Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, June 12, 1993 TAG: 9306120139
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: Knight-Ridder/Tribune
DATELINE: CHICAGO LENGTH: Long
The sound of a Harley is deep and rumbling, felt as much as heard, the beginning of an earthquake maybe or a volcano waking up.
Something like 20,000 Harley voices this weekend form a thundering chorus at the Wisconsin State Fair Grounds in the Milwaukee suburb of West Allis as members of the Harley Owners Group (HOG) hold their 10th annual rally. Today at least 60,000 are expected at the Summerfest grounds on Milwaukee's lakefront as Harley-Davidson Motorcycles celebrates its 90th birthday.
In 1901, 21-year-old William S. Harley and his boyhood friend, 20-year-old Arthur Davidson, decided there would be a market for a motor-driven bicycle. Harley had had experience building bicycles. Davidson had made patterns for a small, air-cooled gasoline engine. In a while, Davidson's brother, Walter, joined the project with his mechanic's skills. Then, another Davidson brother, William, a toolmaker, signed on.
The partners soon realized that a standard bicycle frame wasn't strong enough to be motorized and that the 3-horse engine they built was woefully underpowered. What was needed was a more rugged, more powerful vehicle, a motorcycle rather than a motorized bicycle.
Production of the Harley-Davidson motorcycle began in 1903 in a 10- by 15-foot shed built by the Davidsons' father on Milwaukee's near northwest side. A hand-lettered sign on the door read, "Harley Davidson Motor Co."
By the end of the Great Depression, however, all but two of 15 major U.S. motorcycle makers had disappeared, and by 1953, only Harley-Davidson remained. And by 1980, even this, the last American motorcycle company, was in critical condition and not expected to survive.
Interest rates were high then, and the economy was slumping, making it increasingly difficult for Harley's primarily male, primarily blue-collar customers to justify the purchase of such an expensive - around $8,000 on average then - non-essential item. Also, Japanese-made bikes had been sneaking up on Harley, first innocuously, as small-engine models, then head-to-head in the big-bike arena that was Harley's market.
Harleys had become famous for breaking down and leaving oil slicks every place they were parked.
Even the hard-core Harley nut had something to complain about. The American Machine and Foundry company (AMF) had bought Harley from family ownership in 1969 and broadened the product line and increased production greatly, cranking out bikes that Harley enthusiasts disparagingly called "AMFs." They just weren't "real" Harleys.
The company's share of the American market for superheavyweight bikes - those with engines of more than 850 cubic centimeters - had dropped from 77.5 percent in 1973 to 30.8 percent in 1980.
Around that time, AMF let it be known that its beleaguered motorcycle division could be bought.
No one made an offer.
Then, in 1981, a group of 13 Harley managers did what must have seemed at the time as one of the dumbest business ventures ever. They put together three bank loans and in a leveraged buyout purchased Harley-Davidson for about $80 million. They thought, of course, that the company could be made viable. But there were emotional factors at work, too.
On June 16, 1981, the new owners of Harley-Davidson mounted their bikes and set out from the York, Pa., plant, where Harley's final assembly takes place, to Milwaukee, where the executive offices and the engine-assembly plant are located.
The first year after the buyout, however, was the worst in the company's history. Market share fell even lower, and The Wall Street Journal predicted that Harley would be taken over and its 85th birthday celebration would take place in Japan. Others predicted that there would be no company at all by then.
By 1992, a year in which the Fortune 500 posted the smallest profits in the history of the list, Harley, for the first time, surpassed $1 billion in sales. Compared with 1980, its U.S. market share rose 97 percent, productivity 50 percent, U.S. revenues 80 percent and international revenues 170 percent. Stock first offered in 1986 at $11 split two for one twice and, as this is written, is selling at around $36.
Walk into a Harley dealership, and you'll notice that all the bikes have "sold" signs on them, even at an average price of $13,000.
Demand for Harleys is well beyond the 81,000 bikes that currently are made each year. Harley-Davidson Inc. president and chief operating officer Richard Teerlink says: "We need to get production capacity up. We don't ever want oversupply, but we do want to get to 100,000 units a year."
Among the steps toward that goal is a new, $28 million paint facility intended to eliminate some production bottlenecks caused by increasingly complex paint schemes. Colors like Brite Aqua Sun-Glo and Mandarin Orange are a far cry from early Harley gray.
"I'm not at all tired of telling our story," Teerlink says. "In fact, I've become evangelical about it. As I talk about the Harley turnaround, I get revitalized. The frustration is that 50 percent of our people have been here less than five years and haven't lived it. They may think we're like all companies.
"We're not like all companies, damn it. We rose from the ashes, no matter what mistakes management made over the years, because the riders, dealers and suppliers refused to let the company die.
Here are some of the ways Harley did it:
Employee involvement. One of the first things the company did was level the traditional pyramid-shaped organizational chart in line with what Teerlink has called the "responsibility and obligation of top management to create an environment in which an employee feels free to challenge the system to achieve success."
A system of parts supply they call "Materials As Needed." Instead of piles of parts sitting around deteriorating and eating capital, parts are "pulled" by the needs of the assembly line.
Statistical operator control. Giving every employee the statistical data necessary for measuring the quality of his or her work.
Protection: In 1982 President Reagan, following the recommendation of the International Trade Commission, imposed stiff tariffs on imported heavyweight - over 700 cc - Japanese motorcycles. The tariffs were to be in effect five years and would protect the American motorcycle industry - in effect, Harley-Davidson - from unfair competition.
The Japanese quickly retooled to make their 750cc engines into 699cc engines, thus slipping under the law by one cubic centimeter. The bikes with these engines were termed "tariff busters." Despite this ploy, Harley was able to use the protected time to great advantage, and in 1986, one year before the tariffs were due to expire, the company pulled off a public relations coup: They asked that the tariffs be removed.
Reagan visited the York, Pa., plant and declared Harley to be "an American success story."
Clever marketing: The company quickly realized that when a customer was buying a bike, he - or, in small but increasing numbers, she - really was buying a lifestyle. The romance may begin with the sound of the engine but expands quickly to the customizing, clothes and what Harley director of market communications Mike Keefe called the "whole egg of Harley."
"Nobody needs a motorcycle, and because of the price, our motorcycle is probably more impractical than most," he said. "But since '88, it's been nothing but blue sky for us. Buying one of our bikes is not a rational decision, but grab a customer's guts, and he'll follow you anywhere."
The new look in Harley dealerships is bright lighting, open spaces, a lot of focus on the company's Motorclothes line of fashions - everything from black leather jackets in children's sizes to boxer shorts bearing the bar-and-shield Harley logo to a woman's bikini in leather-look material with "Harley Davidson" spelled out in studs across the swimsuit's top.
Hand-in-hand with a changing marketing thrust and look is a changing Harley purchaser profile: 5 percent women (compared to 2 percent in 1985), 26 percent college grads (up from 14 percent), 38.5 years average age (compared to 34.4) and $40,300 annual personal income (up from $28,000).
Mystique. Some things have it - chicken soup for instance - and some don't - vegetable soup. Harley-Davidson is steeped in it.
"The lifestyle is about wanting to be cowboys, wanting the freedom of the road," said William G. Davidson, grandson of one of the founders and the remaining family member with the company. "There's an element of the Wild West outlaw in what it's all about. You get out of your suit, put on your leathers, get away from your desk. You get some buddies together, and school's out."
by CNB