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Project Report

Company Analysis


Safiya Tayyiba (08L51E0037)

Dissertation submitted as a Partial Fulfillment for the award of degree in

Master of Business Administration (MBA)


(Affiliated to Jawaharlal Nehru Technological University)

Khairatabad, Hyderabad.

I hereby declare that this project report titled “ A Company Analysis for Harley

Davidson” submitted by me to MBA Department, Shadan Women’s College of

Engineering & Technology is a bonafide work undertaken by me and I is not

submitted to any other University or Institution for the award of any

degree/diploma/certificate or published any time before

Name and Address of the Student Signature of the Student

Sadaf Habitat,
Hyderabad -500004

Date: 16th July, 2009


Company is a voluntary association of persons formed for the purpose of doing

business having a distinct name and limited liability

Company analysis is to identify company’s needs and determining solutions to

financial, human resource, marketing problems. Solutions often include a systems
development component, financial statements, policies, procedures, to improve the status
of the company but may also consist of process improvement or organizational change.
Company analysis focuses on understanding the needs of the business as a whole, its
strategic direction, and identifying initiatives that will allow a business to meet those
strategic goals. Involves planning, requires development process, were requirements are
the highest priority for implementation, and managing change.

I express my gratitude and thanks to Almighty God and my parents without

whose support; I could not have made this career in Master of Business


I wish to place on record a deep sense of gratitude to our project guide Ms.

Nikhat Sultana and Head of Department Ms. Atiya Mahboob for their constant

motivation and valuable suggestions and advices through out the project work. I

also express my gratitude to other faculty members for their cooperation during

the course and project.

Finally, I would like to thank my friends for their cooperation to complete this

Table of Contents

Sl.No Title
1. Introduction
2. Harley-Davidson: Company Profile
Financial Statement for Harley-Davidson Inc.
3.1 Annual Income Statement
3.2 Balance Sheet
3.3 Cash Flow Statement
3.4 Additional Balance Sheet & Cash Flow Information
3.5 Inventories
3.6 Supplemental Cash Flow
3.7 Discontinued Operations
4. Stock: Harley-Davidson
5. Human Resource Management
6. Marketing
7. Corporate Governance Policy: Harley-Davidson
8. Product Line
9. Risk Management and Risk Factors
10. Investment Decision and Conclusion
11. Strategic Report for Harley Davidson
15. Global Ranking

Measurement is obviously essential for determining whether HR practices and the HR

function add value to an organization. Generally, HR is considered a cost or resource
absorption center; however, it will become increasingly more common for HR to price
and sell its services internally and externally. In the alternative, HR can justify its
contribution by demonstrating cost savings, reduced turnover, enhanced employee
productivity and increased job satisfaction.

Three approaches. There are at least three approaches to assessing HR's value:

* Volume/activity ratios that frequently take the form of efficiency indices;

* Internal customer/employee satisfaction surveys; and

* Program evaluation and benchmarking.

Other aggregate measures less commonly used include sales revenue per employee, HR
cost per sales dollar and return on HR investment. These measures tend to be more
financially based and generally require more analytical skill to develop, use and interpret.
Likewise, program evaluation and benchmarking are not commonly used, although they
are powerful approaches to demonstrating HR's organizational contributions. External
wage and benefit surveys, a form of benchmarking, were used by all respondents,

Several of the more specific measures (cost per employee training hour, cost per hire,
labor contract costing, and benefit cost ratios) are also based in cost accounting or
financial analysis. Again, many of these tended to be used less and were rated as less
important. One of the most frequently used and the most important measure was the
OSHA incident rate; this is the only measure on the list with a basis in federal regulation.

Efficiency vs. effectiveness. Many of the measures capture aspects of efficiency, but do
not necessarily provide much indication of effectiveness. For example, consider average
time to fill new and vacant positions: over a period of time, an HR department could
significantly reduce the cycle time to fill positions, but unless the right applicants are
chosen, HR may not be effective in staffing the organization.

Return on HR investment, program evaluation and attitude surveys do address

effectiveness concerns. Unfortunately, HR respondents indicated less use of these
methods. Several measures of HR staffing performance were also rated as lower in
importance or had less usage. Staffing is one of the HR functions that is information- and
relationship-based, making it more deserving of careful assessment.


Harley-Davidson, Inc. operates in two segments: the Motorcycles & Related Products
(Motorcycles) segment and the Financial Services segment. The Motorcycles segment
includes the group of companies doing business as Harley-Davidson Motor Company
(HDMC), Buell Motorcycle Company (Buell) and MV Agusta (MV). The Motorcycles
segment designs, manufactures and sells at wholesale primarily heavyweight (engine
displacement of 651+cubic centimeters) touring, custom and performance motorcycles,
as well as a line of motorcycle parts, accessories, general merchandise and related
services. The Financial Services segment includes the group of companies doing business
as Harley-Davidson Financial Services (HDFS). HDFS provides wholesale and retail
financing and, as an agent, provides insurance and insurance-related programs primarily
to Harley-Davidson and Buell dealers and their retail customers. HDFS conducts business
in the United States and Canada. In August 2008,it acquired MV Agusta Group.

2.1 Quick Financial Synopsis.

BRIEF: For the three months ended 29 March 2009, Harley- Davidson, Inc.'s revenues
decreased 1% to $1.40B. Net income decreased 37% to $117.3M. Revenues reflect a
decrease in demand for motorcycles and lower financial services income. Net income
also reflects an increase in financial service expenses, higher Motorcycles segment
operating expenses, the presence of interest expense and lower net investment income.

2.2 History.

In 1901, William S Harley, age 21, drew up plans for a small engine with a displacement
of 7.07 cubic inches (116 cc) and four-inch (102 mm) flywheels. The engine was
designed for use in a regular pedal-bicycle frame.

Over the next two years Harley and his childhood friend Arthur Davidson labored on
their motor-bicycle using the north side Milwaukee machine shop at the home of their
friend, Henry Melk. It was finished in 1903 with the help of Arthur's brother, Walter
Davidson Upon completion the boys found their power-cycle unable to conquer
Milwaukee's modest hills without pedal assistance. Will Harley and the Davidson’s
quickly wrote off their first motor-bicycle as a valuable learning experiment.

Work immediately began on a new and improved second-generation machine. This first
"real" Harley-Davidson motorcycle had a bigger engine of 24.74 cubic inches (405 cc)
with 9.75 inches (25 cm) flywheels weighing 28 lb (13 kg). The machine's advanced
loop-frame pattern was similar to the 1903 Milwaukee Merkel motorcycle (designed by
Joseph Merkel, later of Flying Merkel fame.) The bigger engine and loop-frame design
took it out of the motorized-bicycle category and would help define what a modern
motorcycle should contain in the years to come. The boys also received help with their
bigger engine from outboard motor pioneer Ole Evinrude, who was then building gas
engines of his own design for automotive use on Milwaukee's Lake Street.

Harley-Davidson Motor Company

Type Public (NYSE: HOG)

Founded 1903
William S. Harley
Arthur Davidson
Walter Davidson
William A. Davidson
Headquarters Milwaukee, Wisconsin, United States
Key people Keith E. Wandell, CEO
Products Motorcycles
Revenue ▲ 5.7 Billion (USD) (2007)[1]
Employees 9,700 (2006)[2]
MV Agusta

The prototype of the new loop-frame Harley-Davidson was assembled in a 10- by 15-foot
(3 by 5 meter) shed in the Davidson family backyard. Most of the major parts, however,
were made elsewhere, including some probably fabricated at the West Milwaukee
railshops where oldest brother William A. Davidson was then tool room foreman. This
prototype machine was functional by 8 September 1904 when it competed in a
Milwaukee motorcycle race held at State Fair Park. It was ridden by Edward Hildebrand
and placed fourth. This is the first documented appearance of a Harley-Davidson
motorcycle in the historical record.
In January 1905, small advertisements were placed in the "Automobile and Cycle Trade
Journal" that offered bare Harley-Davidson engines to the do-it-yourself trade. By April,
complete motorcycles were in production on a very limited basis. That year the first
Harley-Davidson dealer, Carl H. Lang of Chicago, sold three bikes from the dozen or so
built in the Davidson backyard shed. (Some years later the original shed was taken to the
Juneau Avenue factory where it would stand for many decades as a tribute to the Motor
Company's humble origins. Unfortunately, the first shed was accidentally destroyed by
contractors in the early 1970s during a clean-up of the factory yard.)

In 1906, Harley and the Davidson’s built their first factory on Chestnut Street (later
Juneau Avenue). This location remains the Motor Company's corporate headquarters
today. The first Juneau Avenue plant was a 40 by 60-foot (18 m) single-story wooden
structure. That year around 50 motorcycles were produced.

1907 model. Harley-Davidson 1000 cc HT 1916

In 1907, William S. Harley graduated from the University of Wisconsin-Madison with a

degree in mechanical engineering. That year additional factory expansion came with a
second floor and later with facings and additions of Milwaukee pale yellow ("cream")
brick. With the new facilities production increased to 150 motorcycles in 1907. The
company was officially incorporated that September. They also began selling their
motorcycles to police departments around this time, a market that has been important to
them ever since.

Production in 1905 and 1906 were all single-cylinder models with 26.84 cubic inch (440
cc) engines. In February 1907 a prototype model with a 45-degree V-Twin engine was
displayed at the Chicago Automobile Show. Although shown and advertised, very few V-
Twin models were built between 1907 and 1910. These first V-Twins displaced 53.68
cubic inches (880 cc) and produced about 7 horsepower (5 kW). This gave about double
the power of the first singles. Top speed was about 60 mph (97 km/h). Production jumped
from 450 motorcycles in 1908 to 1,149 machines in 1909

By 1911 some 150 makes of motorcycles had already been built in the United States –
although just a handful would survive the 1910s.In 1911, an improved V-Twin model
was introduced. The new engine had mechanically operated intake valves, as opposed to
the "automatic" intake valves used on earlier V-Twins that opened by engine vacuum.
With a displacement of 49.48 cubic inches (810 cc), the 1911 V-Twin was smaller than
earlier twins, but gave better performance. After 1913 the majority of bikes produced by
Harley-Davidson would be V-Twin models.

By 1913, the yellow brick factory had been demolished and on the site a new 5-story
structure of reinforced concrete and red brick had been built. Begun in 1910, the red brick
factory with its many additions would take up two blocks along Juneau Avenue and
around the corner on 38th Street. Despite the competition, Harley-Davidson was already
pulling ahead of Indian and would dominate motorcycle racing after 1914. Production
that year swelled to 16,284 machines.

In the mid-'30s, Alfred Rich Child opened a production line in Japan with the 74ci VL.
The Japanese license-holder severed its business relations with Harley-Davidson in 1936
and continued manufacturing the VL under the Rikuo name.

An 80 cubic inch flathead engine was added to the line in 1935, by which time the single-
cylinder motorcycles had been discontinued.

In 1936, the 61E and 61EL models with the "Knucklehead" OHV engines was
introduced. Valvetrain problems in early Knucklehead engines required a redesign
halfway through its first year of production and retrofitting of the new valvetrain on
earlier engines.

By 1937, all Harley-Davidson's flathead engines were equipped with dry-sump oil
recirculation systems similar to the one introduced in the "Knucklehead" OHV engine.
The revised 74 cubic inch V and VL models were renamed U and UL, the 80 cubic inch
VH and VLH to be renamed UH and ULH, and the 45 cubic inch R to be renamed W.

In 1941, the 74 cubic inch "Knucklehead" was introduced as the F and the FL. The 80
cubic inch flathead UH and ULH models were discontinued after 1941, while the 74" U
& UL flathead models were produced up to 1948

AMF H-D Electra Glide

In 1952, following their application to the US Tariff Commission for a 40% tax on
imported motorcycles, Harley-Davidson was charged with restrictive practices.
Hollywood also damaged Harley's image with many outlaw biker gang films produced
from the 1950s through the 1970s, following the 1947 Hollister, CA biker riot on July 4.
"Harley-Davidson" for a long time was synonymous with the Hells Angels and other
outlaw motorcyclists.

In 1969, American Machinery and Foundry (AMF) bought the company, streamlined
production, and slashed the workforce. This tactic resulted in a labor strike and a lower
quality of bikes. The bikes were expensive and inferior in performance, handling, and
quality to Japanese motorcycles. Sales declined, quality plummeted, and the company
almost went bankrupt.[36] The "Harley-Davidson" name was mocked as "Hardly
Ableson", "Hardly Driveable," and "Hogly Ferguson",[37][38] and the nickname "Hog"
became pejorative.

1998 Harley-Davidson FXSTC

In 1981, AMF sold the company to a group of thirteen investors led by Vaughn Beals and
Willie G. Davidson for $80 million. Inventory was strictly controlled using the Just In
Time system. In the early eighties, Harley-Davidson claimed that Japanese manufacturers
were importing motorcycles into the US in such volume as to harm or threaten to harm
domestic producers. After an investigation by the US International Trade Commission,
President Reagan imposed in 1983 a 45% tariff on imported bikes and bikes over 700 cc
engine capacity. Harley Davidson subsequently rejected offers of assistance from
Japanese motorcycle makers.

Rather than trying to match the Japanese, the new management deliberately exploited the
"retro" appeal of the machines, building motorcycles that deliberately adopted the look
and feel of their earlier machines and the subsequent customizations of owners of that
era. Many components such as brakes, forks, shocks, carburetors, electrics and wheels
were outsourced from foreign manufacturers and quality increased, technical
improvements were made, and buyers slowly returned. To remain profitable Harley
continues to increase the amount of overseas-made parts it uses, while being careful not
to harm its valuable "American Made" image.
Ford F-150 crew cab
Harley-Davidson edition

The "Sturgis" model, boasting a dual belt-drive, was introduced. By 1990, with the
introduction of the "Fat Boy", Harley once again became the sales leader in the
heavyweight (over 750 cc) market. At the time of the Fat Boy model introduction a story
rapidly spread that its silver paint job and other features were inspired by the World War
II American B-29 bomber; and that the Fat Boy name was a combination of the names of
the atom bombs (Fat Man and Little Boy) that were dropped on Nagasaki and Hiroshima
respectively. However, the Urban Legend Reference Pages lists this story as an urban

1994 saw the replacement of the FXR frame with the Dyane, though it was revived
briefly in 1999 and 2000 for special limited editions. In 1999, Ford Motor Company
added a Harley-Davidson edition to the Ford F-Series F-150 line, complete with the
Harley-Davidson logo. This truck was a Super Cab for model year 1999. In 2000, Ford
changed the truck to a crew cab and in 2002 added a super-charged engine (5.4 L) which
continued until 2003. In 2004, the Ford/Harley was changed to a Super-Duty, which
continues through 2006. Ford again produced a Harley-Davidson Edition F-150 for their
2006 model-year, as well.

Building started on $75 million 130,000 square-foot (12,000 m2) Harley-Davidson

Museum in the Menomonee River Valley on June 1, 2006. It opened in 2008 and houses
the company's vast collection of historic motorcycles and corporate archives, along with a
restaurant, café and meeting space. Buell Motorcycle Company

Main article: Buell Motorcycle Company

Harley-Davidson's association with sport bike manufacturer Buell Motorcycle Company

began in 1987 when they supplied Buell with fifty surplus XR1000 engines. Buell
continued to buy engines from Harley-Davidson until 1993, when Harley-Davidson
bought forty-nine percent of the Buell Motorcycle Company. Harley-Davidson increased
its share in Buell to ninety-eight percent in 1998 and to complete ownership in 2003]

In an attempt to attract newcomers to motorcycling in general and to Harley-Davidson in

particular, Buell developed a low-cost, low-maintenance motorcycle. The resulting
motorcycle, the single-cylinder Buell Blast, was introduced in 2000.

2.3 Claims of stock price manipulation

Harley Davidson Inc (NYSE:HOG) stock price (source: During its
period of peak demand, during the late 1990s and early 2000s, Harley-Davidson
embarked on a program of expanding the number of dealerships throughout the country.
At the same time, its current dealers typically had waiting lists that extended up to a year
for some of the most popular models. Harley-Davidson, like the auto manufacturers,
records a sale not when a consumer buys their product, but rather when it is delivered to a
dealer. Therefore, it is possible for the manufacturer to inflate sales numbers by requiring
dealers to accept more inventory than desired in a practice called channel stuffing. When
demand softened following the unique 2003 model year, this news lead to a dramatic
decline in the stock price. In April 2004 alone, the price of HOG shares dropped from
over $60 to under $40. Immediately prior to this decline, retiring CEO Jeffrey Bluestein
profited $42 million on the exercise of employee stock options. Harley-Davidson was
named as a defendant in numerous class action suits filed by investors who claimed they
were intentionally defrauded by Harley-Davidson's management and directors. By
January 2007, the price of Harley-Davidson shares reached $70.

On February 2, 2007, upon the expiration of their union contract, about 2,700 employees
at Harley-Davidson Inc.'s largest manufacturing plant in York, PA went on strike after
failing to agree on wages and health benefits. During the tendency of the strike, the
company refused to pay for any portion of the striking employees' health care. The day
before the strike, after the union voted against the proposed contract and to authorize the
strike, the company shut down all production at the plant. The York facility employs
more than 3,200 workers, both union and non-union.

Harley-Davidson announced on February 16, 2007, that it had reached a labor agreement
with union workers at its largest manufacturing plant, a breakthrough in the two-week-
old strike. The strike disrupted Harley-Davidson’s national production and had ripple
effects as far away as Wisconsin, where 440 employees were laid off, and many Harley
suppliers also laid off workers because of the strike.
3.1 Annual Income Statement
2006 2005 2004
2008 2007 2006-12-31 2005-12-31 2004-12-31
In Millions of U.S. Dollars 2008-12-31 2007-12-31 Reclassified Reclassified Reclassified
(except for per share items) Period Length Period Length 2007-12-31 2007-12-31 2005-12-31
12 Months 12 Months Period Length Period Length Period Length
12 Months 12 Months 12 Months
Revenue 5,971.3 6,143.0 6,185.6 5,673.8 5,320.5
Other Revenue, Total -- -- -- -- --
Total Revenue 5,971.3 6,143.0 6,185.6 5,673.8 5,320.5
Cost of Revenue, Total 3,957.7 3,816.8 3,742.0 3,441.7 3,232.3
Gross Profit 2,013.6 2,326.3 2,443.6 2,232.1 2,088.1
Selling/General/Admin. Expenses, Total 984.6 900.7 846.4 767.2 726.6
Research & Development -- -- -- -- --
Depreciation/Amortization -- -- -- -- --
Interest Expense, Net - Operating -- -- -- -- --
Interest/Investment Income - Operating -- -- -- -- --
Interest Expense(Income) - Net Operating -- -- -- -- --
Unusual Expense (Income) -- -- -- -- --
Other Operating Expenses, Total -- -- -- -- --
Total Operating Expense 4,942.3 4,717.5 4,588.4 4,208.9 3,959.0
Operating Income 1,029.0 1,425.6 1,597.2 1,465.0 1,361.5
Interest Expense, Net Non-Operating (4.5) 0.0 0.0 -- --
Interest/Invest Income - Non-Operating -- -- -- -- --
Interest Income(Exp), Net Non-Operating 9.5 22.3 27.1 22.8 23.1
Gain (Loss) on Sale of Assets -- -- -- -- --
Other, Net -- -- -- -- (5.1)
Net Income Before Taxes 1,034.0 1,447.8 1,624.2 1,487.8 1,379.5
Provision for Income Taxes 379.3 514.0 581.1 528.2 489.7
Net Income After Taxes 654.7 933.8 1,043.2 959.6 889.8
Minority Interest -- -- -- -- --
Equity In Affiliates -- -- -- -- --
U.S. GAAP Adjustment -- -- -- -- --
Net Income Before Extra. Items 654.7 933.8 1,043.2 959.6 889.8
Accounting Change -- -- -- -- --
Discontinued Operations -- -- -- -- --
Extraordinary Item -- -- -- -- --
Tax on Extraordinary Items -- -- -- -- --
Net Income 654.7 933.8 1,043.2 959.6 889.8
Preferred Dividends -- -- -- -- --
General Partners' Distributions -- -- -- -- --
Miscellaneous Earnings Adjustment -- -- -- -- --
Pro Forma Adjustment -- -- -- -- --
Interest Adjustment - Primary EPS -- -- -- -- --
Income Available to Com Excl ExtraOrd 654.7 933.8 1,043.2 959.6 889.8
Income Available to Com Incl ExtraOrd 654.7 933.8 1,043.2 959.6 889.8
Basic Weighted Average Shares 234.23 249.21 264.45 280.30 295.01
Basic EPS Excluding Extraordinary Items 2.795 3.747 3.945 3.423 3.016
Basic EPS Including Extraordinary Items 2.795 3.747 3.945 3.423 3.016
Dilution Adjustment 0.0 0.0 0.0 0.0 0.0
Diluted Weighted Average Shares 234.48 249.88 265.27 281.04 296.85
Diluted EPS Excluding ExtraOrd Items 2.792 3.737 3.932 3.415 2.997
Diluted EPS Including ExtraOrd Items 2.792 3.737 3.932 3.415 2.997
DPS - Common Stock Primary Issue 1.290 1.060 0.810 0.625 0.405
Gross Dividends - Common Stock 302.3 260.8 212.9 173.8 119.2
Total Special Items -- -- -- -- --
Normalized Income Before Taxes 1,034.0 1,447.8 1,624.2 1,487.8 1,379.5
Effect of Special Items on Income Taxes -- -- -- -- --
Inc Tax Ex Impact of Sp Items 379.3 514.0 581.1 528.2 489.7
Normalized Income After Taxes 654.7 933.8 1,043.2 959.6 889.8
Normalized Inc. Avail to Com. 654.7 933.8 1,043.2 959.6 889.8
Basic Normalized EPS 2.795 3.747 3.945 3.423 3.016
Diluted Normalized EPS 2.792 3.737 3.932 3.415 2.997

3.2 Annual Balance Sheet

2007 2004
In Millions of U.S. Dollars 2008 2007-12-31 2006 2005 2004-12-31
(except for per share items) 2008-12-31 Reclassified 2006-12-31 2005-12-31 Reclassified
2008-12-31 2005-12-31
Cash -- -- -- -- --
Cash & Equivalents 593.6 402.9 238.4 141.0 275.2
Short Term Investments 0.0 2.5 658.1 905.2 1,336.9
Cash and Short Term Investments 593.6 405.3 896.5 1,046.2 1,612.1
Accounts Receivable - Trade, Net 4,118.7 2,537.8 2,244.4 1,763.9 1,745.4
Notes Receivable - Short Term -- -- -- -- --
Receivables – Other -- -- -- -- --
Total Receivables, Net 4,118.7 2,537.8 2,244.4 1,763.9 1,745.4
Total Inventory 400.9 349.7 287.8 221.4 226.9
Prepaid Expenses 141.4 71.2 48.5 52.5 38.3
Other Current Assets, Total 123.3 103.3 73.4 61.3 60.5
Total Current Assets 5,377.9 3,467.3 3,550.6 3,145.2 3,683.2
Property/Plant/Equipment, Total – Gross 3,032.0 2,757.9 2,532.5 2,334.1 2,193.4
Accumulated Depreciation, Total (1,937.5) (1,697.4) (1,508.0) (1,322.5) (1,168.7)
Property/Plant/Equipment, Total – Net 1,094.5 1,060.6 1,024.5 1,011.6 1,024.7
Goodwill, Net 138.6 61.4 58.8 56.6 59.5
Intangibles, Net -- -- -- -- --
Long Term Investments -- -- -- -- --
Note Receivable - Long Term 817.1 845.0 726.0 600.8 488.3
Other Long Term Assets, Total 400.6 222.3 172.3 441.0 227.7
Other Assets, Total -- -- -- -- --
Total Assets 7,828.6 5,656.6 5,532.1 5,255.2 5,483.3
Accounts Payable 323.7 300.2 283.5 270.6 244.2
Payable/Accrued -- -- -- -- --
Accrued Expenses 490.7 431.0 295.5 234.6 267.9
Notes Payable/Short Term Debt 1,762.2 756.9 0.0 0.0 0.0
Current Port. of LT Debt/Capital Leases 0.0 397.5 832.5 205.0 495.4
Other Current liabilities, Total 27.2 19.5 184.2 162.9 165.2
Total Current Liabilities 2,603.8 1,905.1 1,595.7 873.1 1,172.7
Long Term Debt 2,176.2 980.0 870.0 1,000.0 800.0
Capital Lease Obligations -- -- -- -- --
Total Long Term Debt 2,176.2 980.0 870.0 1,000.0 800.0
Total Debt 3,938.4 2,134.4 1,702.5 1,205.0 1,295.4
Deferred Income Tax -- -- 0.0 155.2 51.4
Minority Interest -- -- -- -- --
Other Liabilities, Total 933.0 396.0 309.7 143.3 240.7
Total Liabilities 5,713.0 3,281.1 2,775.4 2,171.6 2,264.8
Redeemable Preferred Stock, Total -- -- -- -- --
Preferred Stock - Non Redeemable, Net -- -- -- -- --
Common Stock, Total 3.4 3.4 3.3 3.3 3.3
Additional Paid-In Capital 846.8 812.2 766.4 596.2 533.1
Retained Earnings (Accumulated Deficit) 6,458.8 6,117.6 5,460.6 4,630.4 3,844.6
Treasury Stock – Common (4,670.8) (4,420.4) (3,267.0) (2,205.0) (1,150.4)
ESOP Debt Guarantee -- -- -- -- --
Unrealized Gain (Loss) (10.4) (3.2) -- -- --
Other Equity, Total (512.2) (134.1) (206.7) 58.7 (12.1)
Total Equity 2,115.6 2,375.5 2,756.7 3,083.6 3,218.5
Total Liabilities & Shareholders' Equity 7,828.6 5,656.6 5,532.1 5,255.2 5,483.3
Shares Outs - Common Stock Primary Issue 232.76 238.49 258.05 274.00 294.31
Shares Outstanding - Common Issue 2 -- -- -- -- --
Shares Outstanding - Common Issue 3 -- -- -- -- --
Shares Outstanding - Common Issue 4 -- -- -- -- --
Total Common Shares Outstanding 232.76 238.49 258.05 274.00 294.31
Total Preferred Shares Outstanding -- -- -- -- --
3.3 Cash Flow Statement
2005 2004
2008 2007 2006 2005-12-31 2004-12-31
In Millions of U.S. Dollars 2008-12-31 2007-12-31 2006-12-31 Reclassified Reclassified
(except for per share items) Period Length Period Length Period Length 2006-12-31 2006-12-31
12 Months 12 Months 12 Months Period Length Period Length
12 Months 12 Months
Net Income/Starting Line 654.7 933.8 1,043.2 959.6 889.8
Depreciation/Depletion 222.2 204.2 213.8 205.7 214.1
Amortization 20.1 0.0 0.0 -- --
Deferred Taxes (49.4) (60.5) (39.8) 48.2 (41.3)
Non-Cash Items 361.7 91.6 (79.5) (359.7) (72.0)
Changes in Working Capital (1,893.9) (370.9) (375.8) 108.8 (154.8)
Cash from Operating Activities (684.6) 798.1 761.8 962.6 835.8
Capital Expenditures (232.2) (242.1) (219.6) (198.4) (213.6)
Other Investing Cash Flow
(161.1) 633.3 184.3 392.2 (364.4)
Items, Total
Cash from Investing Activities (393.2) 391.2 (35.3) 193.8 (578.0)
Financing Cash Flow Items 0.3 3.1 18.9 6.1 0.0
Total Cash Dividends Paid (302.3) (260.8) (212.9) (173.8) (119.2)
Issuance (Retirement) of Stock,
(249.2) (1,132.0) (936.2) (1,023.4) (502.0)
Issuance (Retirement) of Debt,
1,844.6 351.9 493.1 (80.7) 305.0
Cash from Financing Activities 1,293.4 (1,037.8) (637.0) (1,271.8) (316.1)
Foreign Exchange Effects (24.8) 12.9 7.9 (18.8) 4.1
Net Change in Cash 190.7 164.5 97.4 (134.2) (54.2)

3.4 Additional Balance Sheet and Cash Flows Information

Balance sheet information is as follows:

Domestic motorcycle sales are generally floor planned by the purchasing dealers. Foreign
motorcycle sales are sold on open account, letter of credit, draft and payment in advance.
Effective September 1, 1997, Eaglemark became responsible for all credit and collection
activities for the Motorcycles segment¹s domestic receivables. As such, approximately
$69 million of accounts receivable are classified as finance receivables as of December
31, 1997. The presentation of finance receivables has been changed to classify
receivables representing wholesale motorcycle and parts and accessories receivables and
retail finance receivables with maturities of less than one year as current. The allowance
for doubtful accounts deducted from accounts receivable was $1.5 million and $1.9
million at December 31, 1997 and 1996, respectively.
3.5 Inventories
3.6 Supplemental cash flow

Of the interest paid in 1997 and 1996, approximately $3.5 million and $2.1 million was
capitalized, respectively. Interest paid includes the interest payments of Eaglemark for
which the related expense is classified as part of operating income from financial
Ratios for Harley-Davidson, Inc.

Market Capitalization
Market Cap ($ Millions) 4,100.60
Shares Outstanding 234.45
Float 232.10

Valuation Ratios
Price/Earnings 7.00
Price/Sales 0.69
Price/Book 1.92
Price/Cash Flow 4.67

Profitability Ratios (%)

Gross Margin 33.36
Operating Margin 16.26
Net Profit Margin 9.80

Financial Strength
Quick Ratio 1.91
Current Ratio 2.07
LT Debt/Equity 102.87
Total Debt/Equity 186.16

Per Share Data ($ USD)

Earnings 2.50
Sales 25.47
Book Value 9.52
Cash Flow 4.62
Cash 2.55

Management Effectiveness (%)

Return on Equity 29.16
Return on Assets 9.71
Return on Investment 14.59

Dividend Information
Dividend Yield (%) 2.29
Dividend Per Share ($ USD) 1.09
Payout Ratio 46.17
Current Ratio = Current Assets / Current Liabilities
= 2729/956
= 2.85
Quick Ratio = (Current Assets – Inventory) / Current Liabilities
= (2729-208)/956
= 2521/956 = 2.63

Debt to Total Assets Ratio = Total Debt / Total Assets
Debt to Equity Ratio = Total debt / Total stock holders equity
Long Term Debt Equity Ratio = Long term Debt / Total stock holders equity
= 0.23
Times Interest Earned Ratio = Profits before interests and taxes / Total Interest charges

Inventory Turnover = Sales / Inventory of finished goods
Fixed Assets Turnover = Sales / Fixed Assets
Total Assets Turnover = Sales / Total Assets
=4624/4923 =0.93

Accounts Receivables Turnover = Annual Credit Sales / Accounts receivable

Average Collection Period = Accounts Receivables / (Total credit sales/365)

Gross Profit Margin = (Sales – COGS) / Sales
= (4624-3070)/4624
Operating Profit Margin = EBIT / Sales
Net Profit Margin = Net Income / Sales
= 0.16
Return on Total Assets (ROA) = Net Income / Total Assets
= 761 / 4923
= 0.15
Return on Equity (ROE) = Net income / Total Stock holders equity
= 761 / 2958
= 0.26

Earnings Per share (EPS) = Net income / Total stock holders equity
= 761 / 302
= 2.519
Price Earning ratio=Market price per share/Earning per share
Growth ratio Sales=Annual % growth in total sales
= (4624-4091)*100/4091=13.029
Net income =Annual % growth in profits
= (760-580)*100/580=31.034
3.7 Discontinued Operations

On January 22, 1996, the Company announced its strategic decision to discontinue the
operations of the Transportation Vehicles segment in order to concentrate its financial
and human resources on its core motorcycle business. The Transportation Vehicles
segment was comprised of the Recreational Vehicles division, the Commercial Vehicles
division and B & B Molders, a manufacturer of custom or standard tooling and injection
molded plastic pieces. During 1996, the Company completed the sale of the
Transportation Vehicles segment for an aggregate sales price of approximately $105
million; approximately $100 million in cash and $5 million in notes and preferred stock.

The condensed statement of operations relating to discontinued operations is presented


Included in the 1996 gain on disposition of discontinued operations is a net tax benefit of
$2.0 million, including benefits related to the Company’s 1994 legal reorganization.

It is the Company’s policy to allocate interest on debt (to be assumed by the buyer) to
discontinued operations, which was approximately $.7 million and $2.5 million for 1996
and 1995, respectively.

4.1 An Introduction to Stock Options

Options on stocks and stock indexes are derivative instruments. Stock investors
may use stock options to hedge against a price decline, to lock in a future purchase price,
or to speculate on the future price of a stock. Employees may also receive stock options
through an employee compensation plan. For employees, stock options represent the
potential for growth in value and the possibility that the increase in value will be taxed at
a favorable capital-gains tax rate.

4.2 The Basics of Stock Options

A stock option is essentially a contract that gives one party the right to purchase
or sell a stated number of shares of a stock at a specified price. The price at which the
shares may be purchased or sold is known as the strike or exercise price. The right to
exercise lasts for a stated period of time, which may be months or years, until
the expiration date. If not exercised on or before the expiration date, the option expires.
Options come in two forms: calls and puts. A call option gives the option purchaser the
right to buy the underlying stock. A put option gives the option purchaser the right to
sell the underlying stock.
A call option is valuable to the extent that the exercise price is below the market
value of the underlying stock. For example, if a stock is trading at $100 per share and you
hold a call option entitling you to buy the stock at $72 per share, your option has an
immediate value to you of $100 – $72 = $28, before taking into account any tax
consequences or transaction fees.
A put option is the mirror image of a call option. A put option becomes more
valuable as the price of the stock moves below the exercise price. For example, if you
have purchased a put option with a strike price of $90 and the stock price moves to $80,
you may choose to exercise the option and sell the underlying stock at $90 for an
immediate unrealized per share gain of $90 – $80 = $10.
With both calls and puts, the purchaser of the option has the right to exercise,
while the option seller is obligated to respond if the option is exercised. The option
purchaser pays an upfront fee known as the premium to the option seller in return for the
right of exercise. The option buyer has a known investment risk — if the option expires
unexercised, the purchaser of the option recognizes the premium paid as a loss.
Conversely, the option seller undertakes potentially unlimited market risk in return for
the premium received.
4.3 Components of an Option’s Value

Option contracts are traded on regulated markets, and their values may fluctuate
throughout the trading day. The price of an option at any given time is based on several
factors, including the current price of the underlying stock, the price volatility of the
underlying stock, the time to maturity, and interest rates.
Intrinsic value — the intrinsic value of the option is the difference between the exercise
price and the price of the underlying security. An option is "in the money" when the
intrinsic value is positive.
Volatility — part of an option’s value reflects the volatility of the underlying security. If
a stock price is highly volatile, there is a relatively greater chance that the option will be
"in the money" at expiration, and therefore, the option will carry a higher premium than
an option on a less a volatile stock.
Time value — the more time remaining until the expiration date of the option, the greater
the potential for a significant change to occur in the price of the underlying security and
the greater the value of the option. Time value diminishes as the expiration date of the
option approaches.
Interest rates — the option premium is a cash payment that can be invested by the
option seller to generate interest income. Higher interest rates present opportunities for
potentially greater earnings on the option premium.
Intrinsic value, volatility, and time value can significantly affect an option’s market
value. An option with an exercise price above the current market value of the underlying
security may still have considerable potential value.
For example, if you hold a call option with an exercise price of $72 and the
current share price is $65; your option would generate a loss if it were exercised today.
However, as stated above, option contracts typically are valid for months or years, until
the stated expiration date. The time value of the call option is the potential that the share
price will rise over time and eventually exceed the option exercise price.

4.4 Employee Stock Options

Employee stock options are call options granted by an employer as part of an

employee compensation plan. There are two main types of employee stock options:
incentive stock options and nonqualified stock options. Incentive stock options offer
special income tax benefits to the employee.

An incentive stock option (ISO) must meet a number of criteria to qualify for
favorable tax treatment. As long as the shares acquired through an ISO are held for at
least one year following exercise and are not disposed of until at least two years after the
option is granted, the difference between the option price and the sale price is taxed as a
long-term gain. The tax is applied at the sale of the stock. If you don’t meet the one-year
holding-period requirement, the transaction is considered a "disqualifying disposition"
and your gains are taxed as ordinary income.

A nonqualified stock option (NSO) is an option that doesn’t meet the ISO
criteria. Gains on NSOs are taxed as ordinary income at the time of exercise.

4.5 Stock Quote of Harley Davidson:


4:12 PM ET - Jul 13 2009

$ 16.58

$ 0.40



$ 15.76

$ 16.60

$ 7.99

$ 48.05

Harley Davidson’s stock has been relatively flat over the last 12 months as a
whole, underperforming the S&P 500, indicating the market sentiment that Harley
Davidson will not be able to maintain its current growth trend which has yielded record
revenues, profits, and earnings per share each year for the past 19 years. The 12 month
stock prices can be seen in Figure 1, along with returns on the S&P 500. The stock has
been quite volatile over that period indicating that the market as an institution may be
having a hard time making up its mind about the prospects for Harley Davidson. In April
2005 Harley Davidson share prices dropped by nearly 1/3 when the company announced
that it was lowering its guidance on motorcycle shipment growth due to 16 increasingly
clogged retail channels and building inventories. A two year record of Harley Davidson
share prices can be seen in Figure 2. In the wake of that announcement many analysts
began to predict doom for the company, especially for its fourth quarter. Citigroup
analysts even predicted growth of less than 1% for Harley’s motorcycle shipments in the
fourth quarter, even though guidance from the company’s management predicted growth
between 4 and 6 percent. Harley Davidson’s actual shipment growth was within its
guidance range, a much better result than many analysts had predicted.
Harley Davidson’s stock has recently been trading at a slight premium to the
stock of Honda. Harley Davidson’s recent price to earnings ratio has been 15.51 versus
15.16 for Honda. Comparable P/E ratios and share prices were not available for Suzuki or
Yamaha due to the fact that neither company is traded in US stock exchanges.

Harley-Davidson Stock Tracker


Jul 13 4:12 PM ET Jul 13 3:41 PM ET

$ 16.58 8,331.68
$ 0.40 185.16
3,919,200 252,983,700
$ 15.76 8,130.42
$ 16.60 8,331.68
1year stock price history

HOG STOCK REPORT (2-Year Price History)

HOG STOCK REPORT (2-Year Price History)

Recent Price (7/16 4:02PM) +8.4% -------------------
52-Week Price ---------------------------------------- $7.99 - $48.05
Market Capitalization --------------------------------- $4.1 Billion
Dividend Yield ----------------------------------------- 2.30%
Most Recent Dividend --------------------------------- $1.29

As a value investing shop, we are interested in seeing how HOG's revenues measure up
against past performances. One easily understandable way of doing that is to compare
Price to Sales per share levels over a given time frame. Assuming it is available, Ockham
prefers to look at ten years of history (for this stock there are 10 years of history
available) and we weigh recent years more heavily. This allows us to find weighted
average historical high and low Price to Sales ratios, which give us a better idea of the
stock's current underlying value. Using this method, we have established a high range for
Price to Sales of 3.12x and the low end of the range at 1.89x.

With respect to these historically rational metrics, notice that the current Price to Sales
per share ratio for HOG of 0.68x is well below its normal historic Price to Sales levels.
At a price of $16.18, HOG is 73% below where we would expect to see it. Clearly, this
stock looks undervalued compared to historical levels, at least on a Price to Sales basis.
This will positively affect our analysis because it is rare to find a stock this far below
historical norms, and we would expect some price appreciation to bring this metric back
towards a more normal range.


Cash Earnings is always one of the most important factors to review for a company and,
more importantly, an investment in a stock. HOG is significantly below their historical
average multiples of Cash Earnings, as calculated by our proprietary analysis. It is
incredibly important to understand that for HOG, the current level of Cash Earnings
compared to its historical levels helps identify where HOG is in relation to what the
investing community was willing to pay for this level of Cash Earnings in the past. With
a historical high Cash Earnings per share ratio of 16.04 and a historical low Cash
Earnings per share ratio of 9.50, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings
numbers for HOG? From the Ockham perspective, we are looking specifically at HOG to
see if the market is recognizing the huge disparity between HOG's past stock price to
Cash Earnings ratio to today's levels. At a difference of 65% below the average historical
Price to Cash Earnings ratio, our view would be quite positive at this point. However, as
with all metrics, we need to also take other factors into account when looking at HOG.
While we view better Cash Earnings metrics as very important, if the market is slow to
identify this value, or if Cash Earnings were to fall from these levels, we would become
more neutral in our stance.

When determining a company's future prospects for success, Ockham Research sees
analysis of dividend payments as a key additional factor. Even though it isn't imperative
for HOG to shell out a dividend in order to receive a positive rating, it can be helpful to
further our analysis.

The estimated annual dividend for HOG is $0.40 producing a current dividend yield of
2.47%. Much like our evaluation of Sales and Cash Earnings per share, we review
dividend yields from HOG against the historic high and low levels over all available
dividend history. Because dividends are a decision made exclusively by management, we
view a healthy and rising dividend as a sign of confidence and strength. The highest
dividend yield from HOG over previous years was 11.28% while the lowest dividend
yield was 0.20%. It is never a good sign for a company to pay significantly lower
dividends, in this case 56.97% below the median yield. Although, dividends are a
relatively small portion of our analysis framework, we still see this as
Human Resource


HRM is the strategic and coherent approach to

the management of an organization's most valued assets - the people
working there who individually and collectively contribute to the
achievement of the objectives of the business. The terms "human
resource management" and "human resources" (HR) have largely
replaced the term "personnel management" as a description of the
processes involved in managing people in organizations. In simple
sense, HRM means employing people, developing their resources,
utilizing, maintaining and compensating their services in tune with the
job and organizational requirement.
The Human Resources Management (HRM) function includes a variety of
activities, and key among them is deciding what staffing needs you have and whether to
use independent contractors or hire employees to fill these needs, recruiting and training
the best employees, ensuring they are high performers, dealing with performance issues,
and ensuring your personnel and management practices conform to various regulations.
Activities also include managing your approach to employee benefits and compensation,
employee records and personnel policies. Usually small businesses (for-profit or
nonprofit) have to carry out these activities themselves because they can't yet afford part-
or full-time help. However, they should always ensure that employees have -- and are
aware of -- personnel policies which conform to current regulations. These policies are
often in the form of employee manuals, which all employees have.

Note that some people distinguish a difference between HRM (a major

management activity) and HRD (Human Resource Development, a profession). Those
people might include HRM in HRD, explaining that HRD includes the broader range of
activities to develop personnel inside of organizations, including, eg, career development,
training, organization development, etc.

There is a long-standing argument about where HR-related functions should be

organized into large organizations, e.g., "should HR be in the Organization Development
department or the other way around?"

The HRM function and HRD profession have undergone tremendous change over
the past 20-30 years. Many years ago, large organizations looked to the "Personnel
Department," mostly to manage the paperwork around hiring and paying people. More
recently, organizations consider the "HR Department" as playing a major role in staffing,
training and helping to manage people so that people and the organization are performing
at maximum capability in a highly fulfilling manner.

5.1 Harley-Davidson (HRM)


The case discusses the human resource initiatives adopted by Harley-Davidson Motor
Company (H-D), the leading manufacturer of heavy-weight motorcycles in the US,
to encourage greater employee participation and collaboration.

In 1992, H-D adopted circle based organization structure in its efforts to foster
teamwork among the employees and do away with the command-and-control
leadership style of management. The case also discusses another major HR
initiative that H-D implemented in 2004; the deployment of 'Accenture Human
Capital Development Framework' (HCDF).

This initiative was undertaken by the company in order to bring about major
improvements in its human resource functions, and thereby attain improved business
performance. The case describes the HCDF in detail and the benefits reaped by H-D after
its implementation


In 2006, Harley-Davidson Motor Company (H-D), the leading manufacturer of heavy-

weight motorcycles in the United States (US), implemented the 'Accenture Human
Capital Development Framework' (HCDF).

This initiative was undertaken by H-D in order to bring about improvements in its
human resource (HR) functions, and thereby attain improved business performance.
This was the second time that the HCDF framework was being implemented in the
company, the first time being in 2004.

Another major HR initiative that H-D adopted to encourage greater employee

participation and collaboration in 1992 was the circle organization. The rationale behind
creating such circles was to come out of the command-and-control leadership style of
management and foster teamwork among the employees. H-D took these initiatives after
the company's new management realized that in order to survive in a highly competitive
market in the long run, it was essential to make the company a continuous learning and
improving organization where there was free and open communication between all levels
of the employees.

Each and every employee, it felt, should be able to comprehend their roles in the
company and the consequence of their roles to the company.

5.2 The 'Softer' Management Style

According to The Harley-Davidson Employee Involvement Manual published in 1983,

the nine "musts" for employee involvement at H-D were:

• Management, with the help of its words and actions, must reveal that continuous
improvement of quality and efficiency is a way of life, and not merely another program.
• Management must be firmly committed to the people-building philosophy, which
implied the belief that employees are thinking, rational human beings and hence they
should be encouraged to develop and grow.
• Management must be strictly committed to the Employee Involvement program and
should display that commitment cultivates a mutual trust between the employees and the
• Employees should be comprehensively trained in specific problem-solving and methods
of quality control...

5.3 Human Capital Development Framework

H-D's focus on business growth had compelled the HR function to concentrate

more on recruiting. Thus, some of the other important HR practices like performance
reviews, career development, and succession planning had taken a back seat. This created
a difficult situation for the new employees who were unaware of the culture at H-D. In
the absence of processes and programs which would help employees to improve and
grow, H-D was confronted with the risk of losing its competitiveness.

5.4 Employee Benefit Plans

The Company has several noncontributory defined benefit pension plans covering
substantially all employees of the Motorcycles segment. Benefits are based primarily on
years of service and, for certain plans, levels of compensation. The Company’s policy
with respect to the pension plans is to fund pension benefits to the extent contributions
are deductible for tax purposes.

The following data is provided for the pension plans for the years indicated:

5.5 Reconciliation of funded status:

The provisions of Financial Accounting Standards Board Statement No. 87,
“Employers’ Accounting for Pensions,” require the recognition of an additional minimum
liability and related intangible asset to the extent that accumulated benefits exceed plan
assets. At December 31, 1996, the adjustment required to reflect the Company’s
minimum pension liability was $9.7 million. No adjustment was required at December
31, 1997.

The assumptions used in determining pension expense (for the following year)
and funded status information shown above were as follows:
Included in plan assets are 453,096 shares of the Company’s common stock at
December 31, 1997 and 1996. The market value of these shares at December 31, 1997
and 1996 was $12.3 million and $10.6 million, respectively. Dividends paid on these
shares were approximately $61,000 and $47,000 during 1997 and 1996, respectively.

Certain of the Company’s plans relating to hourly and salaried employees have
been amended to increase the scheduled benefits. During 1996, the Company accrued
approximately $2.0 million related to early retirement benefits offered to some hourly

The Company has various defined contribution benefit plans which in total cover
substantially all full-time employees. Employees can make voluntary contributions in
accordance with the provisions of their respective plan, which includes a 401(k) tax
deferral option. The Company accrued $2.9 million, $2.0 million and $1.5 million for
matching contributions during 1997, 1996 and 1995, respectively.

The Company also has unfunded supplemental executive retirement plan (SERP)
agreements with certain executive officers. The plan was instituted to replace benefits
lost under the Tax Revenue Reconciliation Act of 1993. The Company has recorded a net
liability of $4.8 million and $4.1 million for the SERP at December 31, 1997 and 1996,

5.6 Postretirement Health Care Benefits

The Company has several postretirement health care benefit plans covering
substantially all employees of the Motorcycles segment. Employees are eligible to
receive benefits upon attaining age 55 after rendering at least 10 years of service to the

The Company’s postretirement health care plans are currently funded as claims
are submitted ($2.5 million in 1997 and $2.3 million in 1996). Some of the plans require
employee contributions to offset benefit costs. The status of the plans was as follows:
The weighted average health care cost trend rate used in determining the
accumulated postretirement benefit obligation of the health care plans was 8% in 1997.
The per capita health care cost trend rate is assumed to decrease gradually to 6% for 1999
and remain at that level thereafter. This assumption can have a significant effect on the
amounts reported. If the weighted average health care cost trend rate were to increase by
1%, the accumulated postretirement benefit obligation as of September 30, 1997 and the
aggregate of service and interest cost components of net periodic postretirement benefit
cost for the year ended December 31, 1998 would increase by $5.4 million and $.8
million, respectively. The weighted average discount rate used to determine the
accumulated postretirement benefit obligation of the health care plans as of September
30, 1997 and 1996 was 8.25%.For purposes of pro forma disclosures under SFAS No.
123, the estimated fair value of the options is amortized to expense over the options’
vesting period. The Company’s pro forma information follows:
In determining the effect of SFAS No. 123, the Black-Scholes option pricing
model was used with the following weighted-average assumptions for 1997 and 1996:
risk-free interest rate of approximately 6% and 5%, respectively; dividend yield of .5%;
expected common stock market volatility factor of .4; and a weighted-average expected
life of the options of two years from the vesting date. Forfeitures are recognized as they
occur. These pro forma calculations only include the effects of 1997, 1996 and 1995

Case Details:
Case Code : MKTG174
Case Length : 19 Pages
Period : 1995-2007
Pub Date : 2007
Teaching Note : Not Available
Organization : Harley-Davidson
Industry : Automobile - Motorcycle
Countries : US


The case discusses the marketing strategies of the US-based motorcycle manufacturer
Harley-Davidson Motor Company (H-D). It details the marketing mix elements of
H-D including product, price, distribution and promotion strategies of the company.

Notwithstanding the success of H-D's marketing strategies, some critics were of the
opinion that H-D was not focusing on its core competency, i.e. motorcycles, and
said that by putting its logo on several products, the company was diluting its
brand. Analysts also criticized H-D's dealers, saying they still had a long way to go
in maintaining good relationships with the company's customers.

6.1 Issues

Understand the various marketing mix elements of H-D

Critically analyze H-D's move to license several of its products and whether this will
lead to its brand dilution or not
Appreciate the importance of channel partners in maintaining good relationship with the


Harley-Davidson Motor Company, Marketing Mix, Product, Heavy-Weight Motorcycles,

Pricing, Distribution, Dealership Evaluation Norms, Promotion, Advertising Strategy,
Brand Image, Brand Dilution, Customer Relationship Management, Marketing
Philosophy, Demographic Profile

6.2 Introduction

On January 17, 2007, US Rider News named Harley-Davidson Motor Company's

(H-D's) 'Softail Custom' motorbike as the "Best New Nostalgic Bike of 2007". According
to Scott Cochran, Editor of US Rider News, "The new 2007 Softail Custom recalls the
looks of those B-movie bikes of the 1960s. Ape hanger handlebars, heavily stepped king-
and-queen seats, padded sissy bars and wide forks with 21-inch front wheels all speak
volumes to the 'Easy Rider' set. But this outlaw comes in armed with Harley's most
modern and powerful standard engine to date - the Twin Cam 96 plus the bonafide easy
rider - Harley's 'Softail' chassis." Founded in the year 1903, H-D started its business as a
manufacturer of heavy-weight motorcycles, which had an engine displacement of 651cc
or above.

H-D also produced a full range of motorcycle parts, accessories,

clothing, and general merchandise. The company focused on
traditional styling, design, simplicity, durability, and quality.

It launched new models regularly, customized according to the

needs and requirements of customers. H-D's marketing campaign
aimed at shifting the owners of the company's motorcycles to bigger
and more expensive motorcycles. The distribution of H-D motorcycles
was done mainly through dealerships and also through non-traditional
outlets which were extensions of the main dealership. H-D's products
were sold to retail customers primarily through dealer promotions, the
company's website, customer events, and advertising through national
television, print, radio, direct mailings, and through advertising on the

However, despite the success that H-D had achieved over the
decades, it came in for quite a bit of criticism from analysts. Some
critics were of the opinion that H-D was moving from its core
competency, i.e. motorcycles, and diluting its brand image. They also
criticized H-D dealers, saying they still had a long way to go in
maintaining good relationships with the company's customers.

Background Note

In 1903, H-D was established by William S. Harley (William) and Arthur

Davidson (Arthur) at Milwaukee in the US. William, who was born in Milwaukee on
December 29, 1880, started working in a bicycle factory at the age of 15.
Arthur, who was William's childhood friend, also started working at a young age. Both of
them were mechanically inclined. They manufactured their first motorcycle in a 10x15
feet wooden shed with a hand-written sign on the door that read, 'Harley-Davidson
Motorcycle Company'. The first product launched was a racer bike. The company's
operations expanded rapidly and the two were later joined by Arthur's brother Walter.

In 1906, H-D started a new 28x80 feet factory at Chestnut Street,

which later came to be known as Juneau Avenue. By then, the
company's employee strength had increased to six full-time
employees. In the same year, the company also produced its first
motorcycle catalog.
On September 17, 1907, the name 'Harley-Davidson Motor Company' was
incorporated. In 1908, H-D sold the first motorcycle for police duty to the Detroit Police
Department in Michigan in the US. The V-twin powered motorcycle was introduced by
the company in 1909 and for the first time, the company also started selling motorcycle
spare parts. The V-twin powered motorcycle was the fastest motorcycle during those
times and could travel at a speed of 60 miles per hour. The popular 'Bar & Shield' logo
was used for the first time in 1910 (Refer to Exhibit I for a picture of this logo). It was
trademarked at the US Patent office after a year.

6.3 The Problems

In the year 1969, H-D was taken over by the American Machine and Foundry
(AMF). During this period, the production of motorcycles increased by more than 300
percent to 14,000 motorcycles per annum. However, the quality of the motorcycles was
one aspect which was totally ignored. Adding to H-D's problems, Japanese manufacturers
began flooding the market with high-quality, low-priced light to medium-weight
motorcycles in the 1970s at a time when H-D was manufacturing mainly heavy-weight
motorcycles. The company earned a bad name for poor quality products. Coupled with
the competition from the Japanese companies brought H-D to the verge of collapse.

6.4 The Marketing Mix

In order to overcome the problems that H-D faced in the early
1980s and help the company regain its market share, a restructuring
plan was implemented. Teerlink developed an innovative system
known as Circles of Management for bringing both workers and dealers
together and involving them in taking key decisions relating to the
company. A new marketing philosophy was developed based on the
desires of the customers and H-D made efforts to position motorcycles
as a lifestyle product...

At the time when H-D was formed, it offered only grey colored
motorcycle to its customers and provided three basic styles. However,
the company realized that in order to survive, it had to offer its
customers more choice...

H-D realized that it would not be possible for it to compete with the
Japanese manufacturers on the pricing front. This was because
manufacturers like Honda not only manufactured a low-priced high-
quality product, but also spent heavily on advertising their products.

H-D started selling its motorcycles through its dealers in 1904. The
company's first dealer was CH Lang of Chicago, Illinois (Refer to Exhibit
IV for the number of H-D's full-line dealer outlets in the US). All the
dealers were independent individuals with a business orientation...

Over the decades, H-D had adopted several strategies to promote its
motorcycle brand. The products of H-D were sold to retail customers
mainly through dealer promotions, customer events, and advertising
through national television, print, radio, direct mailings, and through
advertising on the Internet.

6.5 The Road Ahead

Though H-D was able to successfully overcome the crisis which had
confronted the company during the early 1980s, it came in for plenty
of criticism in the process.

Industry experts criticized the company's move to license several of its


They opined that H-D should focus on its core competency i.e.
motorcycles and said that by putting its logo on several products, the
company was selling out and diluting its brand.

6.6 Segmentation and Targeting

H-D had four major marketing objectives. First, it wanted to

expand its potential customer base to include both enthusiast and non-
enthusiast affluent males in the 35-44 age group. This was partly
accomplished by introducing the V-ROD model to the younger

Second, H-D wanted to enhance its market share by targeting the

first time buyers of motorcycles. Third, it wanted to set the appropriate
pricing strategy, which appealed to the target customers, through
market research.
When H-D was formed, it only offered one color of motorcycle -
gray and three basic styles. Later, the company began to offer a
variety of models, including Sportsters, Super Glides, Low Riders,
Softails, Sport Glides, Tour Glides and Electra Glides, in numerous vivid
colors. Many of these models were developed when H-D realized its
customers were customizing the bikes but these additional revenues
were not coming to the company.

In 1999, H-D introduced the Custom Vehicle Operations (CVO)

program, which offered a limited quantity of H-D motorcycles, which
had been uniquely customized at the factory with H-D accessories. The
limited edition motorcycles were produced at the York, Pennsylvania
facility on a separate, low volume assembly line that was formerly
used for military contract production.
6.7 Advertising & Promotion

H-D's marketing communications mix had evolved over time. In the

early 1990s, dealer promotions, customer events, magazine and direct
mail advertising, public relations and cooperative programs drove H-
D's marketing efforts. The company started advertising in magazines
targeted at the general public. Fashions and Collectible catalogs were
produced with various H-D merchandise twice a year. Clothes sold in
stores such as Bloomingdale and J.C. Penny exposed H-D to people
who might not have thought about visiting a dealership.

Leveraging the Brand

H-D believed its key strength lay in its brand image rather than technology. It had built
its brand image by expressing the emotional bonding of American Youth.

H-D's Ex-President and CEO, Richard Teerlink said,

"The bike represents to America, the adventurous pioneer spirit, the wild west, having
your own horse, and going where you want to go - the motorcycle takes on some
attributes of the iron horse. It suggests personal freedom and independence. Brand
loyalty for H-D is emotional.

The H-D's symbol is based on a pattern of association that includes the

American flag and the eagle; reflective of the passion for freedom
Americans enjoyed."

H-D measured brand loyalty by the percentage of men and women

who tattooed the company's logo on their body. By that measure, H-D
had the highest loyalty of any brand in the world. The most popular
tattoo in the US was the H-D shield. Many H-D owners, even those who
did not have tattoos, saw H-D a

The experience of riding an H-D, or even an association that came

from wearing H-D clothing, was a way for some to express their

H-D had a vigorous global program of trademark registration and

enforcement...s an important part of their identity.

6.8 Looking Ahead

H-D's ambitious vision was to more than double its production for the
company's 100th anniversary.
The company had decided on a 9.6 percent annual increase in
motorcycle production to 289,000 in 2003...

How Harley-Davidson's Marketing strategy has Overcome Fierce Competition from

Foreign Companies

As many enthusiasts may describe it, the pride of owning a Harley-Davidson is the pride
of owning an 'American Icon'. Harley-Davidson's (HD) positioning strategy can best be
defined by its mission statement: "We fulfill dreams through the experience of
motorcycling- by providing to motorcyclists and to the general public an expanding line
of motorcycles, and branded products and services in selected market segments." Now in
its 100th year, however, the ideal of owning an 'American Icon' has slowly dwindled out
of the public's mind, due mostly to the competition from Japanese manufacturers like
Honda and Yamaha. HD's strength's of its powerful brand image, maintaining good
customer relationships, strong financial position, and superiority of technology and
design are hindered by its weaknesses related to product capacity and unfulfilled demand
for their products2.

6.9 Strategic Direction and Marketing Objectives

HD has chosen the strategic direction of targeting a younger market that is

technologically conscious in order to increase its share in the performance cruiser market
space. With the introduction of the new V-Rod motorcycle, HD is in a position of
attaining a sizeable share in the performance cruiser marketplace. To target the younger
market with the new product line, the company has adopted the following marketing
objectives: to expand its current market (market expansion), diversify its product line
(product diversification), and modify its marketing mix to target a younger demographic.

During the 1970's, HD was facing a decline in market share due to increased competition
with Japanese companies. By phasing out weak models, becoming more selective, and
limiting sales and promotions, HD was able to carve out a niche in the marketplace which
it enjoys today3. Now again faced with a period of decline, HD is relying on its newly
adopted marketing objectives. First, HD needs to expand its potential customer base to
include enthusiasts and non-enthusiasts males in the 35-44 age group. (INSERT
MEDIAMARK DATA HERE) This is accomplished through the introduction of the V-
Rod and positioning it in the market to a younger demographic. Secondly, HD needs to
position the V-Rod to also appeal to first time buyers of motorcycles. HD's strong brand
identity can help pull in new clients. Third, HD has to set an appropriate marketing mix
that will help attract a younger consumer base. By using the low-end approach, which
involves attracting a young audience to a brand name product with a low price tag
(similar to what Jaguar and BMW have done), HD can expand its popularity to the
domestic and international market.

6.10 Marketing Mix Elements

For Harley-Davidson's marketing objectives to be successful, the company has to
implement the four elements of a marketing mix for the V-Rod. These four elements are
strategies that involve the product, pricing, promotion, and distribution.

The product strategy is any decision that helps the company continue to develop new
products around its signature American image and positions the company in the market
as such. The main reason for the introduction of the V-Rod was the need to create a bike
that would appeal to a younger demographic and attain a greater market share for the
company. By using the low-end targeting method (as discussed previously) with the
introduction of the V-Rod, this can be considered HD's first step toward implementing its
strategic and marketing objectives.

As for the pricing strategy, HD must be careful to implement a pricing decision based on
the low-end targeting method. Priced at $17,000 MSRP, HD's V-Rod has the second
highest price tag in the performance cruiser market. Although HD does have a 22% share
of the total market, HD's pricing strategy has three main factors that have influenced how
it has priced the V-Rod: 1) the used motorcycle market, 2) lower priced motorcycles, and
3) HD's inability to keep up with demand4. In order for HD to attain a greater market
share, the company must examine how these three factors will continually play a role in
pricing and adjust accordingly.

The Harley-Davidson Corporation has found multiple ways to implement its promotion
strategy. HD's primary promotional tool since 1983 has been the HOG. The company's
advertisements and commercials are focused around female images. Since 93% of bikers
are males, the HOG advertising campaign has been successful for decades5. HD also uses
another strong promotional campaign through its cafes, located in most dealerships. HD
has also developed an interactive website ( The website gives
the company the chance to expand its operations online. Finally, HD's most important
promotional tool is the brand image of a truly American product. Such a tool appeals to
the domestic market, and owning a Harley-Davidson bike fits well into supporting the
national feelings of pride for America.

HD's distribution strategy can best be described by its creed found on its website:
"Harley-Davidson's dealer's are the company's life-line to our customers, with a wide
variety of product offerings, dealer's provide knowledge, service, and information to
riders out on the road." The networks of dealers established by HD are placed in areas
that provide access to the largest concentration of potential customers. These dealerships
are used to distribute products, accessories, and merchandise. HD also promotes its
motorcycles through dealerships with marketing programs, shows, and public relation
programs. Demo bikes are also made available at events like Daytona and Sturgis. HD
also has a non-dealer network of mid to high-end department stores like Costco's and
BJ's. These outlets are meant to appeal to the non-enthusiast.

6.11 Timing, Cost, Return, and Feedback of the Marketing Plan

Before the marketing plan and strategy for HD can be introduced, an analysis of the
timing at which the plan is to be implemented, the cost and return of the plan and the
feedback involved in continually improving the product must be done.

The most strategic timing for the plan is at peak buying seasons such as around bike
demo events and seasonal shopping. It is at these times that people are most interested in
new products like the V-Rod and more likely to have the assets to purchase the product.
The cost of implementing the marketing plan is going to be related to the assets involved
in the development and research, as well as the production of the V-Rod and the
promotion/advertising involved in making the V-Rod known to motorcyclists and non-

The optimal return that is desired from the implementation of the marketing plan is a
sizeable and profitable share in the performance cruiser market. A substantial share in the
market would be attributed to HD's strategic plan of attracting new 'low-end' buyers. This
group of buyers is a younger demographic compared to HD's traditional consumer base.
Attaining such a group would most certainly guarantee HD future business by attempting
to gain brand loyalty.

The most important aspect of understanding the functionality of the marketing plan is the
feedback involved from the consumer. To comprehend why or why not a certain aspect
of the marketing mix is working, consumers of the product must be allowed to give their
input. Continual and efficient uptake of data from the customer, whether through surveys
or questionnaires or any other technique is critical in order to see whether the marketing
plan implemented is working accordingly as planned.

6.12 process data model of market segmentation


The Harley-Davidson Board of Directors and management believe that the

Company, in the interests of its stakeholders, should embrace corporate governance
practices in keeping with our leadership position in our business and current legislation
and rules. The Company’s policies of corporate governance must be rooted in and
consistent with its Business Process. The Nominating and Corporate Governance
Committee of the Board has been empowered by its charter to continuously review
corporate governance practices of the Company and to make recommendations to the
Board to assure the Company’s leadership in this area. The Nominating and Corporate
Governance Committee reports its findings and recommendations to the Board for action.
The Company believes its leadership in the corporate governance area is evident in the
practices mentioned in this policy book.


consolidated financial statements include the accounts of Harley-Davidson, Inc. and all of
its subsidiaries (the Company), including the accounts of Harley-Davidson Motor
Company (HDMC), Eaglemark Financial Services, Inc. (Eaglemark), and Holiday
Rambler LLC (Holiday Rambler). All significant inter company accounts and
transactions are eliminated. As disclosed in Note 3, the operations of Holiday Rambler
are classified as discontinued operations.

The Company has an investment which is accounted for using the equity method.
Accordingly, the Company’s share of the net earnings (losses) of this entity is included in
consolidated net income.

(b)USE OF ESTIMATES The preparation of financial statements in conformity with

generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

©CASH AND CASH EQUIVALENTS The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be cash


finance receivables is recorded as earned and is based on the average outstanding daily
balance for wholesale and retail receivables. Accrued interest is classified with finance
receivables. Certain loan origination costs are deferred and amortized over the estimated
life of the related receivable as a reduction in financing revenue.

(e)FINANCE RECEIVABLES CREDIT LOSSES The provision for credit losses on

finance receivables is charged to income in amounts sufficient to maintain the allowance
for uncollectible accounts at a level management believes is adequate to cover the losses
of principal and interest in the existing portfolio. The Company’s wholesale loan charge-
off policy is based on a loan-by-loan review. Retail revolving charge receivables are
charged off at the earlier of 180 days contractually past due or when otherwise deemed to
be uncollectible. Retail installment receivables are generally charged off at 120 days
contractually past due.



During 1997 and 1996, Eaglemark securitized and sold approximately

$300 million and $238 million, respectively, of its retail installment loans through
securitization transactions. Eaglemark retained limited recourse and also the servicing
rights to these contracts. Eaglemark recognizes a gain for the difference between the
carrying value of the receivables sold and the adjusted sales price. The adjusted sales
price is determined based on a present value estimate of future cash flows on each loan
pool sold.
Eaglemark adopted Statement of Financial Accounting Standards (SFAS) No. 125,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities,” effective January 1, 1997. Adopting SFAS No. 125 had an immaterial effect.

INVENTORIES: Inventories are valued at the lower of cost or market. Inventories

located in the United States are valued using the last-in, first-out (LIFO) method. Other
inventories, $33.3 million in 1997 and $25.5 million in 1996, are valued at the lower of
cost or market using the first-in, first-out (FIFO) method.

DEPRECIATION: Depreciation of plant and equipment is determined on the straight-

line basis over the estimated useful lives of the assets. Accelerated methods are used for
income tax purposes.

FACILITIES START-UP COSTS: Facilities start-up costs are expensed as incurred.

During 1997 and 1996, the Company incurred approximately $19.3 million and $7.3
million in start-up costs, respectively.

PRODUCT WARRANTY: Product warranty costs are charged to operations based

upon the estimated warranty cost per unit sold.

DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses forward foreign

exchange contracts to mitigate the risk that cash flows resulting from the Company’s firm
commitments for the sale of product to foreign customers will be adversely affected by
changes in exchange rates. Realized and unrealized gains and losses on forward foreign
exchange contracts resulting from changes in the spot exchange rate are deferred and
recognized at the time the hedged transaction is settled.

Eaglemark enters into interest rate cap and swap agreements to reduce the impact of
fluctuations in interest rates on its floating rate debt. Eaglemark’s credit risk is the
amount of uncollected interest related to these agreements. The differential to be paid or
received under these agreements is recognized as an adjustment to interest expense. The
unamortized cost of the interest rate cap agreements is included in other assets. The fair
values of interest rate cap agreements and forward foreign currency contracts are
discussed in Note 12.


expenses were approximately $53.3 million, $37.7 million, and $27.2 million for 1997,
1996 and 1995, respectively.

ENVIRONMENTAL The Company accrues for environmental loss contingencies when

it is probable that a liability has been incurred and the amount can be reasonably
estimated. The Company adopted SOP 96-1, “Environmental Remediation Liabilities,”
effective January 1, 1997. Adopting SOP 96-1 had an immaterial effect.

EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued
SFAS No. 128, “Earnings per Share,” which replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share exclude any nonvested stock. Diluted
earnings per share are very similar to the previously defined fully diluted earnings per
share. During 1996 and 1995, stock options were not materially dilutive; therefore, the
Company was not required to disclose fully diluted earnings per share. Earnings per share
amounts for all periods presented have been restated to conform to the Statement 128

COMPREHENSIVE INCOME The Company is required to adopt SFAS No. 130,

“Reporting Comprehensive Income,” effective January 1, 1998. Comprehensive income
and its components will be required to be presented for each year for which an income
statement is presented. Components to be included in comprehensive income for the
Company are expected to consist primarily of translation adjustments related to the
consolidation of foreign subsidiaries.

INTERNAL-USE SOFTWARE The Company is required to adopt the new SOP,

“Accounting for Costs of Computer Software Developed or Obtained for Internal Use,”
effective January 1, 1999. The SOP will require the Company to capitalize costs incurred
in connection with developing or obtaining internal-use software. The Company expects
to early adopt the SOP in 1998. Had the Company adopted the SOP in 1997,
approximately $9 million of costs associated with internal-use software would have been

RECLASSIFICATIONS Certain prior year balances have been reclassified in order to

conform to current-year presentation.


As of December 31, 1997, the Company had unsecured lines of credit totaling
approximately $42.7 million, of which approximately $40.8 million remained available
after consideration of outstanding letters of credit. As of December 31, 1996, $2.6 million
of notes payable was included in accrued and other liabilities. There were no outstanding
notes payables at December 31, 1997.

1901 William S. Harley, age 21, completes a blueprint drawing of an engine
designed to fit into a bicycle.

1903 William S. Harley and Arthur Davidson make available to the public the first
production Harley-Davidson® motorcycle. The bike was built to be a racer,
with a 3-1/8 inch bore and 3-1/2 inch stroke. The factory in which they
worked was a 10 x 15-foot wooden shed with the words "Harley-Davidson
Motor Company" crudely scrawled on the door. Arthur's brother Walter later
joins their efforts.
Henry Meyer of Milwaukee, a schoolyard pal of William S. Harley and Arthur
Davidson, buys one of the 1903 models directly from the founders.

1904 The first Harley-Davidson Dealer, C.H. Lang of Chicago, IL, opens for
business and sells one of the first three production Harley-Davidson
motorcycles ever made.

1905 On July 4th, 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, measuring 28 x 80 feet, is built on the Chestnut St. site, later
renamed Juneau Avenue. Staff size is increased to six full-time employees.
Also, the first motorcycle catalog is produced by the Company and the
nickname "Silent Gray Fellow" is used for the first time.

1907 William A. Davidson, brother to Arthur and Walter Davidson, quits his job as
tool foreman for the Milwaukee Road railroad and joins the Motor Company.
Harley-Davidson Motor Company is incorporated on September 17th. The
stock is split four ways between the four founders, and staff size has more
than doubled from the previous year to eighteen employees. Factory size is
doubled as well. Dealer recruitment begins, targeting the New England

1908 Walter Davidson scores a perfect 1,000 points at the 7th Annual Federation
of American Motorcyclists Endurance and Reliability Contest. Three days
after the contest, Walter sets the FAM economy record at 188.234 miles
per gallon. Word of Harley-Davidson's extremely tough motorcycle spreads
The first motorcycle sold for police duty is delivered to the Detroit, MI,
Police Department.

1909The six-year-old Harley-Davidson Motor Company introduces its first V-twin powered
motorcycle. With a displacement of 49.5 cubic inches, the bike produces seven horsepower. The
image of two cylinders in a 45-degree configuration would fast become one of the most enduring
icons of Harley-Davidson history. Also available for the first time from the Motor Company are
spare parts for motorcycles.
1910 The famed "Bar & Shield" logo is used for the first time. It is trademarked
at the U.S. Patent office one year later.

At least seven different first place finishes are captured at races, endurance
contests and hill climbs across America. All seven winners are riding Harley-
Davidson® motorcycles.

1911 The "F-head" engine becomes a workhorse of the Harley-Davidson

motorcycle until 1929.

1912 Construction begins on what will become the six story headquarters and
main factory building at Juneau Ave. in Milwaukee. A separate Parts and
Accessories Department is formed.

H-D exports motorcycles to Japan, marking the first ever sales outside of
the U.S. Dealer network grow to over 200 nationwide.

1913 The Racing Department is formed, with William Ottaway as its first Assistant
Engineer to racing engineer William S. Harley. Also, the Forecar delivery van
is offered for the first time.

1914 Sidecars are made available to Harley-Davidson buyers. Clutch and brake
pedals now available on F-head singles and twins.

The Motor Company formally enters motorcycle racing this year. The first
Racing Engineer is William S. Harley. Within a few short years, team Harley-
Davidson is referred to informally as the "Wrecking Crew" because of their
incredible dominance of the sport.
The Two-Speed rear hub transmission is introduced for two years only in the
Model 10F. Patented by William S. Harley, it was effective but discontinued
in order to further improve drivetrain function in 1915 with a three-speed

1915 Harley-Davidson motorcycles are now available with three speed sliding-
gear transmissions with final and primary drive on the same side.

1916 The Enthusiast begins its reign as the longest continuously published
motorcycle magazine in the world.

1917 During this year, roughly one-third of all Harley-Davidson motorcycles

produced are sold to the U.S. military. The Quartermasters School, a
department of Harley-Davidson devoted to training military mechanics on
Harley-Davidson motorcycles, opens for business in July. It will later
become the Service School.
The sale of Harley-Davidson bicycles begins. Individual components are
made by the Davis Sewing Machine Co. of Dayton, Ohio. The bicycles are
sold through the H-D dealer network.
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. One day after the signing of the Armistice, Corporal Roy Holtz
of Chippewa Falls, Wis., is the first American to enter Germany. He is riding
a Harley-Davidson.

1919The 37 cubic inch opposed twin cylinder Sport model is introduced and gains great popularity
overseas. Unique not only for the cylinder configuration, which was directly opposed and flat,
the Sport quickly earns a reputation for being uncommonly quiet.

1920 By 1920, Harley-Davidson is the largest motorcycle manufacturer in the
world. New Harley-Davidson® motorcycles can be purchased from over
2,000 dealers in 67 countries worldwide.

Leslie "Red" Parkhurst breaks 23 speed records on a Harley-Davidson 61

cubic inch racing motorcycle. Also, the "hog" association starts when the
racing team's mascot, a pig, is carried on a victory lap after each race won
by the team.

1922 The first 74 cubic inch V-twin engine is introduced on the JD and FD
models. Harley-Davidson dealerships are now found in sixty-seven

Harley-Davidson riders sweep all eight National Championship races.

1925 Gas tanks on all models now have a distinct teardrop shape. This basic
appearance is set for all subsequent Harley-Davidson motorcycles.

Joe Petrali begins racing for Harley-Davidson. He would become one of the
most successful dirt-track racers for Harley-Davidson, and one of the most
successful racers of all time.

1926 Single-cylinder motorcycles are again sold by Harley-Davidson for the first
time since 1918. Models A, AA, B, and BA are available in side-valve and
overhead-valve engine configurations.

1928 The first Harley-Davidson two cam engine is made available to the public
on the JD series motorcycles. The bike is capable of top speeds between 85
- 100 mph.

Front wheel brakes are now available on all Harley-Davidson motorcycles.

1929The 45 cubic inch V-twin engine (later to be known as the "flathead") is introduced on the D model. The
engine proves to be so reliable that variations of it are available on Harley-Davidson motorcycles as late as

1930 Bill Davidson, Jr. wins the Jack Pine endurance contest with 997 points of
1,000. All individual class winners are riding Harley-Davidson® motorcycles.

1931 All of Harley-Davidson's remaining American competition is now gone except

Indian (Hendee Manufacturing). Indian and Harley-Davidson are the only
two American motorcycle manufacturers until 1953.

1932 The 45 cubic inch-driven, three-wheeled Servi-car begins its 41 year run as
a popular commercial and police vehicle.

In dirt track racing, Harley-Davidson racer Joe Petrali begins a five-year

consecutive streak of winning the AMA Grand National Championship. Petrali
also wins the National Hill-Climb Championships for 1932 to 1935.

1933 An art-deco "eagle" design is painted on all gas tanks. This marks the
beginning of graphic designs on Harley-Davidson motorcycles (with the
exception of previously special order-only paint schemes). This styling
decision was made in part to stimulate the low sales numbers caused by the
Great Depression.

1935 The Japanese motorcycle industry is founded as a result of Harley-Davidson

licensing blueprints, tools, dies and machinery to the Sankyo Company of
Japan. The result is the Rikuo motorcycle.
Joe Petrali and his Harley-Davidson peashooter win all thirteen of the
American Motorcycle Association National Championship dirt track races.
Petrali breaks four records in the process.

1936 Harley-Davidson introduces the EL, an overhead valve, 61 cubic inch

powered bike. With increased horsepower and bold styling changes, the
motorcycle quickly earns the nickname of "Knucklehead," due to the shape
of its rocker boxes. The same year, the Motor Company introduces a 80
cubic inch side valve engine.

1937 The first WL models are produced. Joe Petrali sets a new land speed record
of 136.183 mph on a modified Harley-Davidson 61 cubic inch overhead
valve-driven motorcycle. . The same day, he also breaks the record for 45
cubic inch engine motorcycles.

1938 The Jack Pine Gypsies Motorcycle Club holds the first Black Hills Rally in Sturgis, SD.

On the 3.2 mile beach course at Daytona, FL, Ben Campanale wins the first of two
consecutive victories at the Daytona 200 on a Harley-Davidson WLDR.

1940 Babe Tancrede is the winner at the Daytona 200, riding a WLDR model.

1941 America is plunged into World War II. Production of civilian motorcycles is
almost entirely suspended in favor of military production. The Service
School is converted back to the Quartermasters School for the training of
military mechanics.
The FL series premieres.

1942 Among other motorcycles made for the Army, H-D produces the unique XA
750, a motorcycle with horizontally opposed cylinders and shaft drive,
designed for desert use. The contract is cancelled early due to war combat
moving out of North Africa. Only 1,011 XA's are built.

1943 Harley-Davidson receives the first of its four Army-Navy "E" Awards for
excellence in wartime production. Overseas, many American servicemen get
their first exposure to Harley-Davidson motorcycles, something they would
not forget when they would return stateside.

1945 World War II ends, and Harley-Davidson has produced almost 90,000 WLA
models for military use. Wasting no time, production of civilian motorcycles
resumes in November.

1946 Harley-Davidson introduces the 45 cubic inch flathead WR racing

motorcycle. It proves to be one of the best racing motorcycles ever built.

1947 Attendees at the year's Dealers Convention in Milwaukee are given a train
ride to a "secret destination," which turns out to be the newly purchased
plant on Capitol Drive. The plant was formerly the A.O. Smith Propeller
Plant, created during the war. Harley-Davidson uses the plant as a large
machine shop, shipping the new parts to Juneau Ave. for final assembly.

Harley-Davidson begins selling what will become the classic black leather
motorcycle jacket.

Harley-Davidson dirt track racer Jimmy Chann wins the first of three
consecutive AMA Grand National Championships.

1948 New features are added to the 61 and 74 overhead valve engines, including
aluminum heads and hydraulic valve lifters. Also new are the one piece,
chrome plated rocker covers shaped like cake pans. The nickname
"Panhead" only seemed logical.
Production of American-made lightweight motorcycles begins with the
model S. Various versions will be sold until 1966.

1949 Hydraulic front forks first appear on the new Hydra-Glide models.

1950 Larry Headrick wins the AMA Grand National Championship for Harley-
Davidson in dirt track racing.

Harley-Davidson riders win 18 of 24 National Championships and set six

new racing records.
1952 The side-valve K model is introduced with an integrated engine &
transmission to compete with smaller, sportier motorcycles coming mainly
from Great Britain. The K will eventually evolve into the Sportster.

1953 Harley-Davidson celebrates its 50th Anniversary in style. An attractive logo

is created, depicting a "V" in honor of the engine which had brought the
Company so far, with a bar overlaid reading "Harley-Davidson" and the
words, above and below, "50 years--American made." A medallion version
of this logo is placed on the front fenders of the 1954 models.
Hendee Manufacturing, the creator of the Indian motorcycle, goes out of
business. Harley-Davidson would be the sole U.S. motorcycle manufacturer
for the next 46 years.

1954 Dirt track racer Joe Leonard wins the AMA Grand National Championship.
Over the next eight years, the Grand National Championship will be won by
Harley-Davidson racers.

1955 This year begins a seven-year consecutive run of victories at the Daytona
200. The victories will be shared by racers Brad Andres, Johnny Gibson, Joe
Leonard and Roger Reiman. All ride Harley-Davidson KR models. Reiman's
victory in 1961 is on the new speedway course.

1956 The new young star Elvis Presley poses for the cover of the
MayEnthusiast sitting on a 1956 model KH.

1957 The motorcycling public met a new motorcycle called the Sportster®. It
premiers as a 55 cubic inch overhead valve engine, and within one year of
its debut, becomes known as the first of the "Superbikes." Another Harley-
Davidson tradition and legend is born.

1958 The first rear brakes and hydraulic rear suspensions appear on the Duo-Glide.

Racer Carroll Resweber wins the first of four AMA Grand National


1960 The Harley-Davidson Topper motor scooter is introduced and is the only
scooter platform the Motor Company ever produced.

Harley-Davidson purchases a half interest in Aeronatica-Macchi, forming

Aermacchi Harley-Davidson, a European division that will produce small,
single cylinder motorcycles.

In this year of Brad Andres' 1st place finish at the Daytona 200, the top 14
finishers are also riding Harley-Davidson 750 KR models.

1961 Introduction of the Sprint model.

1962 Harley-Davidson purchases 60 percent of the stock in the Tomahawk Boat
Manufacturing Company. H-D recognizes the rising relevance of fiberglass in
motorcycle production, and begins manufacturing its own components. As a
result, the Tomahawk Division is established and is operational as a Harley-
Davidson facility by 1963.

1963 Ralph White resumes the winning of the Daytona 200 for Harley-Davidson,
again on a 750 KR motorcycle.

1964 Roger Reiman wins the AMA Grand National Championship for Harley-
Davidson. Reiman also scores the first of back-to-back Daytona 200
victories on a 750 KR.

The three-wheeled Servi-Car becomes the very first Harley-Davidson

motorcycle to receive an electric starter.

1965 The Electra-Glide® replaces the Duo-Glide and is updated with electric
starter. The Electra-Glide is the first FL available with electric start, and the
Sportster® line would receive electric starters soon after.

In a Streamliner powered by a 250cc Sprint CR racing engine, George

Roeder shatters the speed records for Class A and Class C runs, averaging
177 miles per hour.

Harley-Davidson dirt track racer Bart Markel wins the AMA Grand National
Championship in 1965 and 1966.

1966 The first of the "Shovelhead" engines is introduced on the Electra-Glide

models, replacing the Panhead.

1968 Cal Rayborn wins the first of back-to-back victories at the Daytona 200 on
a 750 KR model.

1969 Harley-Davidson merges with the American Machine and Foundry Company (AMF), a
longtime producer of leisure products.
Mert Lawill wins the AMA Grand National Championship for team Harley-Davidson in
dirt track racing.

1970 In consideration of new AMA rules for Class C racing, a new Sportster®-
based motorcycle, the XR-750 racer is introduced.

On the Bonneville salt flats near Wendover, Utah, racer Cal Rayborn breaks
the world record for land speed set by a motorcycle. The vehicle is a sixteen
foot streamliner powered by a single Sportster engine, and averages just
over 265 mph.

1971 In response to the customizing craze, Harley-Davidson introduces the FX

1200 Super Glide®, which combined a sporty front end (similar to that of
the XL series) with the frame and powertrain of the FL series. A new class
of motorcycle, the cruiser, is born.
First year of Harley-Davidson snowmobile production.

1972 The new, more powerful, more reliable aluminum alloy XR-750 debuts. It
becomes the dominant dirt track racer through the next three decades. Dirt
track racer Mark Brelsford wins the AMA Grand National Championship on
the XR-750 this year.

1973 Motorcycle production is upgraded when all assembly operations are moved
to a modern 400,000 square foot plant in York, Penn. All other production
operations remain in Milwaukee and Tomahawk. The Capitol Drive plant in
Milwaukee begins production of engines.

1975 The first of four more consecutive years of Harley-Davidson AMA Grand
National Championships in dirt track racing. Gary Scott wins in 1975. The
following three years are won by racing legend Jay Springsteen.

1977 Harley-Davidson introduces the FXS Low Rider® to the public in Daytona
Beach. With drag style handlebars, unique engine and paint treatments, the
Low Rider lives up to its name by placing the rider in a lowered seating
position than was typical. Later in the same year, Willie G. Davidson's
dynamic version of the Sportster, the Cafe Racer, is released.

1979 Introduction of the FXEF Fat Bob, "Fat" because of the dual gas tanks, "Bob" for the
bobbed fenders.

980 Harley-Davidson debuts the FLT with its vibration dampening, rubber-
isolated drivetrain and unique trailing front fork. The FLT also debutes an
engine and five-speed transmission that are hard bolted together.

A Kevlar belt replaces the chain as the final drive. The belt is cleaner
running, and needs less adjustments and maintenance. It isn't long before
belt final drive is standard on all Harley-Davidson® motorcycles.

The AMA Grand National Championship in dirt track racing goes to yet
another Harley-Davidson racer, Randy Goss.

In honor of the historic Sturgis motorcycle rally, Harley-Davidson releases

the FXB Sturgis model, employing belt drive, black chrome appointments
and 80 cubic inch engine.

The FXWG Wide Glide is introduced for the 1980 model year.

1981 On February 26, thirteen Harley-Davidson senior executives sign a letter of

intent to purchase Harley-Davidson Motor Company from AMF. By mid-June,
the buyback is official, and the phrase "The Eagle Soars Alone" becomes a
rallying cry.
Scott Parker begins racing for team Harley-Davidson on the AMA dirt track
circuit. He will become the most successful racer in Harley-Davidson history,
accumulating 93 career victories and, more incredibly, winning 9 Grand
National Champion titles in a 10 year period.

1982 More innovations demonstrate a new commitment to quality, such as the

FXR/FXRS Super Glide® II with its rubber-isolated, five-speed powertrain
and the welded and stamped frame for the new Sportster® models.

The top three finishers in the AMA Grand National Championship are Ricky
Graham, Jay Springsteen and Randy Goss. This begins a two year run of dirt
track Championship wins for Harley-Davidson. Goss takes the Championship
in 1983.

The Materials As Needed (MAN) application is introduced to production.

Generally, this means that parts and raw materials are purchased and built
only as they are required. This dramatically lowers production costs and
improves quality.

1983 Harley-Davidson successfully petitions the International Trade Commission

(ITC) for tariff relief, which is granted April 1, 1983. The tariff, scheduled to
end five years later, is placed on all imported Japanese motorcycles 700cc
or larger as a response to Japanese motorcycle manufacturers stockpiling
inventories of unsold motorcycles in the United States.
One of Harley-Davidson's most unique endeavors begins: Harley Owners
Group®. Fondly referred to as H.O.G.®, the Group immediately becomes
the largest factory-sponsored motorcycle club in the world. Within six years,
H.O.G. membership soars to more than 90,000. By the year 2000, it
exceeds 500,000 members.
Dirt track racer Randy Goss wins the AMA Grand National Championship this

1984 Harley-Davidson unveils the 1340cc V²® Evolution® engine on five models
including the all-new Softail®. The result of seven years of development,
the Evolution engine produces more power at every speed, runs cooler,
cleaner and is oil-tight. Also witnessed is the debut of the Softail design and
its trend-setting method of "hiding" the motorcycle's rear shock absorbers.

1986 In another bold styling and engineering move, Harley-Davidson releases the
Heritage Softail®.

The Motor Company is listed on the American Stock Exchange, the first time
Harley-Davidson is publicly traded since 1969, the year of the AMF merger.

The Sportster® motorcycle line receives the Evolution V-twin engine.

To diversify its holdings, Harley-Davidson purchases Holiday Rambler

Corporation, producer of quality motor homes.

1987 Harley-Davidson is listed on the New York Stock Exchange.

Harley-Davidson makes both business and American history. H-D petitions

the International Trade Commission for early termination of the five-year
tariffs on heavyweight motorcycles. In effect, the move demonstrated
confidence in H-D's ability to compete in the marketplace.
Harley-Davidson begins the "Buy Back Program," for the XLH 883 Sportster,
which offers full trade-in value within two years on either a model FL or FX.
1988 The springer front end returns in the FXSTS Springer® Softail®. Also introduced is the
Sportster 1200. Harley-Davidson celebrates its 85th Anniversary with a Homecoming in
Milwaukee, attended by over 60,000 enthusiasts.

The Harley-Davidson Traveling Museum hits the road, displaying memorabilia, classic
Harley-Davidson motorcycles and the rich history of the Harley-Davidson rider.

Scott Parker wins the first of his nine AMA Grand National Championships. His total
domination is unprecedented in the history of the sport of dirt track motorcycle racing.


1990 Upon its introduction, the FLSTF Fat Boy® almost instantaneously becomes
a modern legend of motorcycle design.

1991 Installation of a $31 million state of the art paint facility begins at the York,
PA, factory. It becomes fully operational in 1992.
The Dyna line of motorcycles debuts with the 1991 FXDB Dyna Glide

1993 Harley-Davidson celebrates its 90th Anniversary in Milwaukee with a Family

Reunion. An estimated 100,000 people ride in a parade of motorcycles.

Harley-Davidson buys a minority interest in the Buell Motorcycle Company.

Erik Buell created the Company to manufacture American sport motorcycles
using Harley-Davidson® XL 883 and 1200 engines.

1994 Harley-Davidson enters Superbike racing with the introduction of the

VR1000, a dual overhead cam, liquid-cooled motorcycle.

The classically-styled FLHR Road King® is introduced.

1995 The 30th Anniversary Ultra Classic® Electra Glide® becomes the first
production Harley-Davidson motorcycle to include sequential port electronic
fuel injection.

1996 A new, state-of-the-art Parts and Accessories Distribution Center opens in

Franklin, WI. By the beginning of 1997, all inventory is moved from the
original warehouse at Juneau Avenue to the new 250,000-sq.-ft. facility.

1997 A new 217,000-sq.-ft. Product Development Center opens next to the

Capitol Drive plant in Milwaukee. The building is dedicated to Willie G.
Powertrain Operations at Capitol Drive expanded its capacity by moving FL
engine and transmission production to a newly purchased plant located in
Menomonee Falls. XL engines and transmissions, as well as Genuine Parts
Manufacturing, remain at Capitol Drive.
A new 330,000-sq.-ft. plant in Kansas City produces its first Sportster.

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.
Harley-Davidson buys a remaining 49% interest in Buell Motorcycle
Company. Erik Buell is named Chairman of Buell operations.

1999 The Touring and Dyna motorcycle families receive the new Twin Cam 88® engine.

2000 The FXSTD Softail® Deuce™ is introduced to the immediate delight of riders
and the motorcycle media.

The 2000 model year Softail® models are outfitted with the Twin Cam
88B™ engine, a counter-balanced version of the Twin Cam 88.

Fuel injection is unveiled as a feature new to the Softail line of motorcycles

for the 2001 model year.
Buell introduces the Blast®, a single-cylinder motorcycle, for the 2000
model year. The Blast receives excellent reviews. It's introduced in tandem
with the Rider's Edge® Academy of Motorcycling, a beginner's rider course
available through Harley-Davidson and Buell dealerships.

2001 The VRSCA V-Rod® is introduced for the 2002 model year. Inspired by the
VR-1000 racing motorcycle, the V-Rod is Harley-Davidson's first motorcycle
to combine fuel injection, overhead cams and liquid cooling, and delivers
115 horsepower.
Harley-Davidson Racing announces the latest addition to the team: 17 year
old Jennifer Snyder, the first woman to win a national event in the Formula
USA National Dirt Track Series.

Harley-Davidson announces expansions at the Product Development Center

(Milwaukee), as well as Tomahawk, WI, and York, PA, facilities.

2002 The all-new Buell® Firebolt® storms onto the scene.

The Open Road Tour debuts in Atlanta, GA, in July to celebrate the
upcoming Harley-Davidson 100th Anniversary.

2003 Buell Motorcycle Company unleashes the Lightning® XB9S.

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

2004 For the 2004 model year, the Sportster® family models receive rubber
engine mounting, a new frame, and a wider rear tire. Some Sportster®
models receive a redesigned gas tank.

The FLHRSI Road King® Custom is introduced. With its low rear suspension
and wide handlebars, the FLHRSI brings a beach look to a classic Harley-
Davidson motorcycle.

Andrew Hines of the Screamin' Eagle®/Vance & Hines Harley-Davidson drag

racing team clinches his first NHRA Powerade Pro Stock Motorcycle
Championship at age 21, the youngest champion in NHRA history.

2005 The XL 883L Sportster® 883 Low brings a lowered seating position to the
Sportster® line.

The FLSTNI Softail® Deluxe adds a sleek look to the Softail® line and a
paint scheme reminiscent of 1939 Harley-Davidson motorcycles. Also, the
FLSTSC/I Softail® Springer® Classic revives looks from the late 1940s.

Andrew Hines wins his second straight NHRA Powerade Pro Stock Motorcycle
Championship. G.T. Tonglet, also of the Screamin' Eagle®/Vance & Hines
Harley-Davidson team, places second.

Harley-Davidson and the Muscular Dystrophy Association (MDA) mark the

25th anniversary of their partnership.

2006 The first of the 6-speed transmissions are made available on 2006 model year
Dyna™ motorcycles. Also joining the Dyna™ family is the FXDB/I Street Bob™.

The 2006 model year includes the all-new FLHX/I Street Glide™, a lower profile
touring motorcycle.

Harley-Davidson unveils plans for an all-new museum in Milwaukee, scheduled for

opening in 2008.

Harley-Davidson appoints Beijing Feng Huo Lun (FHL) as the first authorized Harley-
Davidson dealer on mainland China.
9. Risk Management and Risk Factors
Harley-Davidson Inc. is subject to various types of risks that directly affect the growth and
operations of the companies in this sector. The following talks about some major risks areas
in the company.
9.1Currency Risk:
The Company sells its products internationally and in certain markets, it denominates
those sales in the local currency of the foreign country. The Company’s most significant
foreign denominated sales are in the Euro. The Euros exchange rate to the U.S dollars
went up by 18% in 2002. As a result, the Company’s earnings are affected by fluctuations
in the value of the U.S. dollar relative to certain foreign currencies. The Company utilizes
foreign currency contracts to mitigate the effect of these fluctuations on earnings.
9.2Interest Rate Risk:
The outlook for interest rates has important implications for Harley-Davidson
Financial Services’ earnings. Interest rates influence how much money the HDFS can
make. For this reason, the HDFS is concerned with Federal Reserve policy and its
influence on interest rates. In June 2003, the Fed has cut the federal funds target rate 13
times since January 2001 by a total of 5.5 percentage points to the lowest level in more
than 40 years. HDFS utilizes interest rate swaps to reduce the impact of fluctuations in
interest rates.
9.3Legal Risk:
The Company is subject to lawsuits and other claims related to environmental,
product and other matters.
• Harley-Davidson has a lawsuit against them for the defects in the twin cam 88 engines.
They are still in the process of the lawsuit in the Wisconsin Supreme
Court. Therefore, the company spends a lot of money in the process of the lawsuit.
• The Company is involved with government agencies in various environmental matters,
including a matter involving the clean up of soil and groundwater contamination at its
York, Pennsylvania facility. The Company estimates that its share of the future Response
Costs at the York facility will be approximately $7.9 million.
9.4Economic Risk:
• Unemployment Rate
High unemployment will cause a slowdown in consumer spending, so consumer are less
likely to buy a new motorcycle.
• Consumer Confidence
The confidence report has indicated that there is still a relatively low consumer sentiment,
which may be proof that there is a delay in the up start of consumer and commercial
9.5Other Risks:
• Terrorism Risk: The September 11, 2001 terrorist attack impacted the company’s retail
activates slowdown in areas around New York City and Washington D.C.
• Operation Risk: Company could experience delays in the operation of manufacturing
facilities as a result of work stoppages, difficulty with suppliers.
• Production Risk: Company could increase the productivity in its facilities to meet the
customer demand or company could sell all of the Harley-Davidson motorcycles it plans
to product.
• Credit Risk: HDFS is engaged in the business of financing and servicing wholesale
inventory receivables and consumer retail installment sales contracts. It would suffer
some loan will default on repayments linked to the obligation.
• Natural causes: A natural disaster (earthquake, hurricane, etc.) which could impact the
company’s factory and retail stores.
10. Investment Decision and Conclusion
In conclusion, we believe Harley-Davison has a great product with a loyal
brand following. The Harley-Davison bike has become an American icon, which foreign
competitors can not match despite years of trying. In addition, H-D is a financially
healthy company with minimal debt and they’ve continued to improve operating
performance regardless of the economic climate. Based on these factors, as well as
favorable valuations from the DDM model we feel that the company should be rated a
“Buy”. Harley-Davison will be a good addition to our portfolio given the conservative
nature and objectives of the Graduate Fund. We recommend purchasing 200 shares of H-
D stock at a price at market price. We believe that 200 shares is proper given the fact that
the stock has risen in recent months and is no longer significantly undervalued.
However, we believe the stock has some upside potential and is good long-term
investment. No stock in the Graduate Fund is significantly correlated with Harley-
11. Strategic Report for
Harley Davidson

Harley Davidson remains a financially strong and stable

company. During 2005 the company reported the 19th consecutive year of record
revenues and record earnings. While Harley Davidson’s growth has slowed over the past
several years the decline in growth rates are primarily attributable to a maturing market,
which results in lower growth rates for all member of the motorcycle sub-industry.
During 2006 Standard and Poor’s predicts that the motorcycle sub-industry will grow
between 1% and 3%, a much slower rate than the double digit annual gains the sector saw
throughout the 90’s and late 80’s. Despite the company’s strong financial outlook the
stock price has not been performing well over the past year. The stock price fell
dramatically in April 2005 when Harley Davidson management lowered guidance of new
motorcycle shipments to the network of independent dealers. Wall Street analysts
proceeded to predict doom for the company as it appeared that it would be unable to
continue its trend of strong growth.
Although the company actually produced results that
were in the upper bound of its guidance and within the guidance from before April the
stock price has yet to recover to its earlier levels. It seems that Harley Davidson
management’s strategy of under promising and over-delivering has backfired, especially
because analysts remain wary of the company’s prospects despite Harley exceeding their
expectations. Another reason for analysts’ pessimism about Harley Davidson is that
recently the company seems to be resting on its laurels, content with its current market
position and doing little to attract new, younger customers or to offer new motorcycle
designs to appeal to previous customers. One sign of this is that Harley Davidson’s dollar
amount spent on advertising and research and development has actually been decreasing
over 4 the past couple of years. To some it might seem that management is sacrificing the
future of the company by not attracting new riders in order to boost financial performance
11.1Substitutes and Complements
Heavyweight motorcycles are a luxury item for the vast majority of consumers so there
are few close substitutes for heavyweight motorcycles that could serious affect the
market. Honda, Yamaha, and Suzuki all also manufacture smaller, quicker motorcycles,
which are the closest substitute followed by passenger cars and scooter bikes. However,
for most people considering purchasing a heavyweight motorcycle are not also seriously
considering one of these options. Heavyweight motorcycles project a certain image which
is part of the consumer’s decision to purchase a motorcycle. Also smaller motorcycles
require a different riding style, more hunched over the bike as opposed to sitting upright
on a heavyweight motorcycle. Passenger cars are weak substitutes for heavyweight
motorcycles because consumers rarely purchase them to satisfy transportation
requirements. These bikes are more of a luxury item than a necessity for traveling from
point A to point B. Even though motorcycles may be better through traffic and use less
gasoline than a car a consumer purchasing a motorcycle for these reasons would be more
inclined to purchase a lighter motorcycle, which would be more maneuverable and fuel-
efficient than a heavyweight bike. The most obvious complement for heavyweight
motorcycles is gasoline. If the price of fuel is high then consumers will be less likely to
purchase a heavyweight bike due to the fact that most trips taken on such a motorcycle is
largely discretionary and taken for pleasure rather than through a need for transportation.
However, if consumers are willing to pay between $8 thousand and $25 thousand for a
luxury item like a heavyweight motorcycle then they are probably not troubled by paying
a slightly higher price for gasoline.
11.2Buyer and Supplier Power
Harley Davidson operates nearly every stage of the production of a motorcycle, taking
raw materials such as steel and basic electrical components and shipping completed
motorcycles to its extensive independent dealership network. Because there are many
suppliers of all inputs that Harley Davidson requires for its manufacturing operations
there is very little that any single supplier can do the exact rents from Harley. If one
supplier attempted to increase its profits by charging Harley a higher price it would not
be difficult for Harley to switch suppliers without a significant disruption in production.
Similarly, Harley Davidson’s customers are largely individual consumers, making it
difficult for them to seriously affect Harley Davidson’s financial situation by refusing to
cooperate. Since Harley Davidson dealerships are independently owned an operated the
companies customers are technically its licensed dealers, but the sheer number of dealers
that Harley Davidson has throughout the world makes the situation for dealers not much
better than individual riders.

11.3 -100 Years of Harley Davidson

Harley-Davidson, also known as HD, has been around for over 100 years, beginning in
1903 in Milwaukee, Wisconsin between two friends. Though William and Walter
Davidson, Arthur Davidson's brothers, would join the project, the original prototype was
conceived by William Harley and Arthur Davidson. Together, their working relationship
founded the HD Company, later this company would grow enough to deserve to be
incorporated, with the help of Walter's skills as a mechanic and William Davidson's
abilities to make tools.

During 1903 Harley-Davidson turned out a grand total of 3 motorcycles, all were bought
and paid for before completion. Gray was the standard color of the first motorcycles,
which were often referred to as the? Silent Gray Fellows?. By 1905, the Company had
grown at such a rate that they were now selling motorcycle motors, marine motors,
reversible propellers, and float feed carburetors along with the standard motorcycles.

The Harley-Davidson company only continued to prosper through the next decade.
Among the biggest fans of the company was the United States Postal service, who in
1914 used 4,800 of the company's bikes but nine departments in total used the company's
products in the federal government in that year. By 1916, the military was in on the act
and they began outfitting their HD's with machine guns in skirmishes with Panch Villa.
The federal government did not ease up on their use of HD during the first World War,
on the contrary, the government purchased fifty percent of all of the HD motorcycles
during this period and shipped them overseas for the military to use.

The sport of racing was the way that HD thrived and prospered in the post-war years of
the 1920s. Unlike many companies during the 1930s, the effects of the Great Depression
were not strong enough to press Harley-Davidson out of business, they continued to
prosper. Repeating their government service in the 1940s, the HD bikes were a valuable
tool during the Second World War.

In the decade of the 1950s, the company began employing more aggressive marketing
strategies and saw increased growth. Once again war broke out, this time in Korea but
unfortunately motorcycles were replaced in popularity with the military with the Jeep.
Harley-Davidson was free to concentrate on its civilian consumers.

The 1960s were a decade of change for the company, as well as the rest of the United
States. Change can be seen through the company's decision to produce the 3-wheeled
golfing cart. By the end of the decade these carts cornered about one third of the United
States market, and were even used oversees. In according to the change theme,
motorcycle accessories became part of the Harley-Davidson family during the 1960s too.

Racing once again became a focus during the 1970s, as Harley-Davidson motorcycles
received advances in technology that allowed them to make great strides in the sport. The
1980s were a decade of great financial change for many companies, and for the HD
Company, this was especially true when they became a private ownership again as the
result of a buyback. The company seemed to show a renewed interest in building better
machines so much so that they won the contract with the California Highway Patrol in
1984, 1985, 1987, 1988 and 1989.

Customized factory motorcycles took center stage during the 1990s, when Harley-
Davidson introduced the FLSTF Fat Boy. The goal of the new bike was to invoke the feel
of past bikes while keeping up to date. The Twenty first century has come and the
company remains strong. The basic line of the company is composed of the Sporster, the
Dyna, the Softail, the VRSC, and a Touring line, each line then diverges into different

Provision for income taxes consists of the following:

The provision for income taxes differs from the amount which would be provided by
applying the statutory U.S. corporate income tax rate due to the following items:

Deferred income taxes result from temporary differences between the recognition of
revenues and expenses for financial statements and income tax returns. The principal
components of the Company¹s deferred tax assets and liabilities include the following:

The Company is involved with government agencies in various environmental matters,

including a matter involving soil and groundwater contamination at its York,
Pennsylvania facility (the Facility). The Facility was formerly used by the U.S. Navy and
AMF (the predecessor corporation of Minstar). The Company purchased the Facility
from AMF in 1981. Although the Company is not certain as to the extent of the
environmental contamination at the Facility, it is working with the Pennsylvania
Department of Environmental Resources in undertaking certain investigation and
remediation activities. In March 1995, the Company entered into a settlement agreement
(the Agreement) with the Navy. The Agreement calls for the Navy and the Company to
contribute amounts into a trust equal to 53% and 47%, respectively, of future costs
associated with investigation and remediation activities at the Facility (response costs).
The trust will administer the payment of the future response costs at the Facility as
covered by the Agreement. In addition, in March 1991 the Company entered into a
settlement agreement with Minstar related to certain indemnification obligations assumed
by Minstar in connection with the Company’s purchase of the Facility. Pursuant to this
settlement, Minstar is obligated to reimburse the Company for a portion of its response
costs at the Facility. Although substantial uncertainty exists concerning the nature and
scope of the environmental remediation that will ultimately be required at the Facility,
based on preliminary information currently available to the Company and taking into
account the Company’s settlement agreement with the Navy and the settlement
agreement with Minstar, the Company estimates that it will incur approximately $6
million of net additional response costs at the Facility. The Company has established
reserves for this amount. The Company’s estimate of additional response costs is based
on reports of environmental consultants retained by the Company, the actual costs
incurred to date and the estimated costs to complete the necessary investigation and
remediation activities. Response costs are expected to be incurred over a period of
approximately 10 years.

Under the terms of the sale of the Commercial Vehicles Division, the Company has
agreed to indemnify Utilimaster Corporation, for 12 years, for certain claims related to
environmental contamination present at the date of sale, up to $20 million. Based on the
environmental studies performed as part of the sale of the Transportation Vehicles
segment, the Company does not expect to incur any material expenditure under this

Since June, 1996, the Company self-insures its product liability losses in the United
States up to $2.5 million ($3.0 million between June, 1995 and June, 1996). Catastrophic
coverage is maintained for individual claims in excess of $2.5 million ($3.0 million
between June, 1995 and June, 1996) up to $25 million. Prior to June, 1995, the Company
was self-insured for all product liability losses in the United States. Outside the United
States, the Company is insured for product liability up to $25 million per individual claim
and in the aggregate. The Company accrues for claim exposures which are probable of
occurrence and can be reasonably estimated.



The Company operates in two business segments (excluding discontinued operations):

Motorcycles and Related Products and Financial Services. The Company’s reportable
segments are strategic business units that offer different products and services. They are
managed separately based on the fundamental differences in their operations.

The Motorcycles and Related Products (“Motorcycles”) segment consists primarily of the
Company’s wholly-owned subsidiary, H-D Michigan, Inc., and its wholly-owned
subsidiary, Harley-Davidson Motor Company. The Motorcycles segment designs,
manufactures and sells primarily heavyweight (engine displacement of 651+cc) touring
and custom motorcycles and a broad range of related products which include motorcycle
parts and accessories and riding apparel. The Company, which is the only major
American motorcycle manufacturer, has held the largest share of the United States
heavyweight motorcycle market since 1986. The Company holds a smaller market share
in the European market, which is a larger market than the United States, and in the
Japanese market, which is a smaller market than the United States.

The Financial Services (“Eaglemark”) segment consists of the Company’s majority-

owned subsidiary, Eaglemark Financial Services, Inc. Eaglemark provides motorcycle
floor planning and parts and accessories financing to the Company’s participating North
American dealers. Eaglemark also offers retail financing opportunities to the Company’s
domestic motorcycle customers. In addition, Eaglemark has established The Harley-
Davidson Chrome VISA Card for customers in the United States. Eaglemark also
provides property and casualty insurance for motorcycles as well as extended service
contracts. A smaller portion of its customers are in other leisure products businesses.
Prior to 1995, Eaglemark carried on business only in the United States. In 1995,
Eaglemark expanded its operations to include Canada.

The Company early adopted SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information,” effective December 31, 1997. Adoption of the
Statement required the Company to change the disclosure of geographic information but
did not require significant changes in the way segments were disclosed.

Information by industry segment is set forth below:

(1) The results of operations for the majority-owned financial services subsidiary are included as Operating
income from financial services in the statements of operations.

(2) The results of operations for the Transportation Vehicles segment are classified as discontinued
operations in the statements of operations.

Included in the consolidated financial statements are the following amounts relating to
geographic locations:

(1) Revenues are attributed to geographic regions based on location of customer.

(2) Long-lived assets include all long-term assets except those specifically excluded under SFAS No. 131
such as deferred income taxes and financial instruments, including finance receivables
15. Global Ranking

Rank: 380 (Previous rank: 368)
Get quote: HDI

$ millions % change from 2004

Revenues 5,673.8 6.6

Profits 959.6 7.8

Assets 5,255.2 —

Stockholders' Equity 3,083.6 —

Market Value 3/17/2006 13,326.9 —

Profits as % of Earnings per share

Revenues 16.9 2005 $ 3.41

Assets 18.3 % change from 2004 13.7

Stockholders' equity 31.1 1995-2005 annual growth rate % 24.7

Total return to Investors %

2005 -14.2

1995-2005 annual rate 22.4

Industry: Transportation Equipment

Rank Company 500 rank Revenues ($ millions)

1 Brunswick 363 5,923.8

2 Harley-Davidson 380 5,673.8

3 Trinity Industries 632 2,902.0

4 Polaris Industries 843 1,873.7

“Our motorcycles have the attitude not our people”-(H-D)

Harley-Davidson/Buell of Ocean County is the premier Harley-

Davidson/Buell dealer in New Jersey!

Harley-Davidson/Buell of Ocean County is different from other New Jersey

Harley-Davidson dealers. As we like to say, “Our Motorcycles Have the
Attitude, Not Our People!” Here, it’s all about our goal to offer Harley-
Davidson® motorcycle riders and enthusiasts a true “full-service”
dealership staffed by dedicated people committed to the sport of
motorcycling – people who share a love of riding in and around the Jersey
shore! Our sales staff is incredibly knowledgeable about every aspect of
the Harley experience, from motorcycle sales to parts and accessories, and
Harley-Davidson® MotorClothes® merchandise, too!

Harley-Davidson/Buell of Ocean County fulfills the needs of the Jersey shore

motorcycling community by providing a total destination point for new Harley® bikes for
sale, used Harley® bikes, Harley-Davidson® rentals, Harley-Davidson® accessories,
Harley-Davidson® parts, Buell® motorcycles, Buell® accessories, Buell® parts and

H-D opened our doors in October of 1982; that makes it the oldest Harley-Davidson
dealer in New Hampshire! H-D’S are also the last second generation local family owned
AND operated Harley-Davidson dealer in New Hampshire. Come and see how local
ownership can make a difference to you.

Heritage Harley-Davidson is a Factory-Authorized Harley-Davidson® Parts &

Accessories Dealer. It has won dozens of performance awards.

H-D has the best Customer Satisfaction ratings in the region, and is willing to PROVE it.
It has a full team of PHD & Factory-Trained Technicians, all of whom have graduated
from advanced, off site factory schools within the last year.

Whether you're looking to buy first Harley® or been riding Harley-Davidson®

motorcycles for years, the sales team help the customers in terms of purchase. Instant
financing is available.


16.1 Mission:

Heritage Harley-Davidson fulfills dreams by providing all riders and customers

with a friendly, comfortable and knowledgeable Harley-Davidson environment. We will
consistently treat everyone with fairness and integrity and be genuinely interested in their
satisfaction and in maintaining a long term relationship.

Mission Statement says:

“Harley Davidson fulfills 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”
MISSION analysis


To be branded as the best motorcycle available in the world

The best quality motorcycle, motorcycle products and financial services
will be provided world wide is the commitment of Harley-Davidson. Customer
satisfaction is our motto and the Harley-Davidson customers can experience the taste
of reality of motorcycle dreams by relaying their satisfaction on us. Harley-Davidson
is dedicated to use the advanced technology to produce the most superior motorcycle
in domestic and international markets. Stay competitive and continue growth
worldwide remain profitable and survive is our philosophy. Employees of Harley-
Davidson are the foundation of the company and they are the driving force behind the
Harley-Davidson name. The total team effort of Harley-Davidson employees is
devoted to fulfilling dreams of customers and we believe that there is not a
motorcycle riding experience like a Harley-Davidson’s. Excellence is our push
though our Harley-Davidson bar and shield logo that says superior quality. Honesty
and customer loyalty and these morals are the heartbeat of Harley-Davidson
organization. Harley-Davidson do our part in supporting all environmental laws in
every country we do business. Determination and commitment is the place where
Harley-Davidson intends to stay.

16.2 Vision:

H-D vision is to provide an unsurpassed experience for all motorcycle

enthusiasts while providing fulfilling, worthwhile work and growth opportunities for our
team of trained professionals. We strive for continuous improvement in everything we do

Vision Statement says:

“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.

16.3 H-D Work Values:

Integrity; Loyalty; Fairness; Competence; sharing knowledge; Accomplishment


Harley-Davidson uses advertising and personnel selling for their promotional mix. The
advertising that Harley-Davidson utilizes nationally are four to five television
commercials a year. These commercials are institutional because they are advertising the
company and not a specific product. They also have institutional advertisements in
national magazines such as Road & Track, Popular Science, and Fortune as well as
specific motorcycle magazines as Easy Rider. Locally, individual Harley-Davidson
dealers advertise on the radio and through direct mail. Harley-Davidson uses personnel
through their 595 dealerships located throughout the United States. A customer has to go
to a dealership in order to purchase a motorcycle. While they are there they are attended
to by sales people that answer any questions they have and help them pick out the
motorcycle they want.
The mass media advertising implemented by Harley-Davidson is
intended to reach as many members of the general public as possible. Generally, this type
of advertisement is used because of its depth in effectively reaching people. These ads are
intended to target both potential repeat customers as well as first time buyers. Locally,
C&S Harley-Davidson uses direct mailings to specifically target previous owners of their
motorcycles as well as owners of competing brands. The mailings are directed towards
specific customers depending on what the message the dealership wants to convey. For
instance, when C&S has a benefit picnic, they mail to previous Harley owners, but when
a new model year comes out, they mail to their full list which includes both past Harley
customers and customers of competing brands. Similar to marketing to the public,
dealerships promote their models to institutional buyers through direct mailings.
However, they also employ personal selling because it is cost effective to send a sales rep
to the institutional buyer's headquarters due to the possibility of generating multiple sales
at one time.
Harley-Davidson's promotion is designed to move customers from ignorance to
awareness. Harley-Davidson's advertisements contain very little if any persuasive
material on specific models or comparisons between other brands. Instead, they simply
show the product in use in a typical setting. Because Harley-Davidson has built such a
strong reputation over the years, much of their promotion occurs through word of mouth.
At this stage in the company's long history their main promotional goal is simply to
inform customers that the company still exists.
The purpose of Harley-Davidson's mass media advertising is to inform
and remind. Harley-Davidson's advertisements are not usually geared towards a specific
model such as the FXDS-CONV Dyna Convertible, but instead they focus on the allure
and mystique of Harley ownership. For those who are unfamiliar with Harley-Davidson,
these ads inform customers about the existence of the company and its main product. For
those who have purchased Harley products in the past, these ads serve to remind them of
the benefits they enjoy through their ownership. The purpose of Harley-Davidson's
personal selling is to persuade customers to purchase their motorcycles, parts, and
A direct response is generated through the contact between the sales representative and
the customer. The advertising copy instituted by Harley-Davidson is particularly limited.
Beyond simply mentioning the name of the company and the location of the nearest
dealership, no other written message is conveyed. Instead, the company focuses the
customer's attention on the art portion of the advertisement. Generally, this portion of the
ad shows a shiny new bike standing alone, or someone riding along in a picturesque
setting. Also, some Harley ads have shown the company logo and nothing else.

These print ads were created for Harley Davidson by their advertising agency, Carmichael Lynch,
who also do spectacular work for companies like Porsche, A.G. Edwards and Northwest Airlines.

"For Tomorrow May Rain, so we’ll follow the Sun."

The World's Most Traveled Motor Vehicle

The 193 Countries the motorcycle has visited plus some other entities in brackets
Afghanistan , Albania , Algeria , (American Samoa) , Andorra , Angola , Antigua &
Barbuda ,Argentina , Armenia , Australia , Austria , Azerbaijan ,

Bahamas , Bahrain , Bangladesh ,Barbados , Belarus , Belgium , Belize , Benin , Bhutan

, Bolivia , Bosnia & Herzegovina ,Botswana , Brazil , Brunei , Bulgaria , Burkina
Faso , Burundi ,

Cambodia , Cameroon , Canada ,(Canary Islands) , Cape Verde , Central African

Republic , Chad , Chile , China , Colombia ,Comoros , Congo Brazzaville , Congo
Democratic Republic , Costa Rica , Cote d'Ivoire , Croatia ,Cuba , Cyprus , (Cyprus
North) , Czech Republic ,

Denmark , Djibouti , Dominica , Dominican Republic ,

East Timor , Ecuador , Egypt , El Salvador , Equatorial Guinea ,

Eritrea , Estonia, Ethiopia,

(Faroe Islands) , Fiji , Finland , France , (French Guiana) ,

Gabon , Gambia , (Gaza Strip) , Georgia , Germany , Ghana , (Gibraltar) , (Golan

Heights) , Greece , Grenada , (Guam) ,Guatemala , (Guernsey) , Guinea , Guinea
Bissau , Guyana ,

Haiti , Honduras , Hungary ,

Iceland, India , Indonesia , Iran , Iraq , Irish Republic , (Isle Of Man) ,

Israel , Italy ,

Jamaica , Japan,(Jersey) , Jordan ,

Kazakhstan , Kenya , Kiribati , Korea South , Korea

North , (Kosovo) , Kuwait, Kyrgyzstan ,
Laos , Latvia , Lebanon , Lesotho , Liberia , Libya , Liechtenstein , Lithuania ,Luxembou
rg ,
Macedonia (FYROM) ,
Madagascar , Malawi , Malaysia , Maldives , Mali , Malta ,Marshall
Islands , Mauritania , Mauritius , Mexico , Micronesia , Moldova , Monaco , Mongolia ,
Montenegro , Morocco , Mozambique , Myanmar (Burma) ,

Namibia , Nauru , Nepal ,Netherlands , New

Zealand , Nicaragua , Niger , Nigeria , Norway ,

Oman ,

Pakistan , Palau ,Panama , Papua New

Guinea , Paraguay , Peru , Philippines , Poland , Portugal , (Puerto Rico) ,

Qatar ,

(Reunion Island) , Romania , Russia , Rwanda , Samoa , San Marino , Sao Tome &
Principe ,

Saudi Arabia , Senegal , Serbia (Yugoslavia) , Seychelles , Sierra

Leone , Singapore ,Slovakia , Slovenia , Solomon Islands , Somalia (Somaliland) , South
Africa , Spain , (Spanish North Africa) , Sri Lanka , St Kitts & Nevis , St Lucia , St
Vincents , Sudan , Suriname ,Swaziland , Sweden , Switzerland , Syria ,
(Taiwan) ,

Tajikistan , Tanzania , Thailand , Togo ,Tonga , Trinidad &

Tobago , Tunisia , Turkey , Turkmenistan , Tuvalu ,

Uganda ,
Ukraine ,United Arab Emirates , United Kingdom , United States Of
America , Uruguay , Uzbekistan ,

Vanuatu , Vatican City , Venezuela , Vietnam ,

(West Bank) , (Western Sahara) ,

Yemen, Zambia, Zimbabwe .

• Harley-Davidson is one of the most admired and recognized companies in the world
• Academy of Motorcycling for those interested in learning to ride a motorcycle.
• “Riders-Edge” the motorcycling academy of Harley-Davidson introduced more than
1000 aspiring motorcyclists to the sport in 2000.
• Average purchaser of a U.S Harley-Davidson motorcycle is a married male in his mid-
• Average purchasers of a U.S Harley-Davidson have a household income of $78,600.
• Over two thirds of the sales of Harley-Davidson motorcycles are to buyers with at least
one year of education beyond high school.
• 30% of the Harley-Davidson buyers have college degrees.
• Only about 9% of Harley-Davidson U.S retail motorcycles are to women.
• Confidence in economy is directly proportional to the purchasing of consumer items.
• Repeat business is strong as about 42% of motorcycle purchasers have owned a Harley-
Davidson previously.
• U.S Government and People are considering Harley-Davidson as an American icon.
• Opportunities in emerging economies [India, China] but uncertain operating situations.
• A new assembly facility opens in Manaus, Brazil, the first operations outside of the U.S,
reduces taxes, make them more affordable to a larger group of Brazilian customers.
• Harley-Davidson is one of the main manufacturer and user of V-ENGINE configuration.
• Harley-Davidson’s have a wide variety of products according to Standard, Performance,
Touring & custom.
• Harley-Davidson is facing some legal problems in Asian countries, in India there
is 60% tariff and various other taxes will cause the price of the bike to double.
• Noise pollution and some emission standards of Harley-Davidson bike is not up to
the level of some countries across the globe.
Five Forces

 Internal Rivalry.
• Four major competitors are mainly concentrated on these heavyweight motorcycle
segments: in addition to Harley-Davidson the other three are Yamaha, Suzuki,
Honda all are Japanese companies.
• Some of the major competitors of Harley-Davidson have larger financial and
marketing resources and are more diversified (Example: Yamaha, half of its
revenue is only from motorcycles).
• Polaris (American snowmobile/ATV manufacturer) producer of “Victory”
motorcycles priced its motorcycles below the Harley-Davidson motorcycles.
• Strategic alliance between Suzuki and Kawazaki in the areas of product
development, design, engineering, and manufacturing of motorcycles, this
alliance strengthened both companies’ global motorcycle businesses.
• Honda, the main competitor of Harley-Davidson in U.S eat up some market share
of Harley-Davidson.
 Potential entrants
• Entry barrier is very high is this segment, because this segment needs a lot of
capital investment and the industry is on a maturity stage, so that there is only
four main competitors.
• The economies of scale are low in this segment, which is the reason why there are
only four major players.
• There is some small scale producers, who are making these custom made motor
cycles but the amount of their production is not at all a threat for Harley-
Davidson, and they are increasing the interest of motorcycles among the general
 Substitute products
• Harley-Davidson motorcycles are a luxury vehicle, so that there is only a few
close substitutes for heavy weight motorcycles that could seriously affect the
• Passenger cars, sports bikes, scooter bikes are the main substitutes of Harley-
Davidson motorcycles.
• The people who are thinking of buying a heavy weight motorcycle are not
seriously considering one of these options, scooter, sports bike.
• In India Enfield can pose as a small substitute.
 Power of suppliers
• Steel, basic electrical equipments and shipping of final motorcycles are the main
things Harley-Davidson seeks from suppliers.
• Harley-Davidson has a wide span of suppliers, so that if one supplier attempted to
increase the price, they can easily switch to the alternate suppliers without any
problem in production..

 Power of Customers
• Consumers of Harley-Davidson motorcycles are individual customers, so that
they can’t seriously affect Harley’s financial position.
• The numbers of dealers around the globe are also less and they are also dependent
to the individual customers, that can’t affect Harley-Davidson’s financial position.

 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 increasing becoming interested in bikes
 The international heavy weight market is growing and is now larger than the U. S.
heavyweight market
 Market share increasing in Europe and Asia for the last two years
 Increasing demand in US markets for bikes
 Customers value quality parts

 Net income of 2003 was $760mn, its more than 30% as

compared to the previous year 2002.
 The standard and performance segments of Harley Davidson
make up 70% of the European heavy weight motorcycle market
 Harley-Davidson operates in two segments: Harley-Davidson
motorcycles & related products and HDFS (Harley-Davidson
Financial Services).
 Harley-Davidson is the only major American heavyweight
motorcycle manufacturer.
 Strong brand name.
 The HOG (Harley Owners Group), which have a 7,50,000
members world wide is the industry’s largest company
sponsored motorcycle enthusiast organization.
 Buell Riders Adventure Group (BRAG) was also formed recent
 Customization of the bikes, this is Harley-Davidson’s major
revenue maker.
 Harley-Davidson have a good marketing division and its divided
as dealer promotions, customer events, magazine and direct-
mail advertising, and public relations.
 High price
 Harley-Davidson has problems in gaining more market share in
some European countries (That’s one of the main markets for
Heavyweight motorcycles outside U.S).
 They didn’t yet start its sales in India, one of the biggest
 Required production is not met, analyzing the future of
Heavyweight motorcycle market


Net income of 2003 was $760mn, its more
than 30% as compared to the previous
year 2002 0.15 3 0.45
The standard and performance segments
of Harley Davidson make up 70% of the
European heavy weight motorcycle market 0.09 3 0.27
Harley-Davidson operates in two segments:
Harley-Davidson motorcycles & related
products and HDFS (Harley-Davidson
Financial Services) 0.025 4 0.1
Harley-Davidson is the only major
American heavyweight motorcycle
manufacturer 0.1 4 0.4
Strong brand name 0.15 4 0.6
The HOG (Harley Owners Group), which
have a 7,50,000 members world wide is
the industry’s largest company sponsored
motorcycle enthusiast organization 0.05 2 0.1

Buell Riders Adventure Group (BRAG) was

also formed recent 0.025 2 0.05
Customization of the bikes, this is Harley-
Davidson’s major revenue maker 0.025 3 0.075
Harley-Davidson have a good marketing
division and its divided as dealer
promotions, customer events, magazine
and direct-mail advertising, and public
relations 0.025 2 0.05
High price 0.15 2 0.3
Harley-Davidson has problems in gaining
more market share in some European
countries (That’s one of the main markets
for Heavyweight motorcycles outside U.S). 0.06 3 0.18
They didn’t yet start its sales in India, one
of the biggest markets 0.1 3 0.3
Required production is not met, analyzing
the future of Heavyweight motorcycle
market 0.05 4 0.2
TOTAL 1 3.075




SPACE Matrix
Financial Strength (FS) Stability (ES)
Return on Investment 2 Technological changes -2
Leverage 3 Rate of Inflation -3
Liquidity 4 Demand variability -6
2 Price range of
Working Capital competing products -2
5 Barriers to entry into
Cash Flow market -6
Inventory Turnover 3 Competitive pressure -4
3 Ease of exit from
Earnings per Share market -3
2 Price elasticity of
Price Earnings Ratio demand -2
Risk involved in
business -2
Total 24 Total -30
Industry Strength
Competitive Advantage (CA) (IS)
Market share -1 Growth potential 3
Product quality -1 Financial stability 3
-3 Technological know
Product life cycle how 5
Customer Loyalty -1 Resource utilization 4
-4 Ease of entry into
Competition's capacity utilization market 6
-1 Productivity, capacity
Technological know-how utilization 4
Control over suppliers & -2
Total -13 Total 25
Average value for FS = 3
Average value for CA = -1.85
Average value for IS = 4.17
Average value for ES = -3.33

Point on X axis = (-1.85+4.17)/2 = 1.16

Point on Y axis = (3-3.33)/2 = -0.165



 Get some more market share from the existing market, like U.S, U.K, and Japan
etc through more marketing techniques like advertising. Harley-Davidson has a
good brand name so it’s easy for them to eat up the competitor market share if
they can provide some more customer benefit.
 Competition is high in this segment mostly in U.S so market penetration can be a
good choice for the company.
 Expand the HOG (Harley Owners Group) to Asian countries, if the company can
provide the customer satisfaction that they are providing to the U.S customers to
the Asian customers they can increase the sales.
 Younger generation and female are now coming to this segment so expand the
motor cycle segments to younger generation and females.
 In Europe they can increase or expand the Buell’s market share by introducing
new motorcycles.
 Harley-Davidson can bring in their vehicle to Asian countries like India and
China, because these countries have a high population and the market potential is
also high.
 The cost to bring in the old vehicles (old product) to India is so much difficult
because there are so much environmental laws are there which won’t allow that
type of vehicles to come to India, and its difficult that taxes and levis are high in
India so starting new plant in India can solve this problem. Negotiations with the
Government can solve these problems.
 Bring in new vehicles to new markets like India and China is a good choice, but
it’s too costly.
 Bringing new types of recreational vehicles is a best choice.

 Expand European and Asian market.
 Increase the sales of Buell sport bike and Harley-Davidson to younger customers
and females.
 Horizontal diversification: acquires or develops new products that could appeal to
its current customer groups even though those new products may be
technologically unrelated to the existing product lines.
 Concentric diversification: Bring in new recreational vehicles.
 Once again prepare all the internal and external analysis (eg: EFE & IFE)
 Compare the already prepared analysis with the one which will be prepared after
the new strategy implementation.
 Analyze all financial ratios (current and the future).
 If any advantage, then implement the new strategy, otherwise continue with the
present one.
20 Culminations

Harley-Davidson, Inc. operates in two segments: the Motorcycles & Related Products
segment and the Financial Services segment. The Motorcycles & Related Products
(Motorcycles) segment includes the group of companies doing business as Harley-
Davidson Motor Company (Motor Company) and the group of companies doing business
as Buell Motorcycle Company (Buell).
The Motorcycles segment designs, manufactures and sells at wholesale
primarily heavyweight (engine displacement of 651+cc) touring, custom and performance
motorcycles, as well as a line of motorcycle parts, accessories, general merchandise and
related services.
The Financial Services (Financial Services) segment includes the group of
companies doing business as Harley-Davidson Financial Services (HDFS). HDFS
provides wholesale and retail financing and insurance and insurance-related programs
primarily to Harley-Davidson and Buell dealers and their retail customers. HDFS
conducts business in the United States, Canada and Europe.
Aruvian Research presents Analysis of Harley Davidson Inc. A complete
and comprehensive analysis of Harley Davidson includes an overview of the industry the
company operates in, a PEST Framework Analysis of the industry, and then moves on to
analyzing the company itself.
Company analysis from Aruvian includes a history of Harley
Davidson, a business segment analysis of the segments Harley Davidson operates
through, a look at the organization structure of the company, a geographical operating
segments analysis, an analysis of the company’s major competitors.
A financial analysis of Harley Davidson is presented in the report
which includes a ratio analysis, basic profit and loss analysis, presentation of the
company balance sheet, and much more.
A SWOT Framework Analysis of Harley Davidson completes this in-depth
company analysis.
21. References

• Bach, Sharon, & Ostermann, Ken, eds. 1993. The Legend Begins: Harley-
Davidson Motorcycles, 1903–1969 (Harley-Davidson, Inc.)
• Strategic Management Concepts and Cases; Fred R. David, 10th & 12th Edition.
• Mitchel, D. (1997). Harley-Davidson Chronicle - An American Original.
Publications International Limited. ISBN 0-7853-2514-X.
• Wagner, Herbert, 2003. At the Creation: Myth, Reality, and the Origin of the
Harley-Davidson Motorcycle, 1901–1909 (Wisconsin Historical Society Press)
• Wilson, H. "The Encyclopedia of the Motorcycle" Dorling-Kindersley Limited,
1995 ISBN 0 7513 0206 6



External links

• Official Harley-Davidson Inc. Corporate website