operations, terminated its Buell line of sport bikes, and
sold its MV Agusta Italian motorcycles back to its founder.
Bumpy roads are nothing new for Harley. The first Harley-Davidson was
built in Milwaukee -- still the company's headquarters -- in 1903 by
William S. Harley and the three Davidson brothers. Their popularity
took off during World War One, when 20,000 Harleys were used by the
U.S. infantry. With the shutdown of Indian in 1953, Harley became the
only American motorcycle manufacturer. Marlon Brando's 1954 movie The
Wild One helped solidify Harley's image of hairy-chested rebellion, an
identification it alternately embraces and spurns.
By 1969, Harley enjoyed an 80% share of the market for big bikes. But
ten years later, incursions by Japanese manufacturers, led by Honda,
squeezed its share to 20%. Fighting back at what it perceived as
unfair competition, the company won an anti-dumping ruling from the
International Trade Commission in 1982, and President Reagan imposed a
45% additional tariff on super heavyweight Japanese bikes.
Given an opening, Harley used the opportunity provided by the tariffs
to regroup. It paid more attention to the appearance of its bikes,
started to focus on quality, and beefed up its marketing. From 1988 to
1995, annual shipments doubled. In fact, demand grew faster than
manufacturing capacity could keep up. Harleys became a cult item;
Harley dealers packed extra charges onto list prices and compiled
waiting lists for prospective customers. By the late 1990s, certain
models were back-ordered for two years.
After resisting the temptation to expand, Harley belatedly added
production capacity and grandiosely predicted sales would reach
400,000 by 2007. But lacking scarcity, Harleys also began to lose
their cachet. Sales peaked in 2006 at 349,000. Nobody bought Harleys
for transportation, and at up to $20,000 for a fully-rigged cruiser,
they had become a highly-deferrable luxury purchase, especially in a
recession.
Nor did Harley's famous brand strength buffer it when its bikes were
no longer in short supply and demand hit a wall. The combination of a
faltering economy and an aging customer base at the end of the decade
had significantly dented sales -- perhaps permanently.
There is a lesson here for companies that become the flavor of the
moment -- and then use that as a base from which to make forecasts for
the future. Harley's famous brand couldn't buffer it from the downturn
once owning a Harley stopped being cool. Tattoos didn't move
motorcycles.
As analyst Craig Kennison of Robert W. Baird points out, Harley
survived earlier economic downturns when other discretionary consumer
durables slumped because Harleys were in short supply. As it built
capacity to meet demand, Harley became just another manufacturer,
vulnerable to a cyclical economy. In the fourth quarter of 2009, it
suffered its first quarterly loss in 16 years.
The days when Harleys were a fashion accessory are likely over. Except
perhaps for Indiana governor and presidential aspirant Mitch Daniels,
it is no longer big news when a celebrity is seen riding a Fat Boy or
Ultra Limited. The challenge for Harley-Davidson in 2010 is to adjust
to the new normal.
http://money.cnn.com/2010/09/17/autos/harley_davidson_fall.fortune/?section=money_latest
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