Who’s the fool?The recent piece written by Rich Duprey, published in December by investor analysis website the ‘Motley Fool’, exposes a commonplace Achilles heel of Wall Street, namely the disconnect between investor perspective and the real world of real people consuming real products in real markets. That disconnect is between “Wall Street and Main Street” as one industry insider put it to me recently.
The purpose of investment used to be to generate investment capital and profits to fund more profits and investment capital in a virtuous upward cycle of increased, profitable, business activity -the making, selling and buying of product in a cycle that drives profitable productivity and growth.
It would appear now that the short-term focus on dividend (“share holder value”) requires analysts to cut themselves off from the realities of the business that the businesses they invest in actually trade in, the realities of the markets those businesses trade in, and the realities of the tastes, demands and expectations that consumers have of the businesses they buy from.
Investing money in money is not the same as investing money in metal or any other material that consumer goods are made from.
The piece in question, one that was rather unfortunately given inappropriate extra currency by certain motorcycle blogs, was one that called into question the suitability of Harley-Davidson’s current senior management - “Does Harley-Davidson Need a New CEO and Board?”
‘it would be nuts to rock that boat’
Now, personally, I have been eying the evolution of the composition of Harley’s board in recent years with some scepticism. Outside experience and skill sets are indeed vital, but it does seem to me that Harley may have failed to balance that against the need for the board of directors of a manufacturing company to be able to make business judgements in a manufacturing and engineering context; specifically, in a motorcycle industry context.
Business acumen and experience from other sectors must be balanced with manufacturing and engineering knowledge and experience.
The present composition of Harley’s board may well have imbalance in that important respect. But to suggest, as the ‘Motley Fool’ piece does, that the route to dealing with this imbalance might be to replace what, as far as I am aware, is the one and only remaining board member with motorcycle industry experience in general, and experience of dealing with the specific issues that have faced the Motor Company in the past decade, strikes me as entirely inappropriate and contradictory.
The only way Harley has of rebuilding its market position is to design, engineer and productionize its way out of a hole that isn’t entirely of its own making.
What Matt Levatich likely needs is more motorcycle industry experience to draw on, not less; more engineering and production gravitas to lean on, not less; access to more investment, not less. Harley-Davidson needs a new CEO as much as it needs a hole in the ground.
It is always high-risk to go out on a limb about Harley’s business prospects some four weeks or so before the company is due to release its annual results, but as I said last month, and have alluded to several times the past few months, now is not the time to blink.
I do believe that Harley is headed for stability at worst, even if the number of sales available to it aren’t poised for actual unit growth for some time yet - maybe another 24 months.
If, as I hope, “Stable is the new Growth” in 2018 then expect to see Harley’s share of the available market continue to grow, even if only slightly, as the 2018 Softails start to reignite sales is a balance sheet area that had trailed behind the M-8 (and even Rockwell) Touring models, and behind the more assured evolution of the Sportster offer than the results of the past five years might suggest.
Price-point will remain Harley’s own Achilles heel of course, as it does for almost every American manufacturer, but in terms of a design and handling offer that can effectively speak to the riding and ownership expectations of new consumer generations and demographics there is no question that Harley is in a much better place than it was even just five years ago.
To replace the CEO that has brought the horse so close to the water before the company really gets a chance to drink would be foolhardy indeed.
As Matt Levatich said nearly a year ago, following the successful launch of the M-8 Touring models, “we haven’t seen anything yet”. While, at that stage, such optimism felt more like wishful thinking than reality, having overseen such a successful reimagining of its cruisers I for one think it would simply be nuts to rock that particular boat at this stage.
I regularly hear informal, thinly veiled hints from vendors who are already prototyping for additional new models and, hopefully, platforms. Such individuals are generally speaking not easily impressed and not given to looking at OE product direction through rose tinted glasses. The kind of individuals I am talking about are hard-nosed, hardcore Tier Ones who supply a wide range of OEs - so they are in a position to judge, and to be impressed, or not.
If you dig deep enough in to Harley’s own numbers for the first three quarters of 2017, and scratch the surface of the MIC’s industry stats for 2017 to date, there is enough to suggest that, at worst, the rate of decline in new unit sales is slowing, and that the “cruiser space” (to go vernacular on you for a moment!) is not exactly the worst place to be.
If the slowdown in decline does pick up demonstrable momentum, there is still no telling when the bottom of what is likely to be a broad U-curve will be reached, but “flat” is good. “Flat” is a foundation, a platform from which to build sales and if, as appears possible, custom style bikes and cruisers were to get there first, then they will be the sector that grows first too and that, ultimately, is likely to grow fastest as well.