Harley-Davidson - True Determination

Harley-Davidson - True Determination

It's been said, "It's one thing to buy a product, and it's another to tattoo it on your body."

You won't find too many people in the 40 to 50 year old bracket that won't be able to tell you a story about owning, riding, or working on a Harley-Davidson. When they tell you the story, watch them closely--their eyes will look off into the distance and their voices will get low. You will know they are going back to a time that they miss.

Hard to believe that in 1903 Harley-Davidson produced only three motorcycles. In 2005 Harley-Davidson ships to over 60 countries worldwide. This is one of the biggest success stories ever told in spite of over coming the "bad boy" image, attempted hostile take overs, foreign competition, high metal prices, and a total management overhaul. "Harley-Davidson tuned around by selling not just motorcycles, but nostalgia." [Bateman, 568]

A brief history of Harley Davidson is necessary for you to understand a true American rags-to-riches story.

In 1901 at the young age of 21, William S. Harley completed a blueprint drawing of an engine designed to fit into a bicycle. Two years later Harley and 20-year old Arthur Davidson made public the first production Harley-Davidson motorcycle. Their factory was a 10 x 15-foot wooden shed with the words "Harley-Davidson Motor Company" crudely scrawled on the door. Arthur's brother Walter later came on board and joined the company. Today the company employs 9,580 and is a Fortune 500 company (#368). In 2002 Harley Davidson was considered the #1 stock to own.

Later that year C.H. Lang of Chicago, IL became the first Harley Davidson dealer and sold one of the first three production Harley Davidsons ever made. Today there are 1,300 dealers fulfilling the dreams of their loyal customers. HD protects its dealers by licensing all of its products and allowing dealers their own territories. There are no outside sales reps and no overlapping of coverage. If you want a Harley part, you can only get it from a Harley dealer. Harley also provides a three-day training program where the dealers can learn how to provide top-notch service, how to plan for ownership succession, or how to do a business simulation.

During World War II, this company devoted the majority of its resources to our military. Harley built 90,000 motorcycles for the United States and our allies.

In 1969 Harley went public but the management team was able to thwart a hostile takeover attempt. In June of 1986 to raise capital Harley decided to make another public offering that was more than successful than anyone had imagined. This included the investment community.

In September 2002 a new 32,000 square foot European headquarters in Oxford, England was completed to better support the customers, dealers and distributors and streamline day-to-day operations.

HD states that it has two main objectives: "to grow the company's value and to strengthen their brand. They will continue to meet those objectives with an aggressive marketing and product development strategy to create sustainable demand, a program of steady capacity growth to increase supply, and a team of strong management and empowered employees committed to building all facets of their business."

The purpose of this paper is to assess the international motorcycle market and determine the strategic plan that Harley Davidson, Inc., has implemented that will enable Harley to match its competitors and gain market share from them. Even with increased output, Harley continues to leave disappointed customers. At the present time Harley Davidson is unable to meet the demand for its products and is failing to succeed in the foreign market. This imbalance between supply and demand has created a black market. Bikes are being sold for more than the retail price, positions on waiting lists are sold and Harley is unable to go after growth opportunities in the foreign market.

"Harley Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company, Buell Motorcycle Company, and Harley-Davidson Financial Services. Harley-Davidson Motor Company produces heavyweight, custom and touring motorcycles and offers a complete line of motorcycle parts, accessories, apparel and general merchandise."

There are five major motorcycle manufacturers in the world. They are: one American Harley Davidson, and four Japanese Honda, Yamaha, Kawasaki, and Suzuki. There are some European companies, mainly BMW of Germany that Harley considers competition. All of these companies market their motorcycles and their accessories on a worldwide basis, "handling international trade through foreign distributors and domestic sales through franchised outlets."

Harley Davidson, Inc. is "exposed to market risk from changes in foreign exchange rates and interest rates. To reduce such risks, the Company selectively uses derivative financial instruments. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for trading purposes. Sensitivity analysis is used to manage and monitor foreign exchange and interest rate risk."

"The Company sells its products internationally and in most markets those sales are made in the foreign country's local currency. As a result, the Company's earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign currency. The Company utilizes foreign currency contracts to mitigate the effect of these fluctuations on earnings. The foreign currency contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for US dollars at

A future date, based on a fixed exchange rate. At December 31, 2004 these contracts represented a combined US dollar equivalent of approximately $284.7 million. The Company estimates that a uniform 10% weakening in the value of the dollar relative to the currency underlying these contracts would result in a decrease in the fair value of the contracts of approximately $31.9 million." [Harley-Davidson Annual Report]

"The Company's exposure to the Japanese yen is substantially offset by the existence of a natural hedge, which is sustained through offsetting yen cash inflows from sales with yen cash outflows for motorcycle component purchases and other operating expenses." "Foreign currency exchange rates had a favorable effect on Harley-Davidson motorcycle revenue of approximately $60 million in 2003, primarily