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Stripped-down Harley rebounds from recession

Monday - 6/10/2013, 1:22am  ET

In this Wednesday, May 8, 2013, photo, Crystal Swift poses on her Fat Boy Harley-Davidson at her home in Charlotte, N.C. Harley is the top seller of motorcycles in its class in the U.S. and leads in sales among women, minorities and younger adults as well as the middle-aged men. (AP Photo/Chuck Burton)

Associated Press

MILWAUKEE (AP) -- Some motorcycle enthusiasts feared Keith Wandell might be the outsider who drove Harley-Davidson into the ground. Instead, he may be remembered as the guy who kept the motorcycle maker on the road.

Wandell grabbed the handlebars at the motorcycle maker in the heart of the economic crisis in 2009. Harley lost $55 million that year, as buying a motorcycle stopped being an option for many consumers.

"We had to make, quickly, some big, bold, decisions," he said in a recent interview.

Wandell was the first CEO from outside Harley, so those decisions were watched closely. Not all were well-received. He got the union's approval to use temporary workers, which enabled Harley to time its production closer to the peak bike-buying season, saving time and money. He relied less on middle-aged men in the U.S. to buy the bikes. And he focused the company on doing what many say it does best: making big, powerful, premium-priced Harleys. But that meant getting rid of some popular secondary brands.

The company made $624 million last year, the best annual profit since 2008. It also boosted profit by 30 percent in this year's first quarter, compared to the same period in 2012. With lower costs and more efficient production, analysts say Harley is in a good position to grow as the global economy improves and in better shape to weather any future downturn.

"We've just got an awesome future," Wandell summed up in a recent interview.

It's a far cry from when he started. The recession and credit crisis sent shockwaves through Harley, a company that had done so well for so long that there was little incentive to innovate. In the early 2000s, many dealerships had waiting lists of buyers, and sales and profit grew year after year. Then, in one year, bike shipments dropped about 25 percent and the company laid off hundreds of workers.

The rapid change left employees stunned, and the introduction of Wandell, who didn't even own a motorcycle at the time, was another blow.

"You can just imagine. This was like, for the company, everything was upside down," said the 63-year-old Wandell, who came from car battery and building ventilation systems maker Johnson Controls Inc., also based in Milwaukee. "I mean, how can they bring in somebody from the outside? What the hell is going on? The economy's in the tank. Sales are down. It's this, that. People were just churning."

Harley had many of the same problems as the Detroit automakers: a big union labor force, old manufacturing processes and strong competition from Japanese companies with cheaper models on the market. It also had one additional, major disadvantage.

"A luxury motorcycle, for most people, isn't necessarily a commuting tool," said Rommel Dionisio, an industry analyst and senior vice president of equity research at Wedbush.

Under Wandell's direction, Harley angered many riders when it pruned popular divisions. Fans of Buell racing bikes were as avid as Harley enthusiasts, and many were offended when the company closed the division. Harley surprised others by selling Italian premium sport-bike maker MV Agusta just a year after buying it for $109 million.

Wandell, who now owns four Harley bikes, stands by his decision. "We only had a fixed budget for product development, and we were spending it on three brands," he said.

Harley modernized its operations in York, Pa., and renegotiated key union contracts so that it could use temporary workers to ramp up production quickly as it heads into the summer, when bike-buying peaks. In the past, the company estimated eight or nine months out what customers would want. If it was wrong, dealers had to trade bikes with each other to fill orders, costing them and Harley money. Now, Harley has to look ahead only a few months, making its predictions more accurate.

Harley needed to "make the right bikes at the right time and get them to the right place," Wandell said.

The company is in the midst of a similar but smaller transformation of its Kansas City, Mo., plant. By the end of this year, it will have spent $490 million to modernize, an investment it expects to save it $320 million a year in manufacturing costs.

As a result, profits are now rebounding faster than bike sales, said Bill Selesky, an industry analyst for Argus Research.

"It comes down to one thing ... They can produce a bike as good, if not better, at a cheaper cost," Selesky said.

Jim Waltermyer, the local union president in York, said the overhaul was difficult for long-time workers. They saw friends and co-workers get laid off or retire, and had to learn new ways of doing their jobs. Many felt that they had no choice, and the poor economy made it an ideal time for Harley to make changes, he said.

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