- Harley-Davidson has been struggling with an aging customer base, the coronavirus pandemic, and earlier this year endured a CEO change.
- With the company under stress from Wall Street and with a demographic challenge looming as it struggled to attract new riders, Harley-Davidson CEO Matt Levatich stepped down, replaced on an acting basis by board member Jochen Zeitz, who eventually was named CEO.
- Zeitz swiftly moved to replace Harley's growth strategy with a retrenchment around core products. His "Rewire" plan isn't without risk.
- But Harley reported Q3 earnings that beat Wall Street expectations, vindicating some of Zeitz's moves.
- Visit Business Insider's homepage for more stories.
Former Harley-Davidson CEO Matt Levatich had an impossible job, and he couldn't pull it off.
Earlier this year, Levatich was replaced by Jochen Zeitz, one-time CEO of Puma and longtime Harley board member. Zeitz wasted no time reversing course on Levatich's "More Roads" transformation plan and implementing a new strategy for the coming years.
"As a result of my observations and assessment, I've concluded that we need to take significant actions and rewire the company now in terms of priorities, execution, operating model and strategy to drive sustained profit and long term growth. We're calling it The Rewire and it is our playbook … leading to a new five-year strategic plan."
On Tuesday, Zeitz and Harley got some evidence that Rewire is working, as the iconic motorcycle-maker beat third-quarter profit expectations by a wide margin ($1.05 per share versus $0.29).
Here's what Harley's new direction means for the American icon:
Harley-Davidson has been building motorcycles in the USA for 117 years. In many ways, it's the definitive American company, with a product that combines both its own values and America's.
Former CEO Matt Levatich hoped to ensure that heritage for another 100 years, so he undertook a transformational plan that would increase ridership, expand to new markets, and attack new opportunities.
Read about Levatich's strategy.
It was a good example of dynamic leadership, and initially Harley, Levatich, and a newly elected President Donald Trump found common ground. But that relationship later soured.
Levatich wanted to build Harleys where there were sold, especially in Asia, and that strategy ran afoul of Trump's "build it here" bias. Harley also found itself a victim of Trump's trade wars, as the highly symbolic motorcycle maker was retaliated against when the Trump administration started to level tariffs on imports.
In early 2020, the Harley board made a change. Levatich resigned, replaced by board member Jochen Zeitz, who had served as CEO of Puma. Zeitz immediately abandoned Levatich's strategy.
"I will strongly believe we need to tie the focus on our core markets and as I had mentioned, you know there are some markets that our biggest profit-drivers," Zeitz told Wall Street analysts.
"[For] some of the international markets, not just from a profitability point of view, but from a potential point of view … I think there will certainly be some de-emphasizing in order to create increased focus."
Harley has been here before. The company almost always seems to be up against balancing a growth mindset with a preserve-the-core attitude. The 2008-09 financial crisis meant that Harley shed the Buell sport bike sub-brand.
But Harley's ambitious electric future also seemed in doubt. The company's highly-touted LiveWire bike launched with a hefty price tag — $30,000 — and wasn't an instant success.
LiveWire was front-and-center at the company's booth for the 2019 New York Motorcycle Show, however.
The electric-motorcycle market is tricky. It's currently quite small, with limited competition. LiveWire goes up against bikes from Zero, for example.
Harley also wants to grow in new markets, mainly in Asia, where motorcycles are everyday transportation, rather than costly weekend toys. That means small bikes, such as this sub-400cc model.
Read about Harley's small-displacement motorcycle, built with a Chinese partner.
But meanwhile, expensive, hulking freeway cruisers remain at the core of Harley's business.
They represent the entire Harley live-to-ride lifestyle.
But those loyal customers are aging. And they aren't being replaced by new riders in large enough numbers to sustain Harley long-term.
That's the new CEO's biggest challenge: avoid offending the reliable customer while simultaneously protecting the business from future rivalries.
Wall Street has been skeptical. Harley's share price has been in decline for years.
On its home turf, the brand is under assault from upstarts such as India's Royal Enfield, which is going after the small-displacement market with low-cost bikes that appeal to city-dwellers.
Ducati has developed an entire sub-brand around its Scrambler line of fun, outdoorsy, adventurous two-wheelers.
And the Japanese haven't gone away. They've been selling Harley alternatives for decades.
Harley has also been battling a resurgent Indian manufacturer for the throwback, big-bike market.
The toughest question for Zeitz is whether Harley's iconic, all-American image is in terminal decline.
It's a distinct possibility. Younger people, at least before the coronavirus pandemic, were embracing urban lifestyles that didn't have room for large, loud motorcycles intended for the wide-open roads of the USA.
The COVID-19 pandemic also hit Harley hard, as the company had to idle its factory in the US Midwest and contend with customers who were on lockdown. However, riding motorcycles in an open-air activity that doesn't have to be given up in the face of the pandemic.
Ironically, Harley's best shot at a revival might not be to focus exclusively on its legacy customer but rather to build ridership in new markets and graduate those customers from small bikes to big ones. But that's an untested playbook. It remains to be seen if Zeitz can pull it off.
However, in the short term, it looks like Zeitz is looking for more immediate savings, and intends to slim Harley down. And the initial results look promising, as the company beats Wall Street expectations for third-quarter 2020 earnings.
Zeitz "dismissed roughly 14% of Harley's workforce, including the chief operating officer, finance chief, and a swath of midlevel managers," Bloomberg reported.
Those moves have pleased Wall Street, and Harley shares have traded up from a $15 nadir in April. Great Q3 2020 earnings set off a rally, with the stock up more than 20% and nearing break-even territory for the year.
Obviously, taking the open road on a motorcycle is a reasonably safe activity, in the age of the coronavirus pandemic. But Zeitz is going to need to prove that his strategy can attract customers to the Harley brand — and get them to pay a premium.
And if he can build on the third quarter's excellent result, he might just pull it off.
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