topbanner ad

Tuesday, 27 October 2015

Comment by Editor-in-Chief, Robin Bradley

Do five key objectives and four investment "Focus areas" mean three steps from oblivion?

I've been scrutinizing and writing-up Harley's quarterly fiscal releases for nearly 25 years now, and Keith Wandell's dramatic post Lehman apocalypse measures aside, I cannot ever recall reading anything as close to blind panic in my life.

Harley's five key objectives wish-list sounds like the ubiquitous Miss World hopeful declaring that she'll work hard to bring about world peace and irrigate the Sahara, and their "four primary areas" for emergency investment sound like someone is recycling a chapter called "The Blindingly Obvious" from MBA 101 for dummies.

Actually, that's harsh. On closer reading, are they not also from a Miss World speech? Or is that a recycling of a boy scout’s "I promise to be good and do good" mantra?

Either way, apart from one passing reference to now being the time to "dial things up" with "significant additional investments (in marketing and) product development," there is no acknowledgement that Harley's day job is supposed to be shaping metal, and if they haven't already been going as full-bore as they can on investments in product development, then sitting on their hands aside, just exactly what have they been doing?

Their MY 2015 "initiatives" are lame. The groundwork for them will have been done at least 18 months ago, so unless Harley's skunk-works is about to spew forth a stream of mid-cycle new products, and this time ones that riders actually either can or will want to buy, then the time-lag their share holders are looking at before their earnings per share start heading in the right direction again is way outside the notoriously short-term tolerances of 21st century investors.

Polaris is agile and adept
Buried in the implications of the plans is the fact that much of the additional budget for these increases in investment are going to be funded by cutting back the payroll, and I guess that having already loaded the balance sheet with debt for the continuing share repurchase programs, they have no choice.

The smoke and mirrors of reducing production in-line with the level of demand they are currently generating will, in the short-term, allow them to bring down head-count. But isn't the "objective" (actually, objective # 3) to grow sales?

Making more from and with less is indeed a worthy and commendable triumph of business excellence. But what Harley is doing feels much more like a response to the pressure on margins than a convincing plan to shape more metal and sell more motorcycles.

The plan to "increase product" is also going to require more metal-shapers, not fewer; but first and foremost it is going to require more product. Harley-Davidson - where's the beef?

Platitudes such as "increasing brand awareness," "growing ridership in the US," “increasing and enhancing brand access" and "accelerating the cadence and impact of new products" (?) may sound convincing to social marketeers whose acquaintance with the real world of selling is fleeting at best, but rather than being focussed on "cadencing the impact" of new products, Harley should be focussed first of all on designing and making some. Then they can worry about how quickly they can sell them; THAT is the message that they need to be sending to their dealers and investors - that they are focussed on their day-job, not on their résumés.

In order to make new sales you have to first have something new to sell.

Levatich appears to be caught in the headlights. By all accounts he is an excellent candidate to be leading Harley to its post-Wandell destiny, and when it comes to résumés, his is almost a perfect fit for the task.

But it is as if he's inherited an inertia which is now going to take tremendous effort to overcome. It feels akin to watching someone trying to kick-start an aircraft carrier so it can do a three-point turn in a swimming pool!

Surely Project Rushmore was supposed to be the start of a program of a brave new future, not the total sum contents of the weapons locker?

Regardless of whether Buell and/or MV Agusta were the right solutions (bearing in mind Harley had previously tried to buy KTM, Ducati and others), Harley has left itself vulnerable and exposed by not already having diversified.

Harley's toe in the water of the muscle-bike/streetfighter market has disappointed - the V-Rod looks like a product headed for the end of its life cycle rather than a platform on which new sales can be built; and as thirty, forty and fifty somethings either head off-piste or downtown into the concrete jungle of riding urban warfare, where is the Harley-badged adventure tour platform to take them there?

Even with Project LiveWire, Harley is being naive - there is no new battery chemistry magic wand headed down the pike; e-power is what it is - make the best you can of what is available now and get the bike into production and into showrooms with "cadence" rather than ambivalence.

Last year saw some 25,000 e-bikes sold in Europe alone. That is a market that will wait for no brand…and Polaris know that.

With the Dynas also looking increasingly like Harley regard them as their red-headed step child, and dealers finding Softails and Sportsters ever increasingly hard to shift, the impasse betrayed by the playbook response to their present travails will not go unnoticed by portfolio investors and dealers who are spoilt for choice.

The "heightened competitive environment" will not only continue for the foreseeable future, it is the new reality of the landscape in which Harley has to trade, and it has singularly failed in its response so far.