Case 7- Harley-Davidson, Inc. in 2018 Review

Harley-Davidson, Inc. was far from being the world’s biggest motorcycle manufacturer. In 2017, it sold 241,498 bikes; Honda sold 11.2 million. In relation to the world market for motorcycles of about 132 million bikes—of which Asia accounted for over 80%— Harley’s market share was about 0.25%.

Yet, Harley-Davidson was also one of the world’s most famous motorcycle companies. On Interbrand’s ranking of the world’s most valuable brands, it placed #77 in 2017 with a brand value of $5.7 billion. In 2018, the company would celebrate its 115th birthday. On Labor Day weekend, tens of thousands of Harley riders would descend on Milwaukee WI for five days of festivities. As one enthusiast explained: “It ain’t a motorcycle—It’s a way of life!”

Harley-Davidson was also the world’s most financially successful motorcycle company.

Since its listing on the NYSE in 1986, its revenues had grown 11-fold, it had earned an average return on equity of 27%, and average annual return to shareholders was 12.8%.

However, since 2008, Harley had experienced headwinds. The financial crisis of 2008–9 had hit it hard and, despite a strong recovery, sales revenues and profits had declined after 2014. The decline in sales continued in 2018 exacerbated by the trade war initiated by the Trump administration. The European Union had targeted HarleyDavidson with 25% additional tariff on imports of US-made motorcycles. However, CEO Matt Levatich’s biggest concern was the longer term outlook for the market for its bikes.

Was America’s long-running love affair with Harley-Davidson’s heavyweight motorcycles cooling? And, if it was, would international markets take up the slack? These concerns were fueled by demographic trends. Harley’s core market was the baby-boomer generation—and this cohort was moving toward retirement homes rather than outdoor sports. Would the next cohorts—Generation X, Y, and the millennials—have the same affinity for the motorcycles and the cultural values that Harley-Davidson represented? The evidence pointed to worrying problems for the entire US motorcycle market. Among the youngest age group—the under-18s—motorcycle ownership was declining sharply.