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Report on Harley Davidson

27 Feb 2017Other Essays

Question 1

The similarities and differences for U.S. and Asian Motorcycle and Car Manufacturers are discussed below.

SIMILARITIES

For U.S. Manufacturers, the following are the similarities between the evolution of the U.S. Motorcycle business and the U.S. Car business:U.S. manufacturers of both motorcycles and cars have enjoyed an initial success as pioneers in this business. They have also had the advantage of having a larger market.These manufacturing industry in the U.S. for both motorcycles and cars are characterized by a few heavy weights.For the car industry, it is the Big 3 comprising GM, Ford and Chrysler, while in the motor cycle industry it is Harley Davidson and India.U.S. motorcycle and car manufacturers tend to go public to raise funds.The management teams of U.S. motorcycle and car manufacturers tend to be top heavy. In fact, Harley Davidson had to cut the positions of SVP Marketing and Operations in order to remove this problem.U.S. motorcycle and car manufacturers tend to have loyalty from baby boomers (who have higher incomes). They form a strong link with the older generation but have had some trouble with winning over the younger generation.

For Asian Manufacturers, the following are the similarities between the evolution of the U.S. Motorcycle business and the U.S. Car business:

Asian motorcycle and car manufacturers first achieve success in their countries and then move into the U.S. Market to look for a larger market for their products.They initially had problems getting into the U.S. market because of protectionalism.For example, Harley Davidson requested and got tariff protection from the U.S. government. It got a five-year, self-liquidating tariff by then U.S. President Ronald Reagan.The Asian Manufacturers had lower priced products so they were able to break into the U.S. market. They targeted a younger customer base with less disposable income.For example, the Honda motorcycle moved into Harley Davidson’s market by appealing to a lower priced market and by 1965, they had a 50% share of the market. After this other Japanese firms like Yamaha, Suzuki and Kawasaki.In addition, they also had good quality products. Examples are the Toyota and Honda cars and later on the Hyundai.

Funding for Asian motorcycle and car manufacturers is usually through conglomerates. These create a long-term profit orientation. The Japanese firms got internally generated funds from Keiretsu banks and the Korean companies got their funding from Chaebols. A chaebol is a conglomerate of many companies clustered around one holding company.Due to the fact that Asian motorcycle and car manufacturers have better manufacturing practices which include low inventory and just-in-time (JIT) systems.The Asian motorcycle and car manufacturers were efficient at mass production, constant improvement and redesigned their products to counter potential market threats.

DIFFERENCES

For U.S. Manufacturers, the following are the differences between the evolution of the U.S. Motorcycle business and the U.S. Car business:U.S. Motorcycle manufacturers were able to get tariff protection from the U.S. government. The car manufacturers were not.Today, U.S. Motorcycle manufacturers have been able to bounce back from the problems they had.For example between 1970 and 1980, Harley Davidson’s share declined by over 80% but by 1987, with changes to the manufacturing process, Harley Davidson was able to increase U.S. revenues by over 80%.This is not the case with U.S. car manufacturers who are facing great onslaught from Asian car manufacturers like Toyota and Honda. The “Big 3”; Ford, Chrysler and GM, are facing stiff competition from Asian car manufacturers.U.S. motorcycle manufacturers have user groups like enthusiasts and social groups. In fact, the company-sponsored Harleys Owners Group has 886,000 members. U.S. car manufacturers do not.For Asian Manufacturers, the following are the differences between the evolution of the U.S. Motorcycle business and the U.S. Car business:

For Asian motorcycle manufacturers, the discovery of the untapped customer base in U.S. Motorcycle business was by mistake. It was an accidentally discovered by Honda in 1959. This customer base consisted of older males and younger women. They focused on smaller, faster, quieter and less expensive motorcycles. Other Japanese firms like Yamaha, Suzuki and Kawasaki soon followed.On the other hand, for Asian car manufacturers like Hyundai, the entry to the market is planned. Once they reach the required economies of scale to compete with the rest of the world, they plan their entry into the U.S. market.Younger Americans are the target base for Asian motorcycle manufacturers with the light sport bikes offered by Suzuki, Honda, Yamaha and Kawasaki.For Asian car manufacturers, the appeal is global. Asian cars appeal to all ages and all earning classes.The packaging strategy used by Asian motorcycle manufacturers is different from the one that Asian car manufacturers had used.The strategy of “packaging” optional features as standard had worked for Asian car manufacturers when they competed against the Big-3 and German cars. It was also called “value pricing” and competed against an existing market.For Asian motorcar manufacturers the strategy used is different. It is that of creating a new market. That was the market of faster, quieter, less expensive motorcycles.

Question 2

The main similarities and differences between the ups and downs of Harley Davidson and Hyundai

SIMILARITIES

Harley Davidson and Hyundai are similar in that they are both market leaders in their industries and countries. HMC is the largest automobile company in Korea. Harley Davidson is a market leader in the U.S. heavyweight motorcycle industry.
They both went through tumultuous events. Harley Davidson almost went bankrupt in 1970 and Hyundai had a 30.66% decline in sales in 1989, profits plummeted and a number of showcase dealerships were closed.
They had both experiences difficulty in getting funding. When Hyundai had a 30.66% decline in sales in 1989, they had difficulty in finding lenders. In 1965, Harley Davidson was unable to get any more capital from private investors so it went public.
They both introduced process improvements. At Harley Davidson, it was the productivity triad which involved employee involvement, use of JIT inventory practices and statistical operator control (SOC).

DIFFERENCES

Hyundai was able to bounce back fairly quickly and was able to maintain the momentum. It did this by bringing up its quality and publicizing these improvements so that the public was aware. The company launched a campaign to get auto mass media to publicize Hyundai’s high test scores for content and performance. They also included a 10-year warranty.

Harley Davidson is still in the process of getting back on stream because sales is beginning to slow down.

Funding for Hyundia was from a chaebol (a conglomerate of many companies clustered around one holding company) while for Harley Davidson, it was through an IPO and then from being acquired by AMF.

Question 3

Opinion on strategic decisions taken by Harley Davidson
The strategic decision to appeal to the younger and hip generation by introducing the V-Rod is one I agree with. I would only suggest a lower price than the $17,000 it is being sold for if it competing in a market where Suzuki sport bikes are sold for under $10,000.

The Asian Motorcycle manufacturers have been able to capture this market and Harley Davidson needs to target this market segment. However, there is the risk of alienating current customers. This is a calculated risk because of the aging majority of Harley’s customer base.

The lower priced sportster is obviously fairly successful. It targets women riders who have grown from 2% of Harley sales 10 years earlier to 10% in 2004.

I also support the decision for the rental program because it seems to have been successful with 224,134 rentals in 2004. Even though they are not able to provide precise figures, industry analysts believe this has helped Harley sales.

The “educate the customers” route taken through the Riders Edge program is not in itself a financial success. But the sales it spurs are widely successful. A dealer who barely broke even from the program recorded a whopping $4.5 million in sales from people who took the class. This is a very good strategy.

Question 4

Opinion on strategic decisions taken by Harley Davidson
Harley Davidson should be able to meet its long term goal of selling 400,000 motorcycles by 2007 if it focuses on the sportster which is quite popular. It should also continue with the Riders Edge program because the best way to grow a market or create a new market is to invest in educating the market.
Growth in the mid teens might not be achievable because global demand grows at an average rate of 7% to 9% per year. In 2004 it was 7%
That is (900-840)/840
(see Exhibit 1. Grew from 840,000 members in 2003 to 900,000 in 2004)

In 2005 at 9%, that is less than 8% growth in 2005. In 2006, growth rate is expected to be around 9% and in 2007 around 10%. This does not meet the target of mid teens unless something revolutionary happens.

The V Rod is in the performance segment of the industry and has not been very successful so far so I do not expect it to make greater inroads in attracting young riders and woman riders. The price needs to be revised and the new cooling technology.

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