By Neil Pascale
Harley-Davidson Motor Co. has narrowed its business operations while at the same time signaling the possibility of making a first-ever move for the company: manufacturing overseas.
On the day the company announced its quarterly net income dropped by more than $140 million compared to a year ago, Harley-Davidson revealed its upcoming withdrawal from the sport bike market. That includes putting the brakes on a more than quarter-century old brand (Buell) and announcing plans to end a short relationship with a separate, European brand (MV Agusta).
At the same time, company officials laid out their expectation to grow the Harley-Davidson brand overseas, including adding to their international dealer network and possibly starting manufacturing in overseas markets. Company officials, in a quarterly earnings conference call, noted “in-market design and manufacturing is a possibility” for Harley-Davidson overseas.
Company executives also signaled that further changes could take place, including possibly in Harley-Davidson Financial Services (HDFS). Company officials said Harley will continue to provide a source of financing for its retail customers and its dealers, but also noted they are exploring all options for HDFS. That message came after Harley-Davidson reported a $31.5 million loss from HDFS for the most recent quarter.
“Growth is the single most important critical need for Harley-Davidson right now,” Harley-Davidson CEO Keith Wandell said during the conference call. “We expect to grow through new innovative products, outstanding experiences and extending the brand” among core customers and key demographic groups overseas.
But those focuses will be done through one brand rather than three. Harley executives said they took steps to end production of Buell and divest of MV Agusta primarily because the “Harley-Davidson brand has provided greater returns than either the Buell or MV Agusta brand” and “Harley-Davidson customers have a much higher repeat purchase intent” than the two other brands.
Budgetary concerns also could have played a role. Harley officials said revenue from its Buell operations dropped from nearly
$135 million in 2008 to less than $60 million in 2009 year-to-date.
As part of the move to end Buell production, 180 employees are to be laid off.
'An emotional time’
A somber Erik Buell, the brand’s founder, appeared in a video released by Harley-Davidson after the announcement, calling it “a very emotional time for me.
“I will always be proud of America’s little sport bike company that took on the world and with brilliant innovations produced some of the best handling motorcycles of all time. We proved that a small group of passionate and inspired people can compete against industry giants.”
Harley-Davidson officials noted the company did not consider selling the Buell brand because of how integrated it is in Harley’s business system and distribution network.
The move to eliminate the Buell brand is expected to cost Harley-Davidson $125 million.
Harley also announced it will try to sell the Italian sport bike manufacturer MV Agusta. Harley purchased the company in August 2008 and MV Agusta recently announced two new models for 2010. However through September, Harley has seen a net loss of nearly $55 million from the Italian manufacturer’s operations, according to the company.
The go-forward strategy
Instead of continuing with the niche sport bike manufacturer, Harley has decided to focus solely on its own brand in the European market. Company officials noted through 2008 Harley had gained market share for four consecutive years in Europe.
“We have great conviction that there is much more we can do to tap into the power of that brand and expand it even further,” Wandell said.
He also noted Harley-Davidson won’t just stay within the riding community to tap into the brand’s power. “Look for us to push the boundaries when it comes to how we engage with everyone who admires the brand,” he said.
Part of that means continuing to focus on providing customization within both the cruiser and touring segments.
“P&A and General Merchandise represent more than 23 percent of our revenue year-to-date, reflecting the importance of custom personalized experiences,” Wandell said. “We will build off our unique expertise to develop relevant products that attract even more young adults, women and new customers into the H-D brand.”
What remains less clear is what the company will do with HDFS. Harley officials said they are looking at all options for the financial services sector of the company and did not dismiss the possibility of adding a third-party underwriter to HDFS.