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					1 Will A New CEO Continue H-D’s Success? Harley-Davidson, Inc. 3700 West Juneau Avenue Milwaukee, Wisconsin 53208 http://www.harley-davidson.com SIC: 3751 - Motorcycles, bicycles & parts by James W. Bronson, University of Wisconsin-Whitewater Graham Beaver, The Nottingham Trent University Revised 08/05/05 “We fulfill dreams through the experiences of motorcycling - by providing to motorcyclists, and to the general public, an expanding line of motorcycles, branded products and services in selected market segments.” http://www.harley-davidson.com In April of 2005, Jeff Bleustein, Chief Executive Officer of Harley-Davidson, stepped down after seven years at the helm of the legendary motorcycle manufacturer. Bleustein was celebrated as an outstanding CEO and his performance was regularly lauded in the popular press. During his tenancy Harley-Davidson‟s sales tripled and the company celebrated its 100th anniversary. Meeting the performance standards achieved by Harley-Davidson during the tenure of Jeff Bleustein would be a difficult task for the new CEO. Jim Ziemer, Harley-Davidson‟s Chief Financial Officer, was tapped to assume the position of CEO. A 35 year veteran of Harley-Davidson, Ziemer, faces many challenges, including: 1) an aging population of male baby-boomers, by far the largest customer base for Harley-Davidson, 2) attracting a more diverse customer base, 3) technologically strong and well financed competitors, and 4) a limited share in offshore markets. Ziemer pointed to new models and favorable demographic trends as a response to these challenges. Zeimer is committed to attracting more female riders to the company‟s products. Approximately 10% of HarleyDavidsons buyers are female and Ziemer wants this number to double over the course of the next five years. Ziemer is also bullish on Harley‟s new products, the company announced six new models for 2006. Ziemer doesn‟t need to hurry, Harley-Davidson‟s profitability is extraordinary for a manufacturing company; yet, these challenges are not likely to go away. The company faces the need for strategic change to address these challenges. The average age of a Harley-Davidson buyer is rapidly approaching 50. The price of many new Harley bikes exceeds the price of a well-equipped mid-sized car, placing the bikes beyond the reach of younger buyers. The company‟s Buell motorcycles, intended as an entry to the higher priced Harley-Davidson motorcycles, has never achieved more than a token share of the market. Domestic demand for the company‟s new V-Rod motorcycle, also designed with younger and less traditional buyers in mind, declined sharply following the bike‟s introductory year. While the company‟s plan to attract younger buyers appears stalled, customers must endure a yearlong

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2 wait before receiving delivery on many models of the company‟s traditional V-twin motorcycle. Despite its record successes the company remains a one-product horse…with an aging rider. H-D Company background/history The company got its start in 1903 when 21-year-old William Harley and 20-year-old Arthur Davidson built their first motorcycle in a 10-by-15-foot shed. Along with the first bike came the Harley-Davison (H-D) trademark, which has been in continual use for 100 years. The Harley-Davidson Motor Company incorporated on September 17, 1907. In 1909 the company introduced its first V-twin engine, an enduring H-D icon. The famous bar and shield logo followed in 1910. 1912 found construction starting on the company‟s manufacturing plant and headquarters on Juneau Street in Milwaukee, Wisconsin, U.S.A., where company headquarters remain to this day. Early Harleys were technologically advanced for their time and success on the racetrack established the company‟s reputation. It also brought the custom of a victory lap with the team‟s mascot, a pig; hence the Harley HOG nickname. The First World War brought H-D into the military with large production runs and exposure to thousands of military personnel. By 1920 H-D was the largest motorcycle manufacturer in the U.S. selling 27,000 bikes a year in competition with over 100 motorcycle manufacturers. The Great Depression nearly broke H-D, as it did almost every other motorcycle manufacturer. In the face of the depression H-D unveiled its famous 45-degree V-twin “knucklehead” engine. The engine set land-speed records and brought Harley just enough business to survive. The Second World War found a military demanding 90,000 bikes and H-D‟s fortunes were restored. Harley-Davidson has often attempted to be progressive. In 1962 the company purchased the Tomahawk Boat Manufacturing Company of Tomahawk, Wisconsin. The company had no interest in manufacturing boats, but saw the potential for incorporating fiberglass assemblies into its products. The Tomahawk facility remains the manufacturing site for “saddle bags” and other reinforced plastic motorcycle components and accessories. The decade of the 1960s brought strong competition from the Japanese motorcycle manufacturers and consequent poor economic performance from H-D. In 1969 H-D was acquired in a friendly takeover by AMF, which was then moving into the recreation industries. AMF provided cash and rapidly expanded Harley-Davidson‟s capacity. Quality and design soon suffered to the point that the “split crankcase” engines then in use were infamous for the their oil leaks - at times fully 50% of production failed to pass quality control. In the early 1970s Jeff Bleustein, a Yale engineering professor, left academia for AMF. In 1975 Bleustein took over Harley‟s engineering department. It was a difficult assignment as the old Harley hands greatly resented AMF and its practices. After his first week on the job he brought home his first bike, a Sportster. The bike lived up to its reputation that first night when it left a large pool of oil on the garage floor. According to company legend, Bleustein‟s wife told him not to bring home another bike until he could find one that wouldn‟t leak. Bleustein spent the next eight years designing a new engine. Derivatives of the “Evolution” engine, designed by Bleustein and his confederates, are used in the traditional Harley designs to this day. When AMF lost money and interest in the recreation industries, 13 H-D executives purchased the company in a leveraged buyout. The 1981 buyout, with $80 in debt, for every $1 in equity, left the Harley-Davidson highly leveraged. At the end of 1985 the company came within four hours of a foreclosure by its main lender, Citicorp. Seven months later H-D went public.

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3 Suffering from intense competitive pressures from Japanese motorcycle manufacturers, in 1983 the company successfully petitioned the U.S. government for a high tariff on imported heavy-weight motorcycles. By 1987 Harley-Davidson was profitable and increasingly competitive, and the company requested that the import tariff be removed. Today, management is loath to grow too fast. Growth is limited to 13% per year and the focus is on producing a product of the highest quality. Management is slowly closing the demand gap, but wants to ensure its bikes are not too easy to come by. Harley-Davidson has often tried to diversify its product lineup, trying everything from golf-carts and snowmobiles in the 1960s to motor homes, truck bodies and military contracts in the 1980s. For the most part, the company has failed in its attempts to diversify into related industries. In 1998 H-D moved to expand its presence in the motorcycle industry when it acquired the outstanding shares of the Buell Motorcycle Company. While sharing both components and technology with H-D, the lower priced Buell is intended to attract younger and non-traditional riders to the H-D logo. Harley-Davidson is an American icon and has a loyal customer following that has been described as a cult. The company has to be careful to not offend its traditional customers by going too far, too fast. When the January 07, 2002 issue of FORBES magazine named 99-yearold Harley-Davidson Motorcycle Co., “FORBES Company of the Year ” the feature story noted: “In 2000 Harley balanced the engine on its Fat Boy, a voluptuous, 670-pound beast, to reduce vibration. But the vibration couldn‟t be eliminated; riders would revolt if it didn‟t feel like a Harley. So instead of mounting the engine on rubber pads, as it does with its easy-riding touring bikes, the company spent two years developing a counterbalance system that leaves some vibration. „We changed everything without changing a thing,‟ says William J. Davidson, a great-grandson of a founder and the company‟s product-development director. Still, the reception, at least at first, was prickly. Clay Wilwert, whose family has owned a dealership in Dubuque since 1959, said some of his best customers got ornery when the heard about the Fat Boy‟s new engine. „Right away some said „Aww, I ain‟t going to like that new motor,‟ Wilwert says. „But guess what, as soon as they rode it, they loved it. They said, „Hey, this is really cool that it doesn‟t shake my hands asleep.‟” (Fahey, 2002) Harley-Davidson‟s (H-D) attention to detail extends to the bike‟s exhaust rumble and pop. The company has a 25-person team dedicated to preserving the bike‟s unique sound. Using echo-free sound chambers the team tweaks every new development in an effort to maintain the Harley sound. H-D Recent problems and accomplishments Late 2004 and early 2005 brought bad news, followed by good news, suggesting the company was not immune to the vagaries of the market place. In April 2005, Harley trimmed its 2005 production plans and cut its profit outlook, causing its shares to post their biggest one-day decline in 15 months. Harley‟s shares closed at $48.93, down $9.84, or 16.7%. Harley‟s disappointing outlook coincided with hints of a drop-off in consumer spending. As the stock of production bikes in dealer showrooms built-up for the first time in recent memory, HarleyDavidson instituted a 3% cut in motorcycle production. H-D maintained the cut was intended only to reduce the number of 2005 model-year bikes in dealers‟ showrooms in anticipation of the

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4 2006 model-year release. H-D worked closely with union leaders and employees in making the production cutback. In a quick turnaround, on July 13, 2005, Harley announced record earnings per share of $0.84 for the second quarter ending June 26, 2005. Revenue for the quarter was $1.333 billion compared to $1.328 billion in the same quarter in 2004. Harley is also on its way to achieving record shipments of 329,000 motorcycles in 2005, exceeding their target. In the U.S. sales of Harley-Davidson motorcycles were at an all time high, up 3.2% over the previous year. Dealer retail sales have also increased worldwide. 2004 was a mixed year for the U.S. economy. Many economists spoke of the recovering stock market while the unemployment figure remained at a 10 year high at 6.1%. In the midst of this turmoil, Harley-Davison reported that its 2004 sales grew 8.5% from 2003 to $5.02 billion, with profits up 16.9% to $889.9 million. This type of performance has been the norm for the past sixteen years at Harley. H-D shares have risen over 15,000% since the company went public in 1986. This level of performance is on par with Intel and about 10 times better than General Electric. Making their performance all the more remarkable was the fact that H-D produces a luxury good. Harley sells every bike that it can make and the bikes are often sold at $2,000 $4,000 above the sticker price. Despite its blue chip standing on Wall Street, Harley-Davison is not without its problems. The overall market for the heavyweight motorcycles, like those produced by H-D, is stagnant everywhere but the U.S. The Harley-Davidson name and logo is an American icon, but the same cannot be said for the rest of the world. This is particularly true of the large European market, which tends to regard traditional H-D motorcycles with the same respect the driver of a Ferrari might have for a pick-up truck. The exception to this statement is England, where the H-D Sportster is the single largest selling heavyweight bike. Harley‟s new CEO Jim Ziemer is aware of these problems. The company‟s newest offering, the V-Rod boasts a 110+ horsepower liquid-cooled engine designed by Porsche that offers almost twice the power of a typical Harley HOG. In fact, the Porsche-designed power plant will push the V-Rod past 140 mph. The V-Rod was designed to attract two groups of riders that have shown little interest in H-D‟s traditional products: savvy, young Americans who have looked to Europe for styling and performance and Europeans who have largely shunned the traditional Harley bikes. While the first year‟s production was sold out, mostly to collectors, VRod buyers have not been standing in line in the U.S. The U.S. market has shown a strong preference for the company‟s traditional bikes. With the least expensive V-Rod priced at $16,895, the bike is still beyond the means of many younger buyers. Dealers, long accustomed to customers who will wait a year to receive their order, seem unsure what to do with a product that doesn‟t sell itself. The V-Rod has proven to be a success in Europe. Driven by V-Rod sales, European sales of Harley-Davidson motorcycles increased 23% in the first half of 2005. CEO Ziemer will be focusing on gaining more female buyers. H-D is developing bikes that are made for riders of smaller stature. H-D also offer motorcycle dirver education courses through about 100 of its 659 dealerships, where 40% of the participants are women. Ziemer believes that the overall buyer demographic favors Harley. Two-thirds of its customers are between ages of 35 and 54, and people increasingly remain active as they age. However, appealing to younger buyers remains a challenge. H-D‟s image as the company that provides mounts for motorcycle gangs, like the Hell‟s Angels, is misleading; the typical Harley buyer is a professional. The average age of a H-D buyer

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5 in 2004 is approaching 50 with an annual household income of $81,400. The average age was 37 in 1990. This trend towards an aging/older rider implies that Harley is suffering from Cadillac syndrome, i.e. its customer base keeps getting older with few young buyers entering the market for the company‟s product. Add in other factors such as H-D purposely not producing enough bikes to meet demand, products that carry high price tags, lackluster technology in its mainstream bikes, and the presence of readily available look-alikes from competitors, and Harley-Davidson can not afford to be complacent. The average waiting time for most traditional Harley bikes, with the exception of the Sportster, is over one year. In part, this is due to buyers ordering customized bikes. Customized bikes have the highest profit margins, and H-D encourages buyers to customize their bikes with non-standard paint and accessories. This intentional failure to meet demand is a mixed blessing for the company. Keeping buyers hungry for bikes is consistent with a differentiation strategy, and high prices and margins. However, the bike shortage has resulted in limited growth in market share and the loss of otherwise loyal fans to the firm‟s competitors. Couple the aforementioned factors with the fact that H-D is not well received in many offshore markets and it poses problems H-D. This is particularly true of Europe where its “American” mystique is lacking for its traditional bikes and H-D must compete with the V-Rod against such adversaries as Ducati and BMW. In the U.S., recent start-ups have attempted to garner a percentage of Harley‟s market share and custom “chopper” shops compete for the ultrahigh end bike sales. These are only some of the problems that Harley needs to overcome when battling its competition for market share and profitability. H-D Competitors All of Harley-Davidson‟s major competitors have their headquarters outside the U.S. Most of the major competitors are operating units of larger diversified companies, e.g. Honda, Yamaha, Kawasaki, Suzuki and BMW. At least one of H-D‟s major competitors, Honda, manufactures its largest motorcycles in the U.S. A major exception to the larger diversified company rule is Ducati, an Italian company that is a leader in the European market. In addition to offshore competition, a number of U.S. companies have entered the heavyweight motorcycle industry. These companies include revivals of H-D‟s old time competitors, Indian and ExcelsiorHenderson, and new brands like Big Dog and Polaris‟s Victory bike. The 1507 cc Victory line from Polaris is a H-D look-a-like that is aimed directly at the potential Harley owner who does not want to wait a year for a new bike. So far, success for the revival companies has been elusive; Excelsior-Henderson is out of business and Indian‟s main production facility was shutdown in 2003. According to Harley-Davidson: “Competition in the heavyweight motorcycle market is based upon a number of factors, including price, quality, reliability, styling, product features, customer preference and warranties. The Company emphasizes quality, reliability and styling in its products and offers a warranty . . .” (2002 Annual Report). H-D clearly trades on its image and the nostalgia for its traditional bikes. While Harley‟s quality and engineering is excellent, the technology of the company‟s traditional bikes lags behind that of competitors. The technology gap is largely intentional; customers are paying for image and nostalgia. Harley‟s image is reinforced by what the company calls a “motorcycling lifestyle” and furthering that lifestyle is what the Harley Owner‟s Group, H.O.G., is all about. Due to Harley‟s success in

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6 promotion, combined with a production that intentionally fails to meet demand, used Harley‟s hold their value far better than competitors‟ bikes. Harley-Davidson has led the motorcycle industry in domestic unit sales of heavyweight bikes for 16 straight years. The company‟s domestic market share increased 10% from 2001 (45.0%) to 2004 (49.5%). The company faces a challenge in limiting availability to ensure highmarkups for itself and its dealers, while maintaining market share in the face of stiff competition. Honda, Harley-Davidson‟s largest competitor in the domestic market, ended 2004 with a 18.7% market share. Market Share as a Function of U.S. Heavyweight Motorcycle Registrations 2004 2003 2002 2001 2000 Harley-Davidson 49.5% 49.5% 47.5% 45.0% 45.6% Buell 00.7% 00.8% 00.7% 00.7% 01.2% Honda 18.7% 18.4% 19.8% 20.5% 18.5% Suzuki 10.2% 09.8% 09.6% 10.8% 09.3% Kawasaki 06.4% 06.7% 06.9% 08.0% 09.0% Yamaha 08.7% 08.5% 08.9% 07.9% 08.4% Other 05.8% 06.3% 06.6% 07.1% 08.0% 20% of the production of H-D‟s traditional motorcycles is shipped offshore, while 33% of V-Rod production is exported. However, international sales as a percentage of total sales have been flat. International sales were, $917 million, $816 million, and $675 million, or approximately 18%, 18%, and 17% of net revenue of the Motorcycles segment during 2004, 2003, and 2002, respectively. The European market is a particularly difficult one for HarleyDavidson. The market is an attractive one and heavyweight sales are roughly 65% of those in the U.S. market. Unlike the U.S. market, the H-D image and nostalgia doesn‟t sell bikes in Europe. 79% of the European market is comprised of standard and performance bikes, market segments in which the traditional H-D offerings are hardly competitive. Europeans also differ in their tastes on a regional and national basis. Those that favor Italian flair have the option of the racy Ducati and similar bikes, while those that like Teutonic thoroughness can opt for the highly refined BMW. Ducati Ducati is representative of Harley-Davidson‟s European competition. Ducati, an Italian motorbike company was founded in 1946. After years of growth and market success a mismanaged cooperative strategy resulted in the acquisition of Ducati by the Texas Pacific Group in 1996. In 1999 Ducati Motor Holdings went public with listings on both the Milan and New York stock exchanges. Ducati has adopted a cyberspace model selling motorcycles, accessories and clothing on-line, http://www.ducati.com. The company promotes its cyberspace model through participation in motorcycle racing where Ducati has dominated the world Superbike Championships for over ten years. This strategy has been most successful for Ducati with gross profits increasing 8.1% from 2003 to 2004. (2004 Annual Report) Unlike Harley-Davidson Ducati does not build bikes on the basis on nostalgia and comfort, rather Ducati sells style and performance based on technologically advanced designs. Ducatis are race proven bikes, sold for use on the street - the ultimate café racer. Like Harley-

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7 Davidson, Ducati employs a premium pricing strategy. Ducati customers tend to be younger and somewhat less affluent, consequently sales vary more with the economic cycle. HarleyDavidson‟s new V-Rod appears to be aimed squarely at the high-end of Ducati‟s customer base. New Heavyweight (651+ cc) Motorcycle Registrations by Market 2004 2003 2002 North America H-D & Buell 259.6 242.0 223.1 Other 271.2 253.5 251.9 Europe H-D & Buell 30.4 29.4 21.9 Other 305.8 293.7 281.6 Japan/Australia H-D & Buell 16.6 16.2 14.3 Other 45.3 42.7 49.6 Total H-D & Buell 306.6 287.5 259.3 Other 622.3 590.0 583.1

2001 188.3 234.5 21.8 271.8 13.4 48.7 223.5 555.0

BMW Bayerische Motoren Werke (BMW) originally designed and manufactured airplane engines for the German air force; however, upon the signing of the treaty of Versailles after World War One, Germany was not permitted to manufacture military airplanes. BMW was forced to pursue automobile and motorcycle manufacturing in order to stay in business. Following WW I, Germany experienced high inflation causing automobile prices to exceed the buying power of all but the wealthiest Germans. Motorcycles became an important and less expensive means of transportation. BMW‟s focus was on quality and craftsmanship, which caused their prices to be higher than their competition. However, the BMW brand name and the quality of the product proved worth the extra expense to consumers. BMW lasted through a slow period in the 1960‟s and had resurgence in the 1970‟s in large part due their motorcycles popularity with police forces. BMW‟s focus is on putting their best efforts into a small range of products, which makes their products unique in quality, style and performance. Within the auto industry, BMW produces high-end products across all industry segments allowing even their smaller cars to be considered exclusive. Their motorcycle production concentrates on three different series stressing superior quality. BMW‟s strategy is based on premium pricing and building the best motorcycle that money can buy by setting the standard in technology, environment and safety in all of their product offerings. Each of their motorcycles portrays the traditional motorcycle image; however, the BMW brand also includes elements of sophistication and class in their products. All of BMW‟s motorcycles have high resale values; however, their high cost limits their market share. BMW‟s claim to fame stems from its strategy of recognizing their strengths and making the best of every opportunity. They are the only manufacturer of cars and motorcycles worldwide that concentrates on premium standards and outstanding quality for all of its product lines in all

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8 industries. Once a goal is attained, that goal becomes the starting block for a new challenge in their quest for creating the untouchable and unmatchable product. Throughout their quest and their commitment to enhancing their international presence, BMW has expanded with 23 production and assembly plants located in seven countries and BMW has marketing subsidiaries in 33 countries. BMW is synonymous with high quality and performance, which is reinforced by strong brand recognition and customer loyalty…for those who can afford it. Honda Honda entered the U.S. motorcycle market in 1959 with the establishment of the American Honda Motor Company. Honda originally intended to enter the U.S. market with large displacement motorcycles. However, Honda redefined their entry market as small motorcycles when consumers voiced interest in the scooters Honda employees used to get around the company‟s San Francisco base. Through economies of scale in the global market and highly automated manufacturing Honda was able to leverage its low-cost advantage to capture almost 50% of the U.S. motorcycle market share by 1964. Today Honda is the global leader in motorcycle manufacturing with 17% of the North American market, 22% of the European market, and 23% of the Asian-Pacific market. Honda is a diversified company that at one time surpassed Chrysler Corporation in sales to become the third largest automobile company in the U.S. In addition to motorcycles and automobiles Honda manufactures ATVs, outboard motors, generators, lawn care equipment and other power products. Honda has a presence in the financial services industry providing financing options for motorcycle and automobile dealers and consumers. Honda‟s niche in the U.S. motorcycle market is touring bikes. With up to 1500 cc water-cooled engines, Honda‟s touring bikes are high quality, refined, comfortable and fuel-efficient. Honda‟s corporate culture is egalitarian with all employees, including the president, wearing the same uniform and sharing the same facilities. Input is sought from all levels of the company. Honda encourages creativity and is widely regarded as being the leader in 4-cycle gasoline engine technology. The company goes to considerable lengths to structure its operations around the needs of local markets. Honda is committed to continuing its leadership position through attention to markets, continual improvement and the introduction of new models and technologies. Kawasaki Kawasaki started as Kawasaki Tsukiji shipyard in Tokyo in 1878. It quickly diversified into locomotives, freight and passenger cars, bridge girders, and eventually into aircraft and marine steam turbines. It was in 1960 that Kawasaki first entered the motorcycle market with a full-line of motorcycles. In the late 1960‟s Kawasaki made its first attempt to aggressively pursue the United States market. In 1974 Kawasaki Motors Corp., USA became the first Japanese subsidiary to open a U.S. motorcycle manufacturing facility. Kawasaki is a world leader in the transportation equipment and industrial goods industries with diverse product lines in each category. Kawasaki motors company primarily focused on motorcycles, all-terrain vehicles, Jet Ski watercraft, utility vehicles, rail cars, wheels, robots, and engines for consumer products such as lawnmowers. Kawasaki is well known for providing a wide-range of products that offer high performance and low maintenance attributes. Kawasaki offers multiple models of motorcycles, which makes them a great competitor in many

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9 different facets of the industry including touring bikes, sport bikes, off-road bikes, dual-purpose bikes, street bikes and police bikes. Kawasaki has a large international presence as their foreign country network includes production facilities in Southeast Asia, China, Europe, and the United States. They hold the third largest motorcycle market share in North America at 10%, the fourth largest market share in Asia/Pacific at 19%, and the fifth largest market share in European markets at 12%. One of Kawasaki‟s strategic initiatives is striving for continual improvement in operational efficiencies. This has led many U.S. companies to study Kawasaki and their methods/techniques, which are called KPS – The Kawasaki Production System. One of the key techniques used is high employee empowerment and involvement, which allows for a more efficient workflow in producing high-quality products. KPS assists Kawasaki in meeting the fluctuating needs of its customers because it allows them to produce units through just-in-time production, one-piece production, and mixed model production. KPS is vital in supporting their position of offering a wide variety of products throughout the motorcycle industry that services a diversified customer base and multiple target markets. Suzuki Suzuki started as a manufacturer of power looms in 1909. Following the collapse of cotton markets in early the 1950s Suzuki diversified into the manufacture of motorized bicycles and Suzuki Motor Corporation was created. Through renewed efforts to diversify and fulfill Japan‟s need for affordable, reliable personal transportation the “Power Free” motorized bicycle was born. Today Suzuki manufactures automobiles, commercial vehicles, outboard motors, and ATV‟s. Suzuki is the third largest manufacturer of motorcycles lagging only Honda and Yamaha. Motorcycles comprise 19% of the company‟s total sales. Suzuki motorcycles have a significant international presence, they are sold in over 190 countries. 80% of Suzuki‟s total motorcycle sales are in offshore markets. Suzuki began using joint manufacturing efforts in foreign countries in 1993 and uses direct sales subsidiaries to reach customers. The joint manufacturing efforts require constant and dynamic technical cooperation between groups using cost reduction activities to achieve their on-going goal of providing a low-cost product. Suzuki‟s industry position is being the low-cost provider of quality products. Suzuki‟s corporate policy is “In order to survive, let us stop acting in a self-styled manner and get back to the basics.” They are working to strengthen their management structure and business practices by reviewing and refining past practices. The motorcycle segment has cost-reduction initiatives in place, including seeking to increase sales of larger models in the European, North American, and Japanese markets and developing a standardized model for local production in Asia. These initiatives are necessary to achieve Suzuki‟s goals of increasing sales, establishing efficient distribution systems, and reducing costs by 30%. Suzuki management believes this will only be possible by utilizing teamwork across all employees to boost innovation and increase efficiency throughout the company. Efficiency is the backbone of Suzuki‟s low-cost position in the industry. Yamaha In 1953, Genishi Kawakami was seeking ways to utilize idle machinery to produce consumer products such as sewing machines and scooters. However, market conditions and competitors actions led him to motorcycles. Under Kawakami‟s leadership, Yamaha Motor

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10 Company was founded in 1955 with the production of the YA-1 motorcycle. Their initial focus was quality and their motto was: “If you are going to make it, make it the best there is.” Having won Japan‟s two biggest motorcycle racing events, Yamaha decided to test their product in the international arena. In 1958, Yamaha became the first Japanese motorcycle manufacturer to compete internationally and came in an impressive 6th place in the Catalina Grand Prix. Using their initial success in the U.S. racing circuit, Yamaha began marketing their motorcycles through an independent California dealer. In 1960 they began selling motorcycles through U.S. dealerships. By 1968, Yamaha had manufacturing facilities, distribution, and R&D operations in many international markets. Yamaha‟s focused on tailoring its products to local market conditions. Currently, Yamaha Motor Company has a diverse product line including outboard motors, boats, personal watercraft, generators, golf cars, ATV‟s, snowmobiles, outdoor power equipment, race kart engines, accessories, apparel, and motorcycles. Yamaha produces a full-line of motorcycles ranging from scooters to heavyweights; however, their competitive advantage focuses on speed and high-performance racing bikes. Yamaha‟s vision is: “Whatever your pursuit, Yamaha is there, too, pursuing our goals. We want to satisfy our customers and exceed their expectations with products and services of superior quality, unmatched performance, and extraordinary value.” Building upon that vision and their superior brand-name, Yamaha‟s motorcycle sales are strong globally as they currently hold the fifth largest market share in North America, the third largest market share in Asia/Pacific, and the second largest market share in Europe. Their target market throughout the world is the young and thrill-seeking consumer who sees riding as a sport. H-D Human Resources Management Harley‟s current HRM practices stem from a culture change initiated by then CEO, Richard Teerlink. The leaders of the organization agreed that the best course for the future involved stimulating a broad feeling of ownership throughout the organization. They needed a deeper sense of involvement and leadership from each employee rooted from each employee‟s desire to lead the company. Harley developed a new definition of leadership as: “…the process of creating and sustaining a culture where employees work together in achieving common goals, not because they have to, but because they want to.” (Teerlink, 2000a) The company combined ideas for a new vision from both Management and the Union perspectives in order to create a joint vision for the future of the company. Management and the Union both agreed to the new joint vision for the future by signing a one-year labor contract in 1988, which reduced the risk for both parties. The joint vision was a twelve-page document that addressed financial performance, quality, customer satisfaction, management effectiveness, union effectiveness, compensation and benefits, safety and health, housekeeping, work environment, and communication. Using the joint vision, Harley developed a business strategy that assisted employees in determining whether they were working effectively towards the company‟s long-term goals. The new vision was stated as: “Harley-Davidson is an action oriented, international company – a leader in its commitment to continuously improving the quality and profitable relationships with stakeholders (customers, employees, suppliers, shareholders, government, and society). Harley-Davidson believes the key to success is to balance stakeholders‟ interest through the empowerment of all employees to focus on value-added activities.”

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11 Harley-Davidson prides itself on open communication with employees and a team-based culture. Employees are involved in goal setting and this practice facilitates a shared vision of the company‟s direction. Self-directed work groups are the norm. Departmental differences are minimized through a focus on cross-functional communications. These types of personnel practices are known as “partnering” at H-D; partnering results include increased employee motivation and a reduced need for supervision. The company developed its Performance Effectiveness Process to foster both employee performance and career development. Employees are rated on a form that includes over ninety descriptors. Descriptors include such items as: 1) values diversity in the workforce, 2) does what he/she says he/she will do, and 3) responds in a positive manner to criticism. The performance evaluation was tested and refined on mangers before it was used on the workforce. The Human Resources Division discovered that conducting performance appraisals and career development meetings at the same time hindered career development because employees became distracted by the amount of pay raises. Harley-Davidson now holds these meetings separately to ensure that the employees are not distracted by the pay raise and can concentrate on the proposed opportunities for personal career development. H-D takes career development seriously and has formalized all the company‟s learning, training, and development initiatives under its Leadership Institute. Each year over a third of the company‟s employees attend the institute‟s courses. Management believes these courses improve the company‟s competitiveness, while giving employees the knowledge and skills needed for advancement and personal growth. Harley-Davidson prefers to promote from within the company to give employees opportunities for advancement, and demonstrate the company‟s commitment to retaining talent within the company. This is why they also have an extensive tuition reimbursement program including undergraduate and graduate programs offered through Marquette University and Milwaukee Area Technical College. Lastly, Harley even developed a program to assist its distributors, by offering classes at the newly created Harley-Davidson University (HDU), which helped local distributors improve customer satisfaction, store-layout and merchandising. By the year 2000, HDU was boasting 1,800 paying participants. The compensation theory used by Harley is based upon four principles: 1) People must seek opportunities to act on their intrinsic motivation. 2) Salaries and benefits are only a part of the total rewards and recognition package. 3) Employees can expect the totality of rewards and recognition that they receive from their company to be fair in comparison to workers from similar companies and fair in comparison to their co-workers. Harley‟s compensation structure is organized by two guidelines: 1) Make a larger portion of the employee‟s pay at risk or variable. 2) Compensate all employees in the same manner. An example of a bonus compensation system used for employees is giving equal percentage bonuses, based on 15% of sales. It is believed that this practice minimizes differences in employee pay and promotes teamwork and less jealously amongst employees In 2004 the company employed approximately 8,900 employees in the manufacture of motorcycles. As a function of their geographical location, unionized employees are represented by one of two unions. Harley-Davidson has only incurred one strike since its AMF days and generally evokes a deep commitment from employees. Building consensus with union employees is H-D‟s standard practice. Resolving the occasional union grievance is left to the employee filing the grievance, the union-steward, the work group, and the work group‟s advisor (manager). The grievance resolution is considered binding by the union and the company. The

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12 company‟s collective bargaining agreements are due to expire in 2007 and 2008. After signing the new seven-year labor agreement in April of 2001, Union and Management cited their strong partnership that had been forged back in the mid-1980‟s as the key force in reaching the new agreement. Harley has a time-tested device for keeping up with customer demands and ensuring product quality. Half of the company‟s 8,000+ employees ride a Harley-Davidson. Every employee, including the CEO, must go through a dealer to get a bike. This is just a testament to Harley-Davidson being a company driven by the Human Resources function. Fairness and equality are driving this company into the future with a workforce that believes that they are a part of something special. H-D Operations Harley-Davidson has an ongoing production strategy of increasing the supply of its motorcycles, but at a rate less than that demanded by the market. To this end, the company continues to expand its manufacturing capacity. The company tries to position its product development staff in proximity to its manufacturing operations in order to ensure new product and model changes are coordinated prior to, and during, ramp-up. Powertrains for the V-Rod are assembled in Kansas City through a joint venture with Porsche AG. The company‟s operation in South America imports parts and sub-assemblies from the U.S. for final assembly in Brazil. Assembling the bikes in Brazil reduces duties and taxes, thus reducing the selling price and increasing the company‟s market. However, the volume of this facility remains under 1,000 units per year. Bikes for the European and Asian markets are exported from the U.S. Harley-Davidson Manufacturing Facilities Wauwatosa, WI 422,000 sq. ft. powertrain Menomonee Falls, WI 479,000 sq. ft. powertrain Tomahawk, WI 189,000 sq. ft. fiberglass parts & painting York, PA 1,331,000 sq. ft. parts fabrication, painting, & assembly Kansas City, MO 330,000 sq. ft. Sportster assembly, V-Rod powertrain East Troy, WI (Buell) 40,000 sq. ft. Buell assembly Manaus, Brazil 30,000 sq. ft. office & subassembly for local markets Harley-Davidson actively practices quality management. The company continuously strives to improve the quality of its operations while controlling costs. Quality management related practices include statistical process control, employee involvement in operations related decisions, supplier participation, just-in-time inventory control, and partnerships with the company‟s unions. H-D trains its employees in the use of statistical methods and problem solving through its Leadership Institute courses. The company is proud of its relationship with employees and encourages employee involvement, emphasizing a highly flexible and

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13 participative workforce. The company employs this flexibility in cross-functional teams that review every aspect of the production process. Harley-Davison strives to establish long-term mutually beneficial relationships with its suppliers. H-D involves suppliers in the design and manufacturing of its products and quality improvement programs. Harley requires that its suppliers be committed to annual cost reductions even when labor and material costs are rising. The company believes that vendor involvement results in improved products, the adoption of new technologies, and the smoother introduction of new products and product changes. Supplier involvement is not without its costs and led to an increase in the number of purchasing engineers from 4 to 30 in the 1990s. The involvement of suppliers has resulted in improvements in productivity and product quality, and a 4-5 day component inventory; all of which translates into an estimated savings of over $10,000,000 per year. In conjunction with its JIT inventory and assembly controls, Harley-Davidson has introduced an automated electrified monorail (AEM) system in its two Wisconsin engine assembly plants. The AEM systems have increased productivity, improved ergonomics and increased the speed of changeover between different assemblies, while freeing up space on the factory floor. Similarly, the company‟s parts and accessories distribution centers have been highly automated leading to increased speed of delivery and a 99.7 % level of accuracy. H-D Marketing August 2003 saw the culmination of Harley-Davidson‟s 100th anniversary celebration when an estimated 200,000 people participated in events in, and around, Harley‟s hometown of Milwaukee, Wisconsin. Riders came from every state and from every inhabited continent. HD‟s anniversary was one of the biggest; some said the biggest, events in Milwaukee‟s history. It took years of planning; the company‟s 90th and 95th anniversaries were used as rehearsals for the main event. Months of national and international hype preceded and accompanied the festivities. Harley-Davidson‟s public exposure from the carefully orchestrated event was beyond price. Countless features in the media focused on the company, its bikes, and the image of Harley riders. The company has a long history of successful promotion, and its bikes have “costarred” in a number of major film productions with such tough guy stars as Steve McQueen, Arnold Schwarzenegger and Bruce Willis. The company‟s traditional advertising and promotional venues include dealer promotions and cooperative programs, magazine and direct mail advertising, and its famous H.O.G. customer events. The annual gathering in Sturgis, South Dakota has been the subject of public television documentaries. Harley-Davison‟s website, http://www.harley-davison.com, offers an interactive and exhaustive on-line catalog. Customers can order accessories and customize bikes with hundreds of options. In 2002 Harley-Davison regularly advertised its products on television for the first time. The result of the company‟s marketing actions is that Harley-Davison ranks near the top among iconic brands – ranking with Disney and Apple Computer. Formed in 1983, the company sponsored Harley‟s Owner Group or H.O.G. has 900,000 members worldwide as of 2004. The Buell Riders Adventure Group, or BRAG is a 10,000 member strong counterpart to H.O.G. Both groups sponsor events, including national rides and rallies. The company also sponsors racing activities. Expenditures on marketing were 213.6 million and 227.2 million during 2004 and 2003, respectively.

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14 Harley‟s buyers aren‟t locked into any social class. You are just as likely to find a CEO on a Harley as a worker off the assembly line. According to H-D the average motorcycle purchaser is a married male, approaching 50 years of age, with a household income of over $81,000. He purchased his Harley for recreation and not transportation and is an experienced rider. Over two-thirds of buyers have some education beyond secondary school and over 30% have college degrees. Only 10% of the company‟s motorcycle sales are to females with majority of these sales attributable to the Buell brand. Harley owners are loyal with 90% of buyers reporting the intention of purchasing another Harley bike. Owners of the company‟s bottom-ofthe-line Sportster model often trade up to Harley-Davidson‟s more expensive bikes within two to three years. Clearly image sells to this demographic, Harley ranks near the 100th percentile on the Brand Asset Valuator scale for such qualities as authentic, rugged, daring, dynamic, distinctive and high performance. As one Harley owner put it: “What Harley-Davidson appeals to me is that we all think we‟re cooler than we really are.” (Milwaukee Journal Sentinel, August 24, 2003) What becomes clear from the figures is that Harley buyers are baby boomers and the baby boomers are aging. While no one expects Harley sales to sag any time soon, this demographic exclusivity has led analysts to ask: “How long can the eagle soar?” (Milwaukee Journal Sentinel, July 07, 2002) The company is meeting with some success in its Rider‟s Edge Program, which was introduced in 2000. Harley-Davidson is aware that the size of the company‟s bikes, and the unfortunate motorcycle gang image of a few riders, is obstacles to many potential buyers. The Program is designed to make the Harley experience more accessible to the public. For $225 prospective riders can receive 25 hours of classes through their local dealership. 40% of the new graduates are women and 25% of the graduates purchased a Buell or Harley. The program is not a moneymaker, but H-D sees it as investment in the future. Dealers seem to agree and are delighted to see new customers, especially those without gray hair. A creative tool in H-D‟s marketing program is its Authorized Rental and Tour program. Operated in the U.S. and overseas this program puts riders on “factory maintained” Harleys for guided tours. Included in the tour are some meals, lodging and a support vehicle to carry the heavy luggage and take care of any mechanical malfunctions. A lot of development ideas come from bike-riding employees and from employee attendance at Harley rallies held around the country. Harley riders traditionally customize their bikes and this practice led H-D to offer custom bikes in 1998. This on-going product group allows buyers to alter their factory bikes with a wide range of accessories and paint. With $9,000 in extras, these bikes go for $25,000 and carry a 40% profit margin (Fahey, 2002). Delivery time for the factory custom bikes can run up to two years. The company‟s marketing efforts were recognized when Harley-Davidson was inducted into the 2001 Marketing Hall of Fame. Their selection was based on “an outstanding job of building and sustaining their brand through smart marketing” (http://proquest.umi.com). The honor recognized what Harley followers have known for years: brand equity plus superior manufacturing has positioned Harley-Davidson as the elite manufacturer in the North American motorcycle market. H-D Distribution Harley-Davidson products are sold through a network of 659 independently owned fullservice dealerships in the U.S. The company maintains a European headquarters in England.

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15 Dealerships can be found in 36 European/Middle Eastern/African countries, 8 Asian countries and 15 Latin America countries. Most dealerships sell only Harley-Davidson and Buell products. Due to the very strong demand for H-D motorcycles the company does not experience seasonal fluctuation across its markets, although the same is not true of H-D dealers who tend to deliver fewer bikes in the colder months. The company also attributes its lack of seasonality to the floor financing available through its financial subsidiary. Uke‟s Harley-Davidson/Buell dealership in Kenosha, Wisconsin is fairly typical of Harley dealers. Uke‟s recently completed a new 54,000-square-foot facility alongside I-94. What may be unique to Uke‟s is a six-story glass tower that displays custom bikes like jewels in a showcase. The new building features a 15,000-square-foot showroom and a 10,000-square-foot service area. The basement is given over to the winter storage of customer‟s bikes, while the second-floor mezzanine houses a museum and art gallery. The architectural firm of Kubala Washatko of Cedarburg, Wisconsin, designed the new facility. Kubala Washatko has designed dozens of Harley dealerships around the U.S. (Milwaukee Journal Sentinel, May 18, 2002). Harley-Davison Dealers H-D only Buell only Dealerships Dealerships 248 90 7 33 3 31 42

Country/ Region U.S.A. European Asia/Pacific Latin America Canada Based on 2004 figures

H-D/Buell Dealerships 411 292 134 43

Total Dealerships 659 389 170 31 75

H-D Research and Development Harley-Davison believes research and development is a key component of its ability to lead the touring bike market. The company maintains a 383,000 square foot product development center and a separate 43,000 square foot development center for the Buell product line. The product development centers are staffed with employees from styling, purchasing and manufacturing, as well as supplier representatives. The practice is consistent with HarleyDavidson‟s commitment to quality management and results in seamless product development. Due to the increasing prevalence of environmental and safety regulations the product development centers are staffed with professionals specializing in the regulatory process. The company has sought to be proactive in meeting environmental and safety regulations in both its products and facilities. The company spent $170.7million in 2004, $150.3million in 2003 and $139.7million in 2002 on product development. The company‟s products are in compliance with all current Federal and State emission and noise standards. The California Air Resources Board standards become increasingly stringent in model year 2008 and H-D will incur costs in complying with the new standards. A more pressing problem for H-D may come from more stringent noise standards in the European Union and Japan. Such standards may interfere with one of Harley‟s most sacred traditions, the bike‟s distinctive, and loud, exhaust. Harley-Davidson is faced with soil and groundwater contamination at its York, Pennsylvania facility. This facility was previously the property of the U.S. Navy and AMF Corp.

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16 The company and the Navy have agreed to pay the cleanup costs. H-D‟s share of the cleanup cost is estimated to be $5,000,000, for which the company has established a cash reserve. H-D Motorcycle Unit According to Harley-Davidson: “The motorcycle market is comprised of four segments: standard, which emphasizes simplicity and cost; performance, which emphasizes handling and acceleration; touring, which emphasizes comfort and amenities for long-distance travel; and custom, which emphasizes styling and individual owner customization.” (2002 Annual Report) The company currently addresses all categories with its offerings from the Buell lineup in the standard and performance segments and with the H-D offerings in the touring and custom segments. The company‟s motorcycle unit consists of Harley-Davidson Motor Company and the Buell Motorcycle Company. The motorcycle unit designs, manufacturers and markets primarily heavyweight bikes as well as motorcycle parts, accessories and merchandise. The company is the only major U.S. manufacturer of motorcycles and has led the heavyweight market since going public in 1986. The Motorcycle Industry Council figures give H-D a 49.5% share of the domestic heavyweight market for 2004. During 2004 the motorcycle unit generated 81.0% of the total net sales of Harley-Davidson, Inc. Harley‟s heavyweight bikes are, by the company‟s own definition, more than 650cc of engine displacement. The company currently markets 28 models of touring and custom bikes with suggested retail prices up to $28,000. These bikes are built on five basic chassis designs (Softail, Sportster, Dyna Glide, Touring, and the new VRSC, or V-Rod) and are powered by one of four 45-degree V-twin air-cooled engines ranging from 883cc to a huge 1550cc brute (the VRod utilizes a liquid-cooled engine). The company pioneered the touring heavyweight motorcycle and this segment includes well-equipped bikes with fairings, windshields, and luggage carriers. The custom segment includes the retro-look bikes that are typically highly customized through the use of chrome, paint and accessories. These bikes sell for prices that are about 50% higher than competitor‟s comparable models. The V-Rod is the first in a new series of bikes aimed at the “performance café-racer” market. The V-Rod shares nothing with existing bikes and is equipped with the Porsche designed liquid-cooled, 60-degree V-twin, 1130cc, 110+hp, Revolution engine. It is the most expensive development project in the company‟s history, but Harley-Davidson has not revealed the numbers. In the spring of 2002 the new bike was reported to have suffered from assorted production start-up challenges and Harley reduced its expected 2002 shipments from 11,000 units to 10,000 (Milwaukee Journal Sentinel, April 29, 2002). H-D is on untested ground with the VRSC series of bikes, the materials, technology, skills and marketing required to make it a success are much more familiar to Japanese and European manufacturers. Harley‟s previous foray into the performance segment with its Buell line of motorcycles has met with only limited success. Harley-Davidson manufactured and shipped 317,289 bikes in 2004 and expects to produce 339,000 units in 2005 and they expect to reach their goal of 400,000 bikes in 2007. About half of all bikes are Harley‟s big street cruisers, like the Softail, that run around $15,000. Around 30% are the true heavyweight touring machines; equipped with fiberglass saddlebags, CD players, radios and cruise control, these bikes sell for $22,000+. The remaining bikes are mostly the $6,500+ Sportsters; with a cosmetic redesign for 2005-2006 the Sportster remains

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17 Harley‟s oldest, and most affordable, model. (See page 18 for updated information on expected models and changes for 2006.) Harley‟s sales in the international market were $917 million for 2004. International sales were 18% of net sales in 2004, up from 17% in 2002. Japan, Canada and Germany represent the company‟s largest international markets, and combined, account for 56% of international sales. H-D estimates its share of the European heavyweight market at 7.7%. Its share of the Asia/Pacific (Japan and Australia) heavyweight market is 25.3% Buell The Buell motorcycle product line emphasizes “innovative design, responsive handling and overall performance” (2002 Annual Report). In late April of 2002 Harley announced that it was phasing out three Buell models in favor of its higher demand FireboltTM XB9R and the new Lightning XB9S. The Buell bikes are powered by a V-Twin derived 984cc engine and priced around $10,000. In 2000 under the Buell brand, Harley introduced its first sub-650cc bike since 1978. The single-cylinder, 492cc, Buell Blast is aimed at young riders and the standard bike segment. The Buell brand does attract less experienced riders and a slightly younger demographic. The average age of a Buell rider is 36. With a $4,600 price tag the Blast is intended to be an affordable entry into the motorcycle market. Harley reported that Buell sold 9,857 heavyweight bikes in 2004, up 1.2% from 2003. Sales of the smaller Buell Blast were limited to 4,056 units. The Buell lineup has been plagued with quality problems and has never contributed to H-D‟s profits. H-D Parts & Accessories Parts and accessories include genuine H-D replacement parts and cosmetic bike accessories. Parts and accessories comprised 15.6% of total sales in 2004. This segment also includes general merchandise, an area that includes such items as clothes and collectibles. Around the country there are 80 dealerships with shops that feature H-D clothes and collectibles, there are an additional 52 Harley stores in malls, airports and vacation destination and another 20 seasonal shops. The sales of general merchandise constitute 4.3% of total sales. While general merchandise is a small entry on H-D‟s income statement, it is important form of advertising and a major player in the company‟s quest to turn the brand into a lifestyle. Harley-Davidson also licenses its name and logo for such items as t-shirts, jewelry and toys. The company believes that licensing is useful tool for promotion and routinely polices the unauthorized use of its name and logo (2004 Annual Report). Royalty revenues totaled $41 million in 2004. While royalties are not a large amount, the margins are high. H-D Financial Services Unit The 680 employees of Harley-Davison Credit and Insurance (a/k/a Harley Davidson Financial Services or HDFS) engage in the financing of wholesale inventories and retail consumer installment sales contracts. The growth area in this market appears to be in the financing of new motorcycles. During 2004 40% of all new Harley-Davidson motorcycles retailed in the U.S. were financed by HDFS up from 38% in 2003. H-D also reports that it provided financing to 95% of its dealers in 2004. During August of 2002, HDFS began offering financing to European dealers out of offices in Oxford, England. Income from financial services was $305,300,000 in 2004, up 25.8% over 2003. Due to the fact that financing is tied to dealer

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18 sales, financial services tend to be far more seasonal than the manufacturing aspects of H-D‟s operations. While most of its business is directed at H-D dealers and the dealer‟s customers, Financial Services does provide financing for non-commercial aircraft. Financial Services also brokers insurance and service contracts for motorcycle owners. H-D Financial Statements Harley-Davidson‟s financial performance is excellent. 2004 profits reached $1,899,535,000, up 34% from profits of 1,417,841,000 in 2002. 2004 sales of $5.2 billion are more than double the 1998 sales figure of 2,063,956. The company has relatively little debt and has $275,159,000 in free cash flow as of 2004. Needless to say Harley-Davidson is a darling of many investors and the financial press. The Board of Directors has authorized the company to repurchase shares of the company‟s common stock under two separate plans. Under these plans large blocks of stock have been repurchased by the company in recent years and have helped to keep HarleyDavidson‟s stock price up in an often-down market. Harley-Davidson has taken steps to reduce its exposure to fluctuations in international financial markets. At the end of 2004, H-D held foreign exchange contracts representing a U.S. dollar equivalent of $284.7 million. To reduce foreign exchange risks the company selectively uses financial instruments. Forward foreign exchange contracts are used to hedge the effect of earnings fluctuation on the dollar. H-D is also exposed to loan defaults and interest rate fluctuations through its financial services division. To minimize its risk, Harley-Davidson Financial Services packages and resells most of its loans. Harley‟s pension and SERPA benefit obligation has increased from $605.6 million in 2003 to $719.7 million in 2004. The postretirement healthcare liability went from $127,444 million to $149,848 million in 2003 and 2004, respectively. These liabilities will need to be closely monitored in the years to come. What to look for in 2006 Harley recently announced through a press release that they are presenting six new models for 2006. In addition to the six new models, they are offering a host of styling and engineering updates. The Dyna family of performance custom motorcycles, which has been completely re-engineered for 2006, incorporates a new 6 speed Cruise Drive Transmission and two new models: the minimalist Bobtail and a limited-production FXDI 35th anniversary Super Glide. The FX was the motorcycle that sparked the concept of factory customization, perhaps it only makes sense that the new line coincides with the 35th anniversary of the FX Super Glide. Some features of the new models:  The Dyna family is re-engineered and features new frame geometry and a new 6-speed Cruise Drive transmission.  The Softail line features the reintroduction of the charismatic FLST/I Heritage Softail Bobtail.  The Touring family includes the new FLHXI Street Glide, an “underdressed” dresser than can cause a stir. There is also a new advanced audio system by Harman/Kardon, which is an integrated advanced audio system that sets a new standard for the industry.

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19  The liquid-cooled revolution continues in 2006 with the introduction of two new motorcycles to the VRSC family, the agile VRSCR Street Rod roadster and the menacing VRSCD Night Rod.  All six new models in the XL Sportster family offer a new, smoother-shifting transmission and significantly reduced clutch effort for 2006.  Eight new paint colors and two-tone combinations will also be available for customization. Harley hopes that these new models and features will satisfy their customers‟ needs. However, they still have many challenges that lie ahead. In a global market place, 80% of H-D motorcycles are sold in North America. Despite inroads into the European market with the VRSC/V-Rod, H-D‟s share of that market remains small at 7.7%. H-D wants to attract more female riders, but it isn‟t clear that more females want H-D bikes. And, should H-D be successful in attracting more female riders what will happen to Harley‟s bike selling tough-guy image? How will H-D manage to attract a younger customer base? While many questions lie unanswered, in the short-term it is apparent that H-D will continue to be the leader in the heavyweight motorcycle industry. Financial statements and ratios for the period 2004–1993 are available in an Excel format. References 1. Barrett, R. (2003) “Company Aims To Keep Its Wheels Turning.” Milwaukee Journal Sentinel, August 24. 2. Barret, R. (2005) “Harley-Davidson Stock Takes a Beating.” Milwaukee Journal Sentinel, April 13. 3. Bowe, C. (2001) “Motorcycle Industry Still Going The Whole Hog: Makers Like Harley are Riding Through The Slump.” Financial Times, April 21: 8-9. 4. Brown, D. (2001) “A Great Year, But Storm Clouds Could Be Gathering.” Dealernews, 37: 30-34. 5. “Company Profile: Harley-Davidson Motor Company-Product Development Center, Milwaukee.” November 13, 2003. www.careerbuilder.com 6. Content, T. (2002) “Harley Puts New Spin On Buell Lineup.” Milwaukee Journal Sentinel, April 29. 7. Content, T. (2002) “Room To Grow, Room To Roar.” Milwaukee Journal Sentinel, May 18. 8. Content, T. (2002) “Room To Zoom?” Milwaukee Journal Sentinel, July 07. 9. Content, T. (2003) “Harley Looks To A New Breed Of Bike For Growth.” Milwaukee Journal Sentinel, August 24. 10. Ducati., Annual Report, December 31, 2004 11. Fahey, J. (2002). “Love Into Money.” Forbes, January 07: 60-56. 12. “Harley-Davidson Incorporated Company Report.” November 13, 2003. http://moneycentral.msn.com/investor/research/profile.asp?symbol=HDI 13. Harley Davidson, Inc., Form 10-K, December 31, 2001. 14. Harley Davidson, Inc., Form 10-K, December 31, 2002. 15. Harley Davidson, Inc.,Form 10-K, December 31,2004 16. “Harley-Davidson and Staples Elected to the 2001 Marketing Hall of Fame.” PR Newswire, April, 27 2001: 1.

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20 17. “Harley-Davidson: Marketing an American Icon.” Journal of Business and Design. January 05, 2002. http://www.cdf.org/cdf/atissue/vol2_1/harley/harley.html 18. Investor.Harley-Davidson.come/ReleaseDetail.cfm 19. Johnson, M. (2003) “Thundering Across All Demographics.” Milwaukee Journal Sentinel, August 24. 20. Klayman, B. (2005) “Harley-Davidson CEO Sees Strong Growth.” http://go.Reuters.co.uk/newsArticle.jhtml 21. Langnau, L. (2001) “Harley-Davidson Revs Up Distribution.” Materials Handling Management. 56: 47-50. 22. Motorcylclistonline.com/bleustein/ 23. Nauen, E. (2003) “Ride & Seek.” AARP The Magazine, July/August: 59-62 24. “Recreational Equipment.” U.S. Industry & Outlook 2000. New York. McGraw-Hill Companies. 25. Standard & Poor‟s. (2002) Standard and Poor‟s Industry Surveys. 26. Teerlink, R. & Ozley, L. (2000) More Than a Morotcycle: The Leadership journey at HarleyDavidson. Boston, MA: Harvard Business School Press. 27. Teerlink, R. (2000) “Harley‟s Leadership U-Turn.” Harvard Business Review. Jul/Aug 2000: 43-48. 28. www.harley-davidson.com 29. www.hoovers.com 30. www.internetautoguide.com/auto-news 31. Zielinski, G. (2003) “Milwaukee Gears Up For Motorcycle Mania.” Milwaukee Journal Sentinel, August 24. Honda
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Suzuki http://www.globalsuzuki.com/corp_info/index.htm http://www.globalsuzuki.com/corp_info/pdf/2004/2004-1.pdf http://www.globalsuzuki.com/corp_info/pdf/2003/2003-2.pdf http://www.suzuki.com/index_flash.php http://suzuki-motorcycle.motorhelmets.com/ http://www.tuta.hut.fi/studies/Courses_and_schedules/Isib/TU91.120/coursematerial/global%20motorcycle%20industry%202003.pdf Kawasaki 20

21 http://www.kawasaki.com/motorcycles/ Kawasaki Heavy Industry, Ltd. Corporate Profile, Cat. No 1A0124 Mar. „04 Kawasaki Motors Manufacturing Corp., U.S.A. Quality in Motion brochure http://www.student.richmond.edu/2001/cparks/public_html/portfolio/papers/HD.PDF Yamaha http://www.123student.com/law/2472.shtml http://www.forbes.com/technology/newswire/2004/01/06/rtr1200612.html http://www.yamaha-motor.com/company/history_GK_02.htm BMW http://www.123student.com/law/2472.shtml http://www.bmw.com/ http://www2.hawaii.edu/~cheukn/BMW/Summary.htm#MISSION http://en.wikipedia.org/wiki/BMW

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