Is Harley-Davidson Going Out of Business?

Harley-Davidson has been building motorcycles since 1903. The legendary brand is an everlasting symbol of freedom and adventure, and its superior product is an iconic part of the American roadway. Over the past few years, Harley-Davidson has been experiencing declining sales as its aging customer base loses interest in their heavyweight product. It has been a challenge for the motorcycle giant to attract the younger generation to purchase a product that is considered “cool” for old guys with tattoos.

The coronavirus pandemic has also hit the company hard, and it’s seen a 30 percent decline in its stocks. The current recession is proving to impact not only their revenue but cash flow capabilities as well.

The country’s largest motorcycle manufacturer recently announced that it will be eliminating 700 jobs worldwide and that 500 employees will be out of work by the end of 2020, reflecting a 14 percent overall workforce reduction. The long-tenured CFO John Olin is leaving the struggling company, on the heels of CEO Matt Levatich. Harley-Davidson’s president and newly-appointed CEO, Jochen Zeitz, announced that “significant changes are necessary, and we must move in new directions.”

So what does this mean for the future of Harley-Davidson?

Recent announcement addresses major changes to operations

The proposed overhaul, being branded as “The Rewire,” was supposed to become the foundation for worldwide operations. Harley-Davidson expects to see $42 million in restructuring costs this year, with more expected in 2021.

Declining sales, dealership closures, and supply constraints have forced factories to cut back production, resulting in the loss of 140 jobs last month, which is in addition to the 700 job cuts just announced. Forbes speculates that the company’s bottom line will take a hit with elevated production costs and lower revenues.

A few weeks into the restructuring plan and Harley-Davidson received yet another hard blow. For the first time in more than a decade, they experienced a quarterly loss. The second quarter of 2020 showed a reported $92 million loss, a 27 percent reduction in sales, and a 60-cent-per-share decline in stock prices.

In 2019, second-quarter numbers were drastically different, with a $1.23 per-share increase and a $195.6 million profit. Amidst the dismal results, Zeitz announced a change to “Rewire” that is now being called “Hardwire,” according to Forbes. Full details of the five-year strategic plan are expected in the fourth quarter. 

How Warren Buffett once helped saved Harley-Davidson

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This isn’t the first time Harley-Davidson showed signs of trouble. In 2009, during the nationwide financial crisis, billionaire Warren Buffett loaned the iconic motorcycle company $300 million. The industry giant was struggling with low product demand combined with limited cash flow.

Harley-Davidson quickly realized that it needed to implement a three-part plan to survive the crashing economy. They knew survival included investing in the brand, cutting costs, and finding money to cover annual costs that were close to $1 billion. Olin told Fortune magazine that the substantial loan “was the bridge we needed to get us through a rough time.”

The five-year loan enabled the struggling motorcycle manufacturer to continue providing financing to dealerships and retail customers that were still interested in buying bikes. It also meant that production lines could keep running.

According to ZephyrNet, the high-interest 15 percent loan netted the Berkshire Hathaway investor $150 million. During an annual Berkshire shareholder’s meeting in 2010, the savvy investor said he made the deal because he was confident that “Harley-Davidson was not going out of business.”

What the future looks like for Harley-Davidson

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Iconic iron.

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According to the Harley-Davidson Rewire plan, a “leaner, more nimble organization” is on the horizon. Zeitz announced, “We’ve taken a hard look at our entire set up, our spending, and how work is getting done to align our operating model, structure, and processes. We are building a strong foundation to drive a high-performance organization in the future.” 

As industry watchers keep an eye on production trends for the once-dominant motorcycle manufacturer, it appears Harley-Davidson has no intention of going anywhere. The renewed interest in traveling the open road may help increase product demand, and the restructuring plan may be what the company needs to get back on top.