Economic/Supply of Resources
The motorcycle, motor home, and travel trailer industries are heavily dependent on the supply of component parts and raw materials for their manufacturing operations. For example, Harley Davidson relies on an adequate supply of sheet metal, metal coils, aluminum bars/sheets, plastics, upholstery products, wiring, engine components, and tires, just to name a few, in order to produce its line of heavy weight motorcycles. Currently the outlook for the supply of these resources is good and is expected to remain favorable. Manufacturers are also heavily dependent on the current and projected levels of interest rates and fuel/oil costs. Money and capital financing is available to manufacturers at a reasonable interest rate, and the Fed is currently discussing another interest rate cut (Hardy 76). While gasoline prices are expected to rise modestly, no extraordinary increases are forecasted in the near future (Recreational 39-18). Unemployment is down from 5.6% in 1995 to 5.4% in 1996 and expected to continue falling. This is evident by the abundant supply of labor in all occupational skill levels. The supply of resources within the industry is very good and the future looks promising.
Economic/Competitive Factors
Motorcycle Division
The motorcycle industry is highly competitive, with the top five (Harley, Honda, Suzuki, Yamaha, Kawasaki) motorcycle manufacturers constantly battling for market share. Regional trade agreements/associations have had a profound effect on the increasing globalization of the economy. As barriers to trade continue to come down, manufacturers are forced to focus their efforts to become international competitors, or else risk losing market share. Companies engaged in the manufacture of heavyweight motorcycles have to contend with the increasing competition from the so-called copy-cat manufacturers. Harley Davidson, who is the leader in the heavyweight motorcycle segment, has had to be particularly aware of this increasing threat of competition. Demand for Harleys is so high that the company s manufacturing operations cannot keep up. This has led resourceful entrepreneurs to take advantage of Harley s inability to meet demand by assembling similar bikes using third party after market components (Recreational 39-13). Companies in the industry trying to add capacity by building additional manufacturing facilities face long expansion times, and run the risk of consumers switching to competitors products. In addition, high prices for heavyweight motorcycles are causing some consumers to switch to those competitors who are focused on reducing manufacturing costs and passing these savings along to the consumers.
Transportation Vehicles Division
Competition in the motor home and travel trailer industry is most intense in the U.S. Leaders in this industry are Fleetwood Enterprises, Winnebago Industries, and Coachmen Industries. The dominant factors of competition within this industry tend to be pricing, and innovative design features. Companies who are able to hold down manufacturing and production costs and competitively price their products are able to win additional market share (Encyclopedia 1998 1251,1320). Consumers of motor homes and travel trailers are primarily concerned with design features such as, comfortable living quarters, adequate storage facilities, ease of operations, and fuel efficiency. Top industry competitors are able to offer consumers these appealing options and affordable prices.
Economic/State of Economy
Because motorcycles, motor homes, and travel trailers are considered nonessential items by most buyers, the performance outlook for theses industries are tightly linked to consumer confidence, income growth, and other important overall economic indicators (Recreational 39-18). The trend in consumer s confidence in the economy can best be represented by the following graph:
( Source: ( Leisure-Time L17))
Currently, modest interest rates (Prime charges by banks = 8.44%) and increases in personal income have led to an increase in the overall level of confidence in the economy. Gross domestic product has risen from $7.2 billion in 1995, to $7.7 billion in 1996 (Statistical Abstract 459). However, many consumers spending habits have been restrained by a decreasing sense of job security due to recent corporate downsizing and the need to accumulate savings for retirement ( Leisure -Time L15). This has had only a modest affect on personal expenditures on recreational equipment. The recreational equipment industry continues to enjoy a rising trend in sales from $282 billion in 1990, to $432 billion in 1996. Unemployment in the economy was 5.6% and 5.4% for 1995 and 1996 respectively, and is expected to continue falling (Statistical Abstract 411,465). Analysts predict that inflation adjusted gross domestic will continue to rise year to year, and assuming a modest rise in prices, economic activity is expected to rise by 3.8% in 1996 ( Leisure-Time L15).
Two major factors within the global economy are having a profound effect on manufacturer s ability to boost foreign sales. The first of these factors is the recent trend in developing countries such as, Southeast Asia, who have experienced a surge in technological development and rising income levels. Secondly, trade agreements/associations have led to the establishment of large regional trading blocks, such as NAFTA, that are reducing trade barriers and increasing access to previously untapped markets. These trends are evident of the progressive shift towards a truly global economy, in which the boundaries and lines of business will continue to disappear ( Leisure-Time L15).
Socio-Cultural Factors
During the 1990 s a large portion of the U.S. population entered middle age, and more are expected before the end of the decade. As can be seen from the following graph, adults age 45-64 made up the largest percentage of the population in 1996.
(Source: ( Leisure-Time L-15))
Adults within this age group typically have more money available for discretionary spending. The importance of the observation on the aging population is significant to this analysis, in that these are currently the number one consumers in both the motorcycle and motor home/travel trailer industries. In particular, middle-aged baby boomers have embraced the lifestyle portrayed by owning a heavyweight motorcycle. This is especially true for Harley Davidson customers. Harley Davidson is renowned for selling more than just bikes . They also sell an image and a lifestyle, which portrays the American way of life. The motorcycle industry has coined a phrase for these middle-age motorcycle fanatics, RUBs (Rich Urban Bikers), and they have been targeted as the prime consumers of larger motorcycles well into the twenty-first century (Encyclopedia 1994 1216). This same group of consumers has also been responsible for sales in the motor home and travel trailer industries. The growth in demand for motor home and travel trailers, in the mid-1990s has been attributed to the growing population of aging baby boomers, who are retiring and have more time and money to travel and camp (Encyclopedia 1998 1320). Self-propelled motor homes are preferred by those individuals 65 and up, while the majority of travel trailers and campers are purchased by the 35 to 54 age group (Recreational 39-19).
One final note on the socio-cultural factors within the environment is that the motorcycle industry, in general, must still work at overcoming the negative stereotype of motorcycle safety. Some potential consumers are still apprehensive about owning a motorcycle because of often times misleading motorcycle accident statistics. Industry leaders can help overcome this image by educating their customers about their products and equipping their motorcycles with additional safety features.
Legal-Political Factors
Probably the most significant legal/political factor facing industry competitors is dealing with the various nuances of local customs and political infrastructures within overseas markets. As companies find opportunities to widen their market share in these foreign countries, they will have to become increasingly aware of the differences in culture and the acceptable business practices within each country/region ( Leisure-Time L15-L16). This issue will become increasingly important has our economy continues to move towards a more global arena.
Labor union negotiations are another factor that some companies will have to continue to stay on top of. As many companies in the industry have experienced, when negotiations break down this can have extremely negative results on production operations and the potential for lost market share to aggressive companies who are more than eager to take advantage any weaknesses in their competitors.
One other issue worth mentioning is Harley Davidson s recent legal dispute with Loews Corporation s Lorillard tobacco unit. Harley and Lorillard had previously entered into an agreement where Lorillard could use Harley s trademark on its cigarettes. Due to the increase in smoker s lawsuits against cigarette companies, Harley became concerned over the risk of potential related legal liability exposure. Harley decided to break their nine-year old licensing contract with Lorillard, and as a result, Lorillard filed a lawsuit. Harley and Lorillard have since reached a settlement over the licensing dispute, but the details of the settlement are still pending (Harley net B6). This issue is significant to other companies in the industry, in that it shows how organizations need to be aware of our societies changing cultural views and ideals in order to avoid costly financial mistakes and the loss of goodwill associated with brand name recognition.
External Opportunities and Threats Table
Below is a table identifying external opportunities and threats within the motorcycle and transportation vehicles industry segments. Based on our judgment, and knowledge gained through researching the industry, this group has ranked the most crucial environmental opportunities and threats in order of importance within each category.
Exter Opportunities and Threats Table
(Motorcycle and Transportation Vehicle Industry)
Opportunities Threats
Strong demand Competition
Customer Loyalty Country Specific environmental and traffic regulations
Largest market share Trade Barriers
Aging of the Baby Boomers Substitute Products
Growth Industries Limited Camping Facilities in Foreign Countries
Favorable Economic Indicators Differences in Culture and Business Practices in Foreign Countries
Rising Income levels in Developing Countries
STRATEGIC AUDIT
I. Current Situation
A. Past Corporate Performance Indexes
Return on Investment
+ Return on investment, which is often referred to as a firm s return on total assets, measures the overall effectiveness of management in generating profits with its available assets. Generally, the higher a firms total assets the better. As can be seen from the above graph, Harley-Davidson s ROI increased substantially from 1993 to 1994 (from11.4% to 21.9%), and is already nearing the 1994 figure within the first nine months of 1995. The reason for Harley s increasing ROI figures is that the company s earnings are increasing by a substantially greater proportion than the increase in total assets. From 1993 to 1994, Harley s earnings before interest and taxes (EBIT) increased 2.4 times, compared to an increase in total assets, over the same period, of only 1.3 times.
Market Share
+ Harley-Davidson has enjoyed strong market share dominance, within their heavyweight motorcycle division, over the past five years. The slight decrease in market share, from 1993 to 1994, is primarily the result of lost market share to competitors by customers who are discouraged over the lack of supply of heavyweight motorcycles and the unreasonably long wait times and production delays. However, Harley s recent expansion plans intend to alleviate this problem over the next five years by increasing capacity within existing facilities.
+ Harley s transportation vehicles ( Holiday Rambler ) segment has not experienced the same successful market share dominance as its motorcycle division. As can be seen from the preceding graph, Holiday Rambler s market share remained below 10% for all three of their different vehicle divisions.
This can be explained by the intense competition in the recreational vehicles industry, and consumer brand loyalty to long-time industry leaders, such as Fleetwood, Coachmen, and Winnebago.
Profitability/Net income
(Note: 1995 figure is for first nine months ending September 24)
+ The preceding graph illustrates record level earnings for Harley-Davidson, INC. during 1994 and 1995. Net income, for 1995, was approximately $80 million by the end of September, with three more months of earnings potential. Except for 1993, net income figures have increased annually over the past five years. The net loss experienced during 1993, was the result of a $55,600,000 (after tax) write-down of goodwill and other assets at the Holiday Rambler Corporation, and a $30,300,000 (after tax) one-time charge for accounting changes related to the companies postretirement health care plan and income taxes. The $30,300,000 charge for the postretirement plan and the income taxes were taken to bring the company in compliance with relevant accounting standards, and will have no residual effect on future earnings.
Summary of Current Situation
Harley-Davidson s management seems to be doing a good job generating profits with existing assets, as evidenced by their rising ROI figures. Harley s cornerstone business segment, the heavyweight motorcycle division, continues to hold a dominant share of the heavyweight motorcycle market, but competitors with viable substitutes have the potential to erode this dominant position if expansion efforts prove faulty. The company s transportation vehicles segment continues to struggle to keep up with the industry s main competitors, and has seen its market share dwindle over the past five years. Harley-Davidson, INC., as a whole, has been extremely profitable over the past five years. Net income figures are at record levels and continue to climb.
B. Strategic Posture
Mission
We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles, branded products, and services in national and international markets. [1998 Annual Report, pg. 9]
Objectives
+ Double production capacity to 200,000 motorcycles annually by 2003.
+ Increase the number of women who purchase motorcycle-riding apparel.
+ Gain entry in to the performance motorcycle industry and increase the sales of the newly acquired Buell Motorcycle Company.
+ Increase international market share by increasing the number of foreign dealers and improving the foreign channels of distribution.
+ Increase the availability of credit and lower the cost of credit for both the retail customer and the Harley Davidson Dealer.
+ Improve customer satisfaction and improve communication with European stakeholders by increasing dealer service competencies.
+ Harley-Davidson’s operating philosophy is as follows:
+ Be number one in customer satisfaction worldwide.
+ Produce at the rate of 1,000,000 motor homes per year in 1996.
+ Grow motor home demand on a controlled basis.
+ Improve quality, productivity, and flexibility.
+ Continuous improvement in product quality and value.
+ Expand distribution by continuing to grow the business throughout the world.
+ Domestic expansion is necessary for Harley-Davidson to maintain its market share in the United States.
+ International expansion is needed to increase market share in all of the foreign markets.
+ Strengthen and establish the brand identification for Bruell Motorcycles. Although Harley-Davidson has for years been known as one of the leading motorcycle manufacturers in the world, few people realize that Buell motorcycles are one of their products. Brand recognition will provide a competitive advantage for Buell in the sport motorcycle segment.
+ Strengthen the infrastructure for the production increases. Manufacturing facilities, equipment, and information systems must be in place and ready so that the expansion efforts will be successful.
Strategies
+ Vertical Integration
+ Harley-Davidson uses both backward and forward integration. More than 750 suppliers of goods and services are used in the design and manufacture of motorcycles, parts and accessories. The control of inputs is a necessary part of just-in-time manufacturing and is why Harley-Davidson has been backward integrating to maintain control over the quality of suppliers.
+ The channels of distribution are also an important part of any manufacturing company and it is for this reason that Harley owns most of its distributors. In addition to distributing completed motorcycles throughout the world, Harley-Davidson is responsible for the delivery of parts and accessories.
+ Market Development
+ Harley-Davidson actively pursues the opportunity to expand the sales of existing models of motorcycles to new customers and into new markets.
+ The Sportster line of motorcycles has proven itself as a champion dirt track motorcycle and is now being marketed toward women. Sportsters are more compact in design and lighter that the other Harley-Davidson models, which makes them perfect for female riders. There are also after-market kits available that will reduce the seat height and relocate controls for a customized fit for any rider.