Federal Investigators Knock On Harley-Davidson’s Door

I’ve never been ask this question, but I was curious how you know if you’re under Federal investigation?

In Harley-Davidson’s case it might have been a knock on the door of the Milwaukee HQ.

As it turns out, the U.S. government is investigating complaints from Harley-Davidson owners who say their motorcycle brakes failed without warning.  The National Highway Traffic Safety Administration (NHTSA) states the investigation covers 430,000 motorcycles with model years from 2008 through 2011 and the investigation stems from motorcycles with an anti-lock braking system.

A common motorcycle maintenance task is to replace the hydraulic fluid in the brake system.  Check your service manual, but for many Harley-Davidson models it’s recommended to change the D.O.T. 4 fluid and flush the brake system every two years.

Did you know brake fluid can collect condensation over time from the outside air?  Brake fluid collects water in a similar fashion as your McDonald’s soda cup has water droplets on the outside. Hydraulic fluid will over time absorb water which causes the fluid to boil when the brakes are applied and will reduce effectiveness of the system.  A spongy brake feel might be a combination of contaminated brake fluid or air in the system. Either way, changing the brake fluid is often recommended.

But, I’ve digressed.  Motorcyclists have reported that the brakes on the hand lever and foot pedal did not work, causing one driver to crash into a garage door.

Government regulators said they’ve received 43 complaints, three reports of crashes and two reports of injuries.  The NHTSA said it is possible that some riders who experienced brake failure did not change the motorcycle’s brake fluid every two years as recommended by Harley-Davidson Inc.  The old fluid may corrode valves in the anti-lock braking system, but even if riders did not change the fluid, the sudden brake failure “is a concern.”This is not a motorcycle product safety recall as of yet.

Harley-Davidson stated it was aware of the Federal investigation and that it was cooperating with regulators.

Photos courtesy of H-D.

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The CanAm Fire Controversy

Can-Am Spyder

Hype, or is Bombardier taking a gamble?  But, lets start at the beginning.

U.S. safety regulators are investigating two reports of fires in the Can-Am Spyder three-wheeled motorcycles.

The motorcycles are made by Bombardier Recreational Products Inc.  (BRP) of Canada and the probe covers about 52,000 motorcycles from the 2008 through 2014 model years and they are looking into what is causing the fires.

Bombardier has had three recalls to date in 2012 and 2013, and all involved the risk of fires. Last year, the company recalled about 8,200 Spyders because brake fluid leaks could cause fires. In 2012 it recalled about 34,000 because fuel vapors could leak due to an ill-fitting gas cap. It also recalled 9,600 because fuel vapors could exit a vent hose in the engine compartment.

I don’t want to draw any similarities because these are very different situations, but many of you might recall the Ford Pinto.  It was one of the biggest continuing automotive news stories in the late 1970s with dramatic tales of exploding Fords on the highway and considerable awards from civil-court juries that were presented to victims of accidents involving the cars.

At the time, experts calculated the value of a human life at around $200,000, while a serious burn injury was worth about $67,000. Using an estimate of 180 deaths and 180 serious burns, someone at Ford put on paper that the cost to redesign and rework the Pinto’s gas tank would cost close to $137 million, while possible liability costs worked out to around $49 million.

Ford’s corporate legal machine went to work, however, when the memos regarding the liability assessments were leaked and entered into evidence, the cases were as good as over and Ford paid dearly in civil claims, public image and as a brand for product safety.

Former Ford exec Lee Iacocca reflecting on the Pinto incident and Ford’s attempts to control the damage, made this summation in his book Talking Straight: “Clamming up is what we did at Ford in the late ’70s when we were bombarded with suits over the Pinto, which was involved in a lot of gas tank fires. The suits might have bankrupted the company, so we kept our mouths shut for fear of saying anything that just one jury might have construed as an admission of guilt. Winning in court was our top priority; nothing else mattered.”

BRP is a world leader in the design, manufacturing, distribution, and marketing of motorized recreational vehicles and powersports engines.

The term “transparency” means much more than the standard business definition and its my hope that the company will be candid with the motorcycle riding public beyond the narrow interpretation of legal compliance on the risk of fires.

Photo courtesy of BRP.

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Harley-Davidson Out-BMWing BMW

With a cocktail of high-strength steel, aluminum, magnesium, rubber and plastic Harley-Davidson adds flexibility, functionality and refreshed paint schemes to their model lineup each year.

By the numbers, 2012 was a pivotal year for Harley-Davidson.  Earnings per share up 16.7%, revenue growth up 6%, $280M annual savings from restructuring, sales outreach with the 18-34 demographic grew at twice the rate of core customers, but in the first ever Consumer Reports’ motorcycle reliability survey, conducted by the Consumer Reports National Research Center about 1-in-4 owners of Harley-Davidson motorcycles reported experiencing a major problem with the motorcycle in the previous four years.

Twenty-five percent had a major problem!

H-D Executive Leadership Team

It turns out that BMW motorcycles were even less reliable than a Harley-Davidson with about 1-in-3 owners reporting problems in the previous four years.  How did the Japanese manufactures perform?  Only about 1-in-10 Yamaha owners experienced issues during that time, followed closely by Kawasaki and Honda.

However, reliability problems don’t seem to affect the satisfaction scores of owners and their bikes.  When asked whether, considering everything, they would buy their bike again if they had to do it over, 75% of Harley-Davidson owners said definitely yes, closely followed by 74% of BMW owners and 72% of Honda owners.  In contrast, only 63 and 60% of Yamaha and Kawasaki owners, respectively, would buy their bike again.

Both BMW and Harley-Davidson riders have segments that skew more toward the enthusiast and hardcore, meaning they tend to keep bikes longer and I wonder if this says something about the riders than the bikes.  Could H-D riders be more critical about problems?

AZ Proving Grounds Video

In 2012, the average U.S. retail purchaser of a new Harley-Davidson motorcycle had a median household income of approximately $89,500. The Company defined its U.S. core customer base as Caucasian men over the age of 35 and its U.S. outreach customers as women, young adults, African-American adults, and Latino adults. (Sources: 2012 Company 10K and 2012 Annual Review)  The motor company no longer provides data on age demographics which had been rising in recent years.

Reliability is only one of several factors buyers consider when purchasing a Harley-Davidson motorcycle.  Among the bikes that needed repairs, survey respondents reporting having the most trouble with accessories, such as lights, instruments, switches, and radios (21 percent), brakes (20 percent), the electrical system (16 percent), and the fuel system (15 percent).  Most of the repairs were fairly inexpensive, but for a company whose reputation relies heavily on the quality of its products the 1-in-4 number is perplexing.

The survey results can be viewed by subscribers at the ConsumerReports.org web site and in the May issue of Consumer Reports.

Photos courtesy of H-D.  

H-D Executive Leadership Team photo: (Left to Right — Tonit Calaway (VP, Human Resources); John Olin (Sr. VP and CFO); Keith Wandell (Chairman, President and CEO); Lawrence Hund (President and COO HDFS); John Baker (GM, Corp Strategy and Business Development); Joanne Bischmann (VP, Communications); Paul Jones (VP, General Counsel))

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Harley-Davidson Brake Light Recall Effects Thousands

H-D Brake Light Switch

Harley-Davidson issues a recall notice, NHTSA Campaign ID Number 11V506000NHTSA, earlier in the week.  The component in question is the brake light switch.

According to the recall report excessive heat from the exhaust may cause the switch to not activate the brake lamp or activate the brake lamp when no brake is applied and/or cause a brake fluid leak at the brake light switch.  H-D is recalling certain model year 2009 – 2012 Touring, CVO Touring and Trike motorcycles manufactured from June 6, 2008 – September 16, 2011.

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The list of affected models is significant and the potential number of units is over 250,000.  H-D will notify owners and dealers will install a rear brake light switch kit free of charge.  The recall is expected begin on or about October 31, 2011.  Owners may contact H-D at (414)343-4056 or go to NHTSA for more information.

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Photo courtesy of H-D.

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Dancing With The Heat Dragons

No, it’s not a new motorcycle club.  It’s not even a reference to the 40+ continuous days of 100°+ temperatures in Texas.

I’m talking about litigation “heat” for the motor company.

Recently a Federal Court Judge has denied a Harley-Davidson motion to dismiss Harley bikers’ claims for fraudulent and unfair business practices, violations of Consumers Legal Remedies Act (CLRA), and unjust enrichment. As a result a class action lawsuit** will now go forward against Harley-Davidson alleging certain Harley motorcycle engines produce severe, and excessive heat causing burn injuries and clothing to catch on fire.

Class action lawsuit filings are nothing new to Harley-Davidson.   Back in 2005 there was a lawsuit/complaint against the company alleging securities law violations.  Of course the company believed that that lawsuit was without merit and vigorously defended against any action just like they will on this latest case.  Talk about keeping the legal department busy, this class action suit adds to another lawsuit by Brando Enterprises HERE on the “Brando Boot.”

At any rate last week, a federal judge ruled that a class action overheating & burn lawsuit against Harley-Davidson could go forward, siding with four bikers who claimed their Harley-Davidson motorcycles were defectively designed because their engines ran so hot as to pose a constant danger to riders of being burned and were therefore not fit for their intended use.

The complaint alleges that since 1999, Twin Cam 88, 96, 103 and 110 cubic inch engines in Harley motorcycles produce severe, excessive heat causing clothing to catch on fire, burn injuries and the danger of burn injury to riders and passengers as well as overheating causing premature engine wear and is in models manufactured after 2006, transmission failure.  Although Harley-Davidson asked the Eastern District of California court to throw out the claims under state law, the U.S. District Judge sided with the plaintiffs.

Harley-Davidson will now face a Class Action Certification process at the end of the month.

**Case No. 2:10-CV-02443-JAM-EFB in the Eastern District of California (Plaintiff’s represented by Owen, Patterson & Owen)

Photo courtesy of Jeff Hoffman.net

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Number Crunching And Health-O-Meter

Northwest Harley Blog Health-o-Meter

Contrary to some of my previous posts, I’m just not a numbers guy.

I’m no mathematician, but I know the odds of winning the lottery are astronomical and for the most part I balance my checkbook, so when earlier in the month I received an email from the WordPress crew congratulating me on the Northwest Harley Blog stats for 2010 I was a bit skeptical.

The dichotomy doesn’t escape me.  It’s like the advertising industry promoting itself through ads or how Fox Business News promotes itself with on-air promos that declare it the best [pick your adjective here].  So it is with some speculation and a good deal of in trepidation that I offer up this (as some will see it) self-promo and recap for 2010:

Stats: This blog was viewed more than 207,000 times in 2010. I wrote 170 new posts, growing the total archive on the blog to 708 posts. I uploaded 307 pictures – about 6 pictures per week – with the busiest day of the year being September 10th.  Since starting the blog, the all time busiest day was March 9, 2009 (9,120 page views) from this blog post HERE.

Where did they come from?: The top referring sites in 2010 were hdforums.com, en.wikipedia.org, mahalo.com, and en.wordpress.com.  A lot of visitors came to the site by searching, mostly for sons of anarchy, susanne klatten, occ, vagos mc, jay dobyns, yakuza, and old motorcycles.

Main attractions in 2010: Below are the posts and pages that got the most views in 2010:

1.    Outlaw Motorcycle Gangs Are New Media Darlings May 2008; 85 comments
2.    Outlaw Motorcycle Gangs Flying Colors in Oregon May 2008; 44 comments
3.    Vagos MC Meeting In Grants Pass August 2008; 63 comments
4.    OCC Family Feud Ends February 2010; 4 comments
5.    Vintage Motorcycles – Honda CB750 April 2008; 7 comments

It’s unfortunate that only one post in 2010 hit the top 5, but it’s gratifying that some of the more popular posts written before 2010 indicate that the content has staying power.

What about Facebook?: According to AllThingsNow.com the highest shared post on Facebook related to the Patriot Guard HERE.  If interested you can see all the details of shared articles via Facebook HERE.

My take away from all the stats?  I’m fairly objective when it comes to evangelization, but if I had to write a 10 second news headline it would be something like:  “Northwest Harley Blog: After three years a solid start, has a few rough spots.  Sometimes brings deep motorcycle news to the masses. It’s an informative site to surf and may well draw both avid motorcyclists and the non- riding public viewers in which Harley-Davidson seeks”.

Okay, back to quality writing and time to put away the self-promo soapbox!

Photo courtesy of WordPress.com

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Helmets Are Just A Shiny Hat

Helmet Impact Attenuation Test

Or are they?  Ever wonder what standards and the testing that goes into DOT and/or SNELL certified helmets?

I did, but first some background.

Tucked within the Department of Transportation is the National Highway Traffic Safety Administration (NHTSA), which regulates the performance of motorcycle helmets (among other vehicle products) under the National Traffic and Motor Vehicle Safety Act of 1966. In accordance with the Safety Act, NHTSA promulgated Standard No. 218, which spells out the testing procedures that helmets sold in the U.S. must satisfy.

One of these procedures is an “impact attenuation test,” which involves the dropping of a helmet from a minimum height of six feet onto an anvil to measure the effect of the impact on the helmet. Id. at S7.1. Another test applies force to a helmet’s chin strap to determine whether the helmet will remain in place during a crash. See id. at S7.3.

Interestingly, Standard 218 relies on self-certification, which means that companies test and certify their own helmets rather than having NHTSA do it for them. When helmets pass the test, the companies place a Department of Transportation (“DOT”) label on them.  NHTSA enforces these requirements by randomly purchasing helmets, employing independent companies to run compliance tests on them and publishing the results.

DOT certified helmets according to conventional wisdom are typically less-expensive than SNELL certified helmets.  I’m not so sure given the internet pricing these days.  At any rate, the SNELL Memorial Foundation (a not-for-profit American organization funded by helmet makers) sets widely adopted standards for helmet performance.  In fact, Formula 1’s sanctioning body, the FIA, has a similar helmet standard that applies to many racing events.  The SNELL certification sticker on a helmet means it has passed a series of tests that hopefully you’ll never experience!  For example a few of the latest SNELL SA 2010 standards (updated every 5 years) are as follows:

Outer Layer: The outer layer is made from a composite such as fiberglass or carbon fiber and covered with a protective enamel coating.  To meet the SA 2010 standard a helmet must be able to withstand a 1450-degree (F) propane flame for 30 seconds during which the padding inside the helmet can’t exceed 158 degrees.

Face Plate: Open face helmets are acceptable for some, but those who want all the protection possible will opt for a full-face helmet with a visor shield.  The SNELL test calls for a visor shield to resist piercing by one-gram lead pellets fired at it in 3 locations at a speed of 311 MPH.  In addition, the shield must endure 1450-degree (F) torch for 45 seconds without melting.

G-Forces: If you take a serious blow to your helmeted head, most of the force is absorbed by the thick layer of foam.  The SNELL standard mandates the helmet must accelerate the head it’s protecting at a peak of no more than 275g after being struck with an anvil at speeds as high as 17 MPH.  Certain procedures subject the helmet to three of these hits in a row.  The structure of the helmet must remain intact.

I don’t think there is anyone out there who is confused about the purpose of a crash helmet, but now when you see the SNELL or DOT symbol you may have a better appreciation of the standards.

Links to some helmet manufactures:  Arai; Bell; Pyrotect Pro; Schuberth GmbH; Simpson

Looking for more information?  There is an interesting article written by Dexter Ford, long-term writer for Motorcyclist, who researched and wrote the article in the New York Times entitled “Sorting Out Differences in Helmet Standards.” It was published on September 25, 2009.  Conspiracy advocates believe Ford was fired over the article which angered the magazines advertisers.

Still looking for more?  The court (Cincinnati-based federal appeals) revives a defective motorcycle helmet claim against Fulmer Helmets HERE.

Photo courtesy of NY Times/Jim Brown.

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Triumph Sprint Recall

Triumph Sprint GT

Triumph Motorcycles are recalling certain model 2010 Sprint ST and GT motorcycles. NHTSA information HERE.

The problem is an incorrect length dipstick and as a result the accuracy of measuring the oil level might be in error.  The remedy is that dealers will replace, free of charge, the engine oil plug/dipstick fitted to the clutch cover.  The recall is expected to begin this month.  Owners may contact Triumph Motorcycles at 678.539.8782.

NHTSA Campaign ID Number: 10V639000
Report Date: December 28, 2010

Photo courtesy of Triumph Motorcycles

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Thinking Snow And Wishful Drinking

Think Snow Bumpersticker - HD Advertising (circa: 1972-74)

It was a big year for Harley-Davidson as they shifted from downsizing, labor agreements and weathering the recession to now looking forward to growth in 2011.  With freezing temperature and snow falling in many parts of the U.S., I’ve compiled some 2010 highlights to provide you some entertainment as you warm up with hot chocolate:

January
1.    Downtown H-D Renton, WA., one of the northwest dealers named among top 100 (Link: HERE)
2.    H-D reported its first quarterly loss since 1993 (Link: HERE)
3.    H-D announces the new, but “old” Forty-Eight Sportster (Link: HERE)

February
1.    H-D donates 28 new Buell and H-D motorcycles to assist in the earthquake disaster (Link: HERE)
2.    H-D marketing continues to pitch brand with young-rebel-with-tats ethos (Link: HERE)
3.    H-D internal documents indicate 382,000 absenteeism hours in the factories (Link: HERE)

March
1.    H-D promotes danger as Seth Enslow breaks Bubba Blackwell’s jump record (Link: HERE)
2.    H-D dealer (Shumate) in Kennewick, WA., closes under a mountain of debt. (Link: HERE)
3.    H-D CEO, Keith E. Wandell 2009 compensation package becomes public as the $6M dollar man (Link: HERE)
4.    H-D marketing pulls out all stops on innovation and launches Super Ride II (Link: HERE)

April
1.    H-D consolidates motorcycle testing in Arizona Proving Grounds (Link: HERE)
2.    H-D files mass layoff notice with Wisconsin department of workforce development (Link: HERE)
3.    H-D CEO, Keith E. Wandell is “encouraged” as Q1 motorcycle sales revenue declines 20% YOY (Link: HERE)
4.    After 26 years of service Bill Davidson is put in charge of the Museum (Link: HERE)

May
1.    H-D CEO, Keith E. Wandell states in interview that H-D is like GM…a fading American industrial might (Link: HERE)
2.    H-D threatens to leave the state of Wisconsin (Link: HERE)
3.    H-D CMO, Mark-Hans Richer is no man crush of this blog (Link: HERE)

June
1.    H-D launches XR1200 Refresh (Link: HERE)
2.    H-D launches Wii based-game: “Road Trip” (Link: HERE)
3.    H-D at the National Law Enforcement Museum (Link: HERE)

July
1.    H-D opens Hyderabad, India showroom to pandemonium (Link: HERE)
2.    H-D reports Q2 earnings with financial services being largest money maker (Link: HERE)
3.    H-D launches the 2011 model lineup of 32 bikes vs. 38 the prior year (Link: HERE)

August
1.    H-D announces closure of sidecar business which operated since 1914 (Link: HERE)
2.    H-D announces 1-MILLION fans on Facebook (Link: HERE)
3.    H-D sold back MV Agusta to its previous owners (Link: HERE)
4.    H-D announces that after 31 years they’ve parted ways with PR firm Carmichael Lynch (Link: HERE)

September
1.    Erik Buell releases teaser ads promoting a new street bike based on 1190RR (Link: HERE)
2.    H-D gives away free posters of any of their 32 models (Link: HERE)
3.    H-D under threat of moving out of state announces ratified 7-year labor agreement (Link: HERE)
4.    H-D “spins” the fact that massive branding efforts result in a 24% brand value decline (Link: HERE)

October
1.    H-D reports Q3 earnings with motorcycle sales declining 7.7% worldwide and 14.4% in the U.S. (Link: HERE)

November
1.    H-D management “negotiates” with Kansas City plant to accept a new labor agreement or we’ll leave state (Link: HERE)
2.    H-D turns down a $25M tax credit deal by Wisconsin State (Link: HERE)

December
1.    H-D never disclosed a $2.3 BILLION deal with Federal Reserve (Link: HERE)
2.    H-D announces first ever “Crowd Sourcing” for new marketing ideas (Link: HERE)

Photo courtesy of H-D.

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If I Have To Explain It

MV Agusta - F4

I’m not sure who said it, but there’s an old saying about Harley-Davidson, that goes something like: “if I have to explain it, you wouldn’t understand.”

So, on the day I left for Sturgis (August 6th), Harley-Davidson announced it had concluded the sale of its subsidiary, MV Agusta, to Claudio Castiglioni and his wholly owned holding company, MV Agusta Motor Holding, S.r.l.   You may recall that in October 2009, under the new leadership of CEO Keith Wandell, H-D announced its intention to sell MV Agusta as part of a NEW corporate strategy and to focus resources on the Harley-Davidson brand.  In fact, Mr. Wandell was in route to Minnesota on this announcement day so his handlers undoubtedly had everything all wrapped up prior to his departure ride to Sturgis.

The divesting announcement came 2 years (almost to the day) after it completed the $108M purchase acquisition of MV Agusta on August 8, 2008.  Then CEO Jim Ziemer said of the purchase:

“We are thrilled to welcome the MV Agusta family of customers and employees into the Harley-Davidson family of premium motorcycle brands,” … “Our primary focus with this acquisition is to grow our presence and enhance our position in Europe as a leader in fulfilling customers’ dreams, complementing the Harley-Davidson and Buell motorcycle families.”

The divesting announcement didn’t include the sale price but its 8-K filing with the Securities and Exchange Commission revealed the company essentially paid MV Agusta’s former owners to take it back.  In the filing Harley stated it “contributed 20 million Euros to MV as operating capital” that was put in escrow and is available to the buyer over a 12-month period. The buyer was Claudio Castiglioni, who, with his brother Gianfranco, ran MV Agusta for years before selling it to Harley two years ago.  In the filing Harley also said it received “nominal consideration” from the buyer. In a subsequent interview the company said the specific amount it received was $3 Euros (~$3.98 USD)

In 2008 most of us were stymied by the purchase of MV Agusta.  As a maker of expensive and exotic, high-performance sport bikes at minimum it overlapped with the Buell products and even worse was the company never explained how MV could attract younger buyers to H-D.

Here are my questions.  How many laid off workers equal the cost of this poor decision and why hasn’t the Board of Director’s been held accountable for one of the worst business decisions in H-D history?  Yeah, they’ll likely tell me “if they have to explain it I wouldn’t understand…”

I previously blogged about H-D going Italian HERE.

Footnote:  There is a certain level of incompetence from the old time management at H-D and they should-have-known-better.   It’s not the first time Harley-Davidson has had a hard time with an Italian acquisition. In the 1960s it bought a stake in Aermacchi, a maker of small off-road bikes as a way to expand into new markets. Eventually it bought the whole company, but that move also eventually failed and Harley sold Aermacchi in the late 1970s. The sellers and buyers: the Castiglioni brothers.

UPDATE: September 11, 2010 — Not previously made public, but buried in the Sale and Purchase Agreement filed with the SEC is a provision that H-D retains control of any press releases and statements about the sale for a year from the August 6th closing date.  Why?  Maybe the fact that H-D forgave a $103M Euro receivable… basically money it had loaned MV Agusta for operations.  The sale agreement specifies that the receivable transfers to Castiglioni for $1 Euro!!  Shareholders need to hold the board and management responsible for this “BARGAIN:”  H-D paid $108M, then put $20M Euro in escrow for Castiglioni when they “sold” it back; forgave $103.7M Euro’s lent to MV Augusta and wrote off $162.6M on the company.  Q3’10 will include more losses due to tax liabilities…does it ever end?

Photo courtesy of MV Agusta.

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