Harley Davidson (HD): Preparing for the Next Century

Q1 How would you characterize HD’s primary challenge(s) as of the end of 2005?
Stock prices dropped 17% due to lower forecasts, in spite of positive trending financials. Lower forecasts were due to growing saturation within their target market. Saturation was occurring due to fewer younger buyers replacing aging buyers. Fewer younger buyers was occurring because HD did not have a highly successful plan to win them over, noting pointed attempts with Buell and the V-Rod. Therefore: * their issues are not cyclical, but structural * their issues are not urgent in the sense that creditors will force bankruptcy in the immediate future * however, they must be addressed to maintain long-term strength as an organization * further, this is more of a strategic issue than it is tactical * and, HD may be approaching the upper limits of their current business model
Stock analysts were seeing that HD stock was inflated as a strong working solution did not appear to be in place to address these issues. All things being equal, past performance did not appear to be sustainable.

Q2 Deconstruct HD’s macro environment (PEST) and industry (Porter’s 5).
Economic: Given that HD is a big ticket discretionary consumer luxury product, the strength of the economies in their principle markets is very important. An economic downturn would have a downward pressure on sales. Conversely, further economic growth would create a more positive revenue and profit picture.
Given that, the primary economies in which HD competed had experienced a long period of economic growth with a brief blip from 2000 to 2002. Unemployment was low, housing prices were rising, stock portfolios were rising and consumers were spending – they were optimistic.
Given that, home prices historically appreciated 4.5% annually. High appreciation