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Harley-Davidson's new factory in York, Pa.

A new Harley-Davidson motorcycle rolls off the assembly line in York, PA.

You might recall that one of the first moving assembly lines was at Ford Motor Company in 1913.  Until this time automobiles were built one at a time and were quite expensive.  With the Model T, they began experimenting with different production techniques and the conveyor belt system was born.  At its peak a finish Model T came off the assembly line every 10 seconds.

Workers could not stop the line even if parts were wrong.  Workers were not allowed to think on the job.  They were allowed to only do their assigned task and do them ever quicker.  They required almost no skill to perform and were highly repetitive.  Many workers were unfulfilled and became bored and dissatisfied with their jobs.  As a result, absenteeism rose and employee turnover became high.

Fast forward 100+ years and everything has changed, right?.

The “New Factory York” is Harley-Davidson’s largest motorcycle factory.  Once there were 41 buildings on the huge 232 acre plot, but most have been demolished along with 2300 jobs.  The entire manufacturing facility is now housed in one building.  It’s a model of efficiency which H-D plans to “copy-exact” in Menomonee Falls and Tomahawk.  The process is centered on advanced manufacturing techniques that are used at Toyota and Caterpillar that are well known for their quality and efficiencies.

The Milwaukee changes are a com’in… because effective this month adjusted labor contracts went into effect giving the company more flexibility with the workforce.  Similar to the York plant there can be the use of seasonal employees who are not entitled to medical or retirement benefits and receive less pay for the same work done by regular employees.  While still unionized they are paid about $16.80 to $26 per hour versus $30.50 to $38 per hour for regular employees.

But, just like in 1913 not all the workers seem to be infatuated with the changes.  There is a great article written by Rick Barrett at the Journal Sentinel which captures the mixed opinions and whether the transformation has resulted in a better workplace.   We all know that change is messy, but some of the comments had me wondering if some in the workforce would prefer a return to the Model T era.

Photo courtesy of H-D

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Doobie Brothers performing at the 2003 Harley-Davidson 100th Anniversary

Rain. Snow. Rain. Wind. Rain. Hail.

That pretty much sums up the local weather Sunday.  A blast of winter brought a mix of odd weather to the area, with temperatures in the 40s and rain turning into snow turning to hail throughout the day.

So it’s Sunday afternoon with a couple hard weeks of work under the belt and I’m thinking about better weather and motorcycle riding.  I’m running errands and pushing the XM buttons in the automobile.  I settled in on a little gem from the Doobie Brothers fourth album “What Were Once Vices Are Now Habits” and I crank the volume on the song “Another Park, Another Sunday.”

Wow, it’s a flashback.

I suddenly remember buying the album on cassette (remember those?) and was instantly transported back in time to that moment of driving the stereo speakers in a ’76 Toyota Celica to the point of distortion, listening to music that energized and soothed the soul at the same time.  Hearing Tom Johnston again reminded me that the Doobie Brothers opened at the 100th Anniversary celebration in Milwaukee in 2003. The Doobies were solid rock along with Kid Rock, but it was also the year that an intern who ran a focus group at the motor company mistook the leathers of Elton John as a motorcycle enthusiast and completely missed the mark on the Milwaukee demographic.   People left the venue in droves wondering how Harley-Davidson could have made such a mistake.  I also remember crashing an event a few years back in Las Vegas where Pat Simmons was playing in an intimate bar across the street from the LVCC for a Kingston Memory private party.  Pat along with a terrific band played some rockin’ down the highway tunes for several hours.

And speaking of Nevada, we’re about a month away from the Laughlin River Run.

If you’re unfamiliar with the Laughlin, NV rally then it’s a must add to your riding “bucket list.”  It’s four days of wall-to-wall bikes, exhibits, vendors and entertainment. The rally is distinctive with 10 major casino resorts along a two-mile stretch on Casino Drive and everything is literally at your hotel doorstep.   The desert makes a great backdrop and riding bonus for the event.

Lastly, I would be remiss if I neglected to mention that long-time Doobie Brothers drummer Michael Hossack passed away last week after a long battle with cancer.  Hossack helped give the band its distinctive sound with two drummers and was critical to a number of hit albums. Michael played on the “Another Park, Another Sunday” as well as the rest of the “Vices” album, “The Captain And Me” and “Toulouse Street.”  They all make great Sunday riding music.  Listening back on some of the tracks you can’t help but think what a great musical drummer he was especially the killer fill at the beginning of “China Grove.”  He will live on in those tunes because they have stood the test of time.

Photo courtesy Doobie Brothers performing at the Harley-Davidson closing party in downtown Milwaukee August 31, 2003. REUTERS/Allen Fredrickson

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I don’t know about you, but I’ve yet to finalize all my ride plans for this summer.  However, I do know where I’ll be riding in August 2013.

Huh?

That’s right it’s more than a year away, but I’ve started making plans to attend the 110th Harley-Davidson Anniversary celebration in Milwaukee which kicks off on August 29, 2013!  It’s also the H.O.G. 3oth Anniversary celebration.

Back in 2008 the event was called the “The Ride Home” for the 105th Anniversary celebration and in my view was an incredible event which was topped off by the Springsteen concert.  It was a breath of fresh air riding out to this event compared to the typical west coast venues our posse attends.  The celebration was awesome and Harley-Davidson scored big in my book.  Most important was the terrific city and all the Milwaukeeans who welcomed us riders with open arms.

It turns out that H.O.G. members got a jump on the process this past week to make hotel reservations, but it all opens up to the public today so if you’re interested get on the web site and check it out.

If you’re looking to get a feel for the ride out to the celebration you can view my 105th Anniversary posts HERE where we started out on the journey.  If you’re looking for a view of just the celebration then start at this post HERE where we kicked off the event or if you want more detail about Knucklefest then go HERE or for a wrap up of the event HERE.  If you’re looking for a recap and a shout out to the Miller girls then go HERE.

Clearly there is a lot to do at the H-D Anniversary celebration and it’s best to get a jump on planning for it early.

Photo courtesy of H-D and H.O.G.

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H-D announced Q2’11 financial results this morning.

In a word – Booyah!

By every financial measure Harley-Davidson generated improvements in the second quarter of 2011, with strong earnings growth, increased shipments and growth in its dealers’ new motorcycle sales both in the U.S. and globally.  Here are some of the stats that CEO Keith Wandell and CFO John Olin reviewed from Anaheim, CA. where the annual dealer meeting and new product launch was in progress:

  • Revenue in Q2’11 was $1.51B (up 15%) with income up 36.8% to $190.6M
  • Motorcycle shipments up 7,769 in Q2’11 vs. Q2’10; Motorcycle segment revenue up $204.6M (18%) vs. Q2’10
  • Touring motorcycle shipments made up 38.3% in Q2’11; up 3.6%
  • International shipments were 36.2% in Q2’11 vs. Q2’10 at 42.5%
  • Shipment forecast for 2011 rose by about 8% and now H-D expects to ship between 228,000 and 235,000 motorcycles worldwide
  • Market segment share (651+cc) is 53.8%; up 0.2% from 2010
  • U.S. dealer network sales of uses motorcycles up 11% through May; Used bikes sales continue to firm up (meaning they offer the dealer a method to help offset the “sticker shock” of new bikes)

Did anything go less positive?  Well that depends on your viewpoint.  From a shareholder’s perspective it’s “Houston, we’re ready to throttle up”!   Stock price set a new 52-week high at $46.88.

As a rider/layman the touring motorcycle shipment increases were offset by the decreases in Custom and Sportster declines.  There were no age demographics quoted in the analyst call, but we’ve been told that typically “youngsters” don’t buy the higher priced baggers.  In addition, the new 2012 touring models that were announced earlier in the month have… shall we say… “lean” engineering innovation compared to previous years.  In a number of cases there we’re only paint palette changes and price increases made up the so-called “new” touring models.  There was about a 1% price increase in the U.S. market.  The lack of innovation is especially troubling (to me) given that product development spending was up $7M in the first half of 2011 which was described as a continuation of their strategy and focus on leaner engineering.  Sure metals and fuel costs are up, but the lack of stronger product changes is not always a recipe for long term success.

Nothing was noted on the call about the recent expansion in India.  Not sure why given that SG&A expenses were up about $13M on the strategy to grow 100 – 150 international dealers by 2014.  Latin America saw a decrease in retail sales which was largely due to all Brazil dealers being terminated.  There was a restart in that country and the new dealers (6) were coming up to speed.

Congrats to H-D on a great quarter!

UPDATE: Full transcript of the analyst call is HERE courtesy of SeekingAlpha.

Photo courtesy of H-D.  Full Disclosure: I don’t own H-D stock

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2012 Paint Palette

Have you been reading the headlines? There was a big earthquake in Haiti. Some men were rescued from a mine in Chile. Oh, and apparently there was a gigantic oil spill in the Gulf of Mexico.

What’s that you say? This all sounds like last year’s news?

Well, don’t tell that to Harley-Davidson. The motor company recently introduced 15 new models, which it considered innovative and groundbreaking  products:  a “tubeless” laced wheel option, and six new colors or color combinations on the touring models!   Then in a déjà vu lapse they announced the retention of last year’s integrated branding firm Graj + Gustavsen Inc. to continue advising the company on strategic branding initiatives related to apparel and apparel-related accessories.

It would seem that even Harley-Davidson understands that the touring models have so few innovations that their only hope of differentiating itself from the other players is through paint palettes…. So, the only buying question you’ll have to ask yourself, then, is: Does H-D make a convincing enough “color case” that you should invest about $20K in a “new” touring model?

Here’s the crux of H-D’s argument.  First of all, the new colors or color combinations are beautiful. The mostly unchanged motorcycles from 2011 are even more beautiful in 2012.  The unchanged frame is beautiful, too. It’s graphically coherent, elegant, fluid and satisfying. That, apparently, is the payoff when a single company designs and builds both the engine and frame housing?  The ‘advanced’ Harmon/Kardon radio retains its 1970’s BMW inspired ‘red’ glow and that glossy Vivid black paint — continues to be a magnet for fingerprints, boot scuffs, and unfortunately looks wicked great only in the dealer showroom. I think the words in the H-D press release were “The Legend Lives On.”  The band, Talking Heads, said it best… in the song “Once In A Lifetime.”  The “same as it ever was, same as it ever was” lyrics… really resonates for the 2012 touring models.

It’s been a while since I’ve had a good, proper, Harley-Davidson rant. Part of that has been the adventures of this year; I think it’s softened me and given me more patience, made me a little more graceful. Another part of it, probably closer to the heart of the matter is that I’ve been busy doing other things and a good rant takes time to incubate.

Well a rant has been building and I finally snapped as I read an article in last week’s “Wall Street Journal” (subscription required) where there was a front page story on Hyundai. How it went from a laughingstock to a runaway success in the car market. Now that they’ve solved the quality problem, now that they’ve caught up with Toyota and Honda, the company is confronted with a huge issue going forward, creativity. How do you lead when you’ve spent your entire manufacturing life following? Read WSJ article HERE.

The new Elantra is so far ahead of the market that Corolla sales have stalled and the new Civic has been blasted by critics as it fails to fly from the showroom. Instead of focusing on the econo box look, Hyundai imitated BMW and Mercedes-Benz. And the model was redesigned in four years instead of five, trumping its competitors in the marketplace.  The success of the Elantra is testimony to the change in culture at Hyundai. To one now focused on leading, on creativity.

This leads me to the question of is there a culture of innovation at Harley-Davidson?  When talking about innovation we often define the term too narrowly. In fact, innovation can – and does – occur in every industry of our economy, from consumer electronics to health care.  Yet, when I re-review the 2012 touring models, instilling creative thinking must be a work in progress.

For comparison, a few times a week, video screens around Hyundai’s headquarters in Seoul show a one-minute clip that has become a favorite. It shows an open office where workers wearing the same shirt and haircut are “beavering” away (that’s Oregon slang). Then a new person arrives with a different hair cut. Each time he voices an idea, the others shout him down. Eventually he gets the same haircut and everybody likes him. Then a question appears: ‘Aren’t we stuck in conventional thinking?’

I don’t know if a video loop like that would necessarily fly in a Milwaukee plant with the union workers, but that’s not the point of this post.

It’s about how most every American business is in a mad dash to innovate except for H-D.  The only answer can be the titans at the top are traffic cops sans creativity?  Don’t blame the public or the economy, blame the fat cat executives who are denying they’re the problem like the honchos at Goldman Sachs. What makes the rich believe they’re invulnerable, always right and entitled?   Somehow in the “dash-for-cash”, it’s all about shooting low, to the sweet spot, where most people live so the purveyors can make money.  Good enough just doesn’t cut it and of course there are exceptions, but generally speaking we’re in a low point for H-D touring motorcycles.

It’s a new game. No one gets to rest on his laurels. Making it today is no insurance you’ll thrive tomorrow, look at the carcasses strewn along the highway… OCC, Indian, or Big Dog.

We’ve got endless hype and yet sales are anemic.  Mediocrity thrives at Harley-Davidson because it’s all about the money.  About playing it safe… with new paint palettes!

Photo courtesy of  Hyundai and H-D.

All Rights Reserved © Northwest Harley Blog

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Father Arsenios at the Vatopaidi Monastery

I was reading an article by Michael Lewis’s on the Greek financial crisis which somehow seemed to be framed by a story involving monks?  I was only scanning the article because I just didn’t care that much.  But, I couldn’t figure out the angle, what exactly did the monks do?

Jumping back, I discovered it involved some land swap.  It seems that no one pays taxes in Greece unless they work for a corporation and the country’s economy is even worse than that of the U.S., but in searching for this so-called heinous monk behavior I came across this passage, wherein Father Arsenios points to a sign he had tacked up on one of his cabinets, and translates it from the Greek:

“THE SMART PERSON ACCEPTS. THE IDIOT INSISTS.”

He found the sign on one of his business trips to the Ministry of Tourism.

“This is the secret of success for anywhere in the world, not just the monastery,’ he says, and then goes on to describe pretty much word for word the first rule of improvisational comedy, or for that matter any successful collaborative enterprise. Take whatever is thrown at you and build upon it. ‘Yes…and’ rather than ‘No…but.’ ‘The idiot is bound by his pride,’ he says. ‘It always has to be his way. This is also true of the person who is deceptive or doing things wrong: he always tries to justify himself. A person who is bright in regard to his spiritual life is humble. He accepts what others tell him – criticism, ideas – and he works with them.'”

Eureka!  That’s it! This explains the behavior of workers in USW Local 2-209, USW Local 460, and IAM Lodge 78 who yesterday approved the new Harley-Davidson labor agreement.  Previously, Harley-Davidson management has said that approval of the new agreement would be required for the company to keep jobs in the state and the board confirmed it will keep WI, plants open.

Rather than distance themselves the union and workers leaned in.  Now harmony has ensued and everybody can move forward.  Congrats!

UPDATE: September 14, 2010 (1:15pm PST) — H-D posted a press release HERE on the ratification details of the new 7-year labor agreement.  The company expects to have 325 fewer unionized employees in Milwaukee and the new contract will generate about $50M in annual operating savings in 2013.

Photo courtesy of Father Arsenios and Jonas Fredwall Karlsson.

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The Myth of Fair Value - William Poundstone

It was rather fitting that last week Harley-Davidson workers in Milwaukee got their first look at a proposed labor agreement that would take effect in 2012 at about the same time as President Obama spent Labor Day at Laborfest where he announced a $50 BILLION jobs plan centered around transportation infrastructure including the rehab of 150K miles of road.

Well, I’ve traveled Milwaukee roads (and lived to blog about it!) and I can say they need rehab!  No argument there.  Bring on the new asphalt.

Speaking of jobs, Wisconsin has lost 35,000 manufacturing jobs since Obama took office in January 2009.  A total of 182,000 manufacturing jobs since 2000.  In July 2010 the unemployment rate was 7.8% a couple of points below the national average.  A good job that pays a good wage with health care and provides for a secure retirement even if you’re not rich might sound like simple ideas, but American workers are in dire straits.  There are job cuts and plant closings facing down families and the job cause is more urgent than ever.

This fact has not escaped Harley-Davidson executive management as workers in USW Local 2-209, USW Local 460 and IAM Lodge 78 will vote on a new labor contract Monday, September 13th which would preserve about 1,300 jobs in Milwaukee (PTO) and Tomahawk.  You can read the full 65-page text of the agreement on the Cyril Huze blog HERE.

The key highlights are they plan to institute a 7-year pay freeze, implement salary cuts, create a two-tiered work force, cut a couple hundred positions and use seasonal workers (who would make about half what current full-time employees earn).  According to the Kansas City Journal tier-1 employees would be paid between $30.50 and $34.38 an hour during the first year of the agreement, depending on job classification and tier-2 would earn between $21.96 and $29.87 an hour.  Pretty dam good pay if you’re unemployed!

And now just days before the vote Harley-Davidson CEO, Keith Wandell sent a letter to employees “highlighting his concerns” or what some might call spinning “why you should earn less.”  The letter was made available to JS Online by an employee.  You can read the full text of the letter HERE.  The key highlights are:

  1. An ultimatum — that if the contract is rejected the board will act the following day to authorize the process to relocate the production operations
  2. H-D is restructuring the design process to reduce development time and place a greater focus on “WOW”
  3. H-D is reducing the size of the dealer network
  4. H-D is challenging their suppliers like never before
  5. H-D is aligning all manufacturing operations under a common “production operating system”
  6. H-D is doing everything with fewer people (including salaried h/c) to run leaner at today’s lower volume

There is a Wisconsin metaphor: “You only worry as far as you can milk it.”  The recession favors management as an excuse to slash costs and puts more pressure on workers to agree to the demands.  In addition, the motor companies go-forward business strategy and restructuring is getting some traction.  So, it looks like labor concessions are an insurance policy for the future.

UPDATE: September 14, 2010 — H-D posted a press release HERE on the ratification details of the new 7-year labor agreement.  The company expects to have 325 fewer unionized employees in Milwaukee and the new contract will generate about $50M in annual operating savings in 2013.

Photo courtesy of William Poundstone

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