Abogado

Strategic Report for Harley Davidson

Mark Melief Tycen Bundgaard Jordan Hathaway April 4, 2006

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Table of Contents
Executive Summary ………………………………………………………… 3 Company History ……………………………………………………………. 4 Five Forces Analysis Internal Rivalry ………………………………………………………. 8 Entry …………………………………………………………………….. 9 Substitutes and Complements …………………………………. 9 Supplier and Buyer Power ……………………………………….10 Financial Analysis ………………………………………………………….. 11 Strategic Issues and Recommendations ………………………….. 17

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Executive Summary
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 areprimarily 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 pricehas 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 resultsthat 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 underpromising 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 3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 today.

Company History
In 1903 William Harley and Arthur Davidson made the first Harley-Davidson motorcycle available to the public. It was built in a small wooden shed with the words “Harley-Davidson Motor Company” scrawledon the door. The next year, in 1904, C.H. Lang opened the first Harley-Davidson dealership in Chicago, selling one of the first 3 Harley’s ever made. In 1906 the company opened a new factory, measuring only 28x80 feet in Milwaukee, Wisconsin. The next year, in 1907 the company doubled its factory space. Also in 1907 the Harley Davidson Motor Company was incorporated, with the stock being splitbetween the 4 owners, including William and Walter Davidson (Arthur’s brothers). By 1920 Harley Davidson is recognized as the largest motorcycle manufacturer in the world, supported by over 2,000 dealers in 67 countries. In 1953, one of Harley Davidson’s competitors, Hendee Manufacturing (makers of the Indian motorcycle line), goes out of business. For the next 46 years Harley Davidson is the onlyAmerican manufacturer of heavyweight motorcycles.

In 1912 Harley Davidson built a six story building on Juneau Avenue in downtown Milwaukee, Wisconsin. This building would become the main offices and factory for Harley Davidson. In 1947, to supplement existing manufacturing facilities Harley Davidson purchased the old A.O. Propeller plant, which the company subsequent converted from wartime...