Harley-Davidson Hardwire reboot plan: Some big changes, but the core plan is the same

Earlier this morning, Harley-Davidson bigwigs revealed the company’s general strategy to rebuild the company. The Hardwire plan is here, and skimming through it, you can see some mixed messages.

After years of decline for Harley-Davidson’s financials, changes were in the offing even before the coronavirus pandemic. Last year saw longtime H-D exec Matt Levatich ousted from the president/CEO role, replaced by Jochen Zeitz. Zeitz is a former board member at Harley-Davidson, perhaps best-known for turning the German sneaker brand Puma around.

Once ensconced, Zeitz got busy making changes. Over the past few months, we’ve seen Harley-Davidson cut models from its lineup and slashed production. Zeitz said the company was planning to focus on highly-profitable markets and reduce its activity in others; most notably, Harley-Davidson ended its attempted entry into the Indian market, instead opting for a partnership with Hero. Here in Canada, Harley-Davidson axed several dealers’ franchises. Nobody’s told us how many dealers Harley-Davidson cut in Canada, but we’ve heard of several in the east.

This was all part of Harley-Davidson’s Rewire strategy, Zeitz’s plan to survive 2020 and stabilize the company. According to Harley-Davidson’s business update PowerPoint presentation, the Rewire plan “reset our cost structure, effectively lowering our
cost base by approximately $115 million.” Still, Harley-Davidson’s figures show 2020 revenue was down 24 percent from 2019’s figures, to $4.054 billion, with a big 29 percent drop in the motorcycles segment to $3.264 billion. The financial services segment (Harley’s loan division) was flat, at $790 million. Retail sales in North America were down 18 percent over 2019’s numbers, and down 17 percent worldwide. Its market share also slipped in Europe and North America.

Obviously, this is long-term bad news. COVID-19 exaggerated Harley-Davidson’s problems (indeed, the company itself seems to have expected even worse performance). However, it’s been sliding for years. For this reason, we now get the Hardwire strategy, which is Harley-Davidson’s plan to go forward. In a conference call with investors, Zeitz went over the strategic plan document, which lists six aspects to the Hardwire strategy:

1. Profit focus Investing in our strongest motorcycle segments
2. Selective expansion and redefinition To win in attractive motorcycle segments
3. Lead in electric Investing in leading the electric motorcycle market
4. Growth beyond bikes Expanding complementary businesses and engaging beyond product
5. Customer experience Growing our connection with riders and nonriders
6. Inclusive stakeholder management Prioritizing people, planet, profit

Interesting! H-D clearly wants to focus on touring, large cruiser and trike models, as these are the most profitable segments, and where Harley-Davidson performs best. Zeitz says the company wants to “defend and grow” in these markets. Not only will Harley-Davidson continue focusing on new models with strong margins, Zeitz also says Harley-Davidson dealers will start selling more used models, especially to bring new customers into the brand. 

As for the talk of expansion, Zeitz says the company wants to move into new segments where Harley-Davidson sees profit, but also where it can build bikes that lead the category. Zeitz says the Pan America adventure bike is a prime example of this, which should end all the gossip about cancellation.

The company also wants to expand within the cruiser segment, particularly with middleweight machines based around Harley-Davidson’s new Revolution Max V-twin. Does that mean that Zeitz plans on cluttering up showrooms with new models that don’t sell? Nope—amidst a lot of marketspeak, the strategy planning document says the company also wants “A streamlined product portfolio for more focused investment.” Translation: Harley-Davidson may bring new models to market, but expect some old models to be axed.

Moving on to Harley-Davidson’s electric plans, H-D now plans to have a division and leadership dedicated to its EV operations. Again, this goes against a lot of the recent scuttlebutt, which said the MoCo wanted to get rid of its battery bike line. The opposite is true: Harley-Davidson wants to grow in this area. In his conference call with investors, Zeitz said this new division will move with the agility and speed of a tech start-up. While the battery bike business may only be a small part of the Harley-Davidson empire, there are some big things brewing here. Zeitz says there are more details coming later this year, and that the electric motorcycle division will “help lead the long-term transformation of the company.”

What about the talk of growth beyond bikes into complementary businesses? The MoCo wants to ramp up its parts and accessories sales, increasing the amount of customization at point-of-purchase. As well, Harley-Davidson also wants to strengthen its riding gear line, as well as sales of the other lifestyle paraphernalia sold at dealerships. H-D seems very keen to strengthen its remaining dealership network; a drawing on Slide 38 of the presentation shows a dealership reimagined along the lines of a boutique, and judging from some other moves we’ve seen this year, this could be the future for the company.

Zeitz says the company plans to expand its content offerings, particularly through its revamped Enthusiast masthead.

To grow, Harley-Davidson needs newer, younger customers, and that’s obviously part of the marketing plan. The company is looking at a wide range of customers it wants to attract to the brand, or retain, and is realizing a one-size-fits-all marketing approach won’t sell the same bikes to everyone. Instead, Harley-Davidson is putting together a multi-faceted plan that sees marketing tailored to several different customer types, all the way down to complete moto noobs. Harley-Davidson is willing to help these riders get their licence, if that’s what it takes.

Finally, we get the usual corporate talk of “sustaining the planet; path to net zero environmental impact.” Of course, every company realizes it has to play this sort of game these days, and Harley-Davidson’s growing EV sector will definitely help here. But lest investors be scared off, Harley-Davidson also says it wants to “Drive profitability and align our ambitions and rewards with shareholders.” In other words, they still want to make money, so please don’t dump the stock.

Still, the plan is the plan, and Harley-Davidson wants to start right away. For 2021, the plan is to grow revenue 20-25 percent in the motorcycles segment, with 10-15 percent growth in the financial services segment—ambitious numbers, but in the recovery from COVID-19, not unreasonable. This growth will require some investment; Harley-Davidson is looking at $190-220 million in capital spending. Its cash allocations plans are first fund growth and invest in the Hardwire plan. Its second priority is to reward shareholders through dividends.

In the long run, the plan is to have mid single-digit growth revenue in motorcycle sales through 2025, with steady improvement to operating margin. Leadership is also aiming for double-digit growth to operating income for the financial services arm of the company. To do this, Harley-Davidson expects $190-250 million in capital spending annually.

If you want to see the rest of Harley-Davidson’s plan, scan through the PowerPoint presentation here. There’s a lot to unpack; Harley-Davidson certainly isn’t facing an easy road ahead, but at least it has a plan now.