Harley-Davidson Strategy for 2009
The descending U.S. economy has placed a crunch on even the most prestigious American motorcycle company, Harley-Davidson. The Motor Company reported that fourth-quarter sales in 2008 declined 19.6 percent in the U.S., creating a 58.2 percent net income loss (down $108.3 million from 2007). In total, annual revenue in 2008 decreased to $5.59 billion compared to $5.73 billion in 2007, while annual net income dropped to $654.7 million from $933.8 million.
These hard numbers have caused much grief for Harley-Davidson, but a strategy for this economic hardship is in place, one that will also strengthen the long-term operations and financial results. Officials at The Motor Company said they are approaching this economic hardship in three steps: correct the cost structure, invest in the Harley-Davidson brand and obtain funding for their in-house lending division, Harley-Davidson Financial Services (HDFS).
The first step, correcting the cost structure, deals with reducing production, cutting jobs and consolidating manufacturing operations. Bike shipments for 2009 will be down 13 percent (approx. 265,000 units) to reduce dealer inventory levels. Over the next two years, the company plans to eliminate 1100 jobs by consolidating its two engine and transmission plants in Wisconsin, consolidate paint and frame operations at an assembly facility in York, Pa., and outsource Parts and Accessories and General Merchandise distribution. The Motor Company will also discontinue its domestic transportation fleet operation, along with closing some distribution facilities. Harley-Davidson expects annual savings from $60 million to $70 million once the restructuring is complete.
Investing in the brand, their second step, involves reaching out to younger and more diverse riders through increased marketing efforts. Officials say its Sportster trade-up program has been well received by both dealers and consumers.
And the final step is to seek assistance through the Federal Deposit Insurance Corporation to support their lending division HDFS, which reported a $24.9 million fourth-quarter operating loss in 2008, down from $38.6 million income in 2007. These losses stem from write-downs due to higher than projected credit losses.
Harley-Davidson employs thousands of Americans, also supporting a massive support chain and dealership infrastructure. Quite simply, if Harley-Davidson goes under, its undertow will have a massive impact on the American economy.
