The Harley-Davidson “Green Value Proposition”

I’ve reached the stage of life where any compliment I get about appearance or physicality is accompanied by “for your age!”

After indulging in that “rant” about China and not posting for a few weeks some wonder if I caught the “COVID.”  No, but I’ve been waist deep in the fine art of Harley-Davidson apathy, trying to get back on track… So, let’s talk about exec salaries and how the year+ of the pandemic “rained money”… and not the eco-dollar benefits of any ‘Green’ initiative.

First, let’s establish a baseline. According to “Google”, the average Harley-Davidson salary ranges from approximately $25,000 per year for a Parts Specialist to $133,555 per year for General Manager. Average Harley-Davidson hourly pay ranges from approximately $9.08 per hour for Automotive Detailer to $39.94 per hour for Tool Maker.

Now let’s double-click on the 2020 Harley-Davidson top executives compensation:

Harley-Davidson’s current chairman, president and CEO Jochen Zeitz’s total compensation was $9.4 million in 2020 — Remember way back in April 2020 when Harley-Davidson said that its then acting president and CEO Jochen Zeitz and the company’s board of directors would forgo any salary or cash compensations? They pushed out a news release with the typical “aren’t we great” statements along with how the rest of Harley-Davidson’s executive leadership would take one for the team and also see a 30% reduction in salaries and most salaried employees in the U.S. would see a 10%-20% salary reduction.

So, “forgoing” a salary and/or cash compensation REALLY means collecting $9.4 million!

Where do I sign up?

But wait, there’s more… 2020 was the same year in which the motor company also paid over $4.1 million in severance to former president and CEO Matt Levatich, a serial overconfident exec who created unambiguously bad managerial optimism, which resulted in over 20-quarters of financial loss. In addition, two other executives departed with the same illness, let’s call it Managerial Optimism Flu (MOF).

Specifically, Matt Levatich received a lump-sum severance payment of $2.15 million in 2020, according to the company’s April 9 proxy statement. In 2020, the company also paid Levatich $343,572 in salary and stock awards valued at $5.45 million. Levatich also saw a $653,000 increase in the value of his pension and nonqualified deferred compensation earnings that brought his total compensation in 2020 to $8.7 million, according to the proxy statement.

Mr. Zeitz was named to the CEO position in May 2020. So, for his eight (8) months as chairman, president and CEO, his total compensation of nearly $9.4 million was more than the $7.6 million Levatich received in all of 2019, which was Levatich’s last full year in the job. Zeitz’s salary in 2020 was $1.68 million compared to Levatich’s $1.08 million in 2019. Zeitz also was paid a $1 million bonus, stock awards valued at $5 million, non-equity incentive payments of $1.5 million and other compensation of $206,233.

I’m surprised that line workers didn’t shout from the roof-top that they would “forgo” any salary too!

A couple of other former executives who received large severance payments of note were former CFO John Olin and former senior vice president and COO Michelle Kumbier. Olin left the company in July 2020. He was paid a lump sum of $1.34 million, according to the proxy statement. For six (6) months of filling that position, he also received $374,421 in salary and stock awards valued at $1.75 million in 2020. Michelle Kumbier received a lump sum of $660,000, according to the proxy statement. You might recall that this payment was previously publicly embargoed then it was disclosed; described as a “settlement” after she threatened litigation connected to ‘unspecified events’ related to her departure in April 2020. For the four (4) months in her position, Kumbier was paid $223,385 in salary in 2020 and stock awards valued at $1.58 million.

According to this report; CEO compensation surged 14% in 2019 (most current data) to $21.3 million.  They now earn approximately 320 times as much as a typical worker.

It’s been widely documented how exorbitant CEO pay is and how it’s a major contributor to rising inequality in the U.S.  The Harley-Davidson payouts might sound like a big cash layout, because — well, it is!

Wait. Mr. Zeitz grabbed the handlebar, replacing the “More Roads” strategy with a hard-nosed approach he called “Hardwire” and what if he turns around the company you ask?  Well, that is exactly what shareholders and the board expect…until or unless he doesn’t then it will be the next exec firing. And another multimillion-dollar severance package paid to the outgoing Harley-Davidson CEO.

There’s that apathy thing creeping back in again.  Big payouts.  It’s routine. It’s a pattern.

Full Disclosure: I don’t own $HOG shares. That said, I do watch the stock and the brand’s activities very closely, as it is of course a massive presence in the motorcycle industry, and as of late, has had its struggles.

Photo courtesy of Harley-Davidson

All Rights Reserved © Northwest Harley Blog

Read Full Post »

Harley-Davidson Announces Layoffs

Specifically, the motor company announced it will lay off approximately 90 employees at the York manufacturing plant and and 50 at the Tomahawk site in Wisconsin as part of an adjustment to its production volume.

The plant in Springettsbury Township just re-opened on May 20th as York County moved into Pennsylvania’s “yellow phase” of COVID-19 mitigation.

You might also recall that the motor company is pivoting from the “More Roads” plan to now focus efforts and energy to appeal to customers of premium-priced brands with limited availability.

I previously posted about this new success formula HERE.

Harley-Davidson has leveraged “scarcity” in the past. Underproduce motorcycles and limit distribution, which creates longer waits that in turn create an exclusivity mystique. Then up-sell consumers on the “premium-ness” motorcycle choice/brand.

As part of the new ‘scarcity strategy’ the company is adjusting its production volume (which to be fair, it routinely adjusts headcount), which will now result in a workforce reduction of York employees.

Previously, Harley-Davidson announced that it was reducing all non-essential spending and temporarily reducing salaries by 30 percent for executive leadership and 10 to 20 percent for most other salaried employees.

This reduction is nothing like the 2009 great recession when Keith Wendell cut the workforce by 2,700 hourly workers and 840 administrative employees.  Unless you are one of the laid off employees…then downsizing feels like cutting into “muscle” and is painful.

Laying off employees is difficult in normal times; but amidst the COVID-19 pandemic can magnify the tension and make coping with the turbulence very difficult. I hope Harley-Davidson makes the process equitable and those laid off have a soft landing.

Photo courtesy of Bradley Staffing Group.

All Rights Reserved (C) Northwest Harley Blog

Read Full Post »

Harley-Davidson Thinks Of Success Differently

According to an article by @bob_tita in the Wall Street Journal (WSJ – Paywall), Harley-Davidson plans to reopen its factories this week at lower production rates and stated it will be sending dealers an attenuated range of new motorcycles — meaning, time for a COVID-19 course correction.

You may recall that Harley’s U.S. assembly plants and most of its dealers closed in March as part of a nationwide effort to slow the spread of COVID-19.  Currently, as many of the company’s 698 U.S. dealers make plans to reopen, Harley’s director of product sales, Beth Truett, stated in a memo, which was viewed by the WSJ, that about 70% of them likely wouldn’t receive any additional new motorcycles in 2020.

The motor company is pivoting from the “More Roads” plan to now focus efforts and energy to appeal to customers of premium-priced brands with limited availability.

Speaking of availability… By definition, excellence is scarce.  Harley-Davidson has leveraged “scarcity” previously. Underproduce motorcycles and limit distribution, which creates long waiting lists that in turn create an exclusivity mystique. Will it work again?

And speaking of premium positioning…

Harley-Davidson Eau de Toilette – Example of brand dilution!

Price alone won’t make a brand premium and few companies can thrive on limited market coverage and low volumes by commanding premium prices in a particular niche.  One thing is sure: motorcycle customers are price-sensitive, even if they are ready to pay a premium price for a … Harley lifestyle.

This means Harley-Davidson has to be able to truly earn the added value.

Data supports what we already know to be true about premium brands: people with lots of money buy nice things. Whether you’re talking apparel (i.e. Phat Farm, Polo, Timberland and Tommy Hilfiger), Tequila, hand bags (i.e. Gucci, Fendi, Louis Vuitton and Prada), restaurants or footwear, it’s easy to recognize the pattern that the nicest, most expensive brands are favored by consumers with the highest household income. What is less obvious, are the fewer instances when wealthy people opt for the less-expensive, or when average-income people make deep trade-offs to purchase really pricey things.  There are a whole lot more average-income people than there are excessively wealthy ones.

Strong brands have a strong identity. Mediocrity doesn’t captivate or win the motorcycle sales race. There is a rule of thumb that says that a company ought to be able to explain its brand identity in seven words, give or take a couple.

The clock is ticking Harley-Davidson!

So, what is it about “premium-ness” brands that are able to inspire consumers to say “no” to some things so they can say “yes” to a brand that’s often or slightly out of financial reach? That’s the Harley-Davidson opportunity.  Finding the nooks and crannies to up-sell consumers on “premium-ness” choices—especially a candy coated brand in the top tier of the motorcycle pack.

The Harley downside risk is the “Porsche Effect“… becoming known as an SUV manufacturer that also produces a few sports car models rather than the premier sports car brand that also makes SUVs.

I’d like to better understand how Harley-Davidson can retain a premium brand identity if combustion engines, once the top tier of American motorcycle engineering, are being replaced by e-motors (LiveWire) that can be built by almost anyone, and if motorcycles feel and act like smartphones that you no longer even have to own?  It’s likely that the V-Twin motors of the future will no longer be a distinguishing brand characteristic.

New competitors are knocking on the Milwaukee door and customers are better informed, have tougher requirements and are able to interactively rate and influence companies and their products.

In the end, what Harley-Davidson claims about it’s premium brand doesn’t matter. What matters is whether or not consumers believe it enough to pay more for it.

Photos courtesy of Twitter Bob Tita/WSJ and Harley-Davidson.

All Rights Reserved (C) Northwest Harley Blog

Read Full Post »

Covid-19 Bites Harley-Davidson

Q1’20 Harley-Davidson Retail Motorcycle Sales + Motorcycles and Related Products Segment Results

Let’s jump right to that impressive Q1’20 financial result:

• Harley-Davidson (NYSE:HOG) posted earnings of $69.7 million compared with $127.9 million in the same period a year ago.
• The dividend was slashed to 2 cents a share from 38 cents.
• The motor company is in talks with major U.S. banks to secure $1.3 billion in liquidity.
• Harley’s U.S. retail sales were down 15.5% compared with the same period a year ago.
• International retail sales were down 20.7% compared with 2019.
• Harley’s U.S. heavyweight motorcycle market segment share was down 2.2 percentage points, to 48.9%.

Another quarter, another poor performance from Harley-Davidson, though the market seemed to buy into the promise that this time it will be able to turn things around.

Déjà vu…

Management promising to fix things again by “crafting strategy accelerants” to deliver improved sales and better returns.  However, it admitted that its efforts thus far haven’t worked and also said it was “refining” the plans it had already devised, but it wouldn’t reveal how it was going to achieve them until this summer. Granted the financial problems Harley-Davidson encountered this quarter aren’t necessarily all of its own making, though it hasn’t helped itself along the way.

It’s important to note that the Harley-Davidson trends in the U.S. have been weak for years despite the economy being strong for so long. That is a major problem and the acting Harley-Davidson CEO, Jochen Zeitz, remains vague on what the motorcycle company is going to do to change that dynamic.

The “ReWire” Board

The fact that management chose the term “ReWire”, emphasizing the electric future to describe their refining plans reads like a satirical article in The Onion.  It’s as if CEO, Jochen Zeitz said, “I’ve heard some concerns going around, and I want to impress upon each and every one of you that I’m taking every possible step to ensure that we tap into a market that has traditionally been neglected by motorcycle manufacturers, Harley-Davidson is announcing a new line of motorcycles designed specifically for men.”

The “ReWire” plan consists of five main points:

• Enhance core strengths and better balance expansion into new spaces.
• Prioritize markets that matter.
• Reset product launches and product line-up for simplicity and maximum impact.
• Build the Parts & Accessories and General Merchandise businesses to their full potential.
• Adjust and align the organisational structure, cost structure and operating model to reduce complexity and drive efficiency, to set Harley-Davidson up for stability and success.

The ReWire playbook abandons some of the previously ratified “More Roads” plan, but there is so much “CEO Speak” — “designed to address top priority opportunities, drive consistent execution and reset the company’s operating model in order to reduce complexity, sharpen focus and increase the speed of decision making.” — in that investor call its difficult to know what exactly remains “committed” to or what will stop.

Little is certain these days, but there’s one sure thing: in a situation where 30+ million people were laid off or furloughed in the past 6-weeks, people are definitely thinking about their wallets.  And living with ever-present, crushing uncertainty and the knowledge that people all around us are dying isn’t the stimulus to rush out and purchase a new motorcycle.

Let us face facts.  It’s going to be a different world for a while. After all, temperature checks, touch-less payments, masks, wipes, take-out and distancing were not part of the Harley experience before the March closures.

If Harley-Davidson is about anything, it’s about bringing people together. Lots of them. And really, really close — with motorcycle rallies, music festivals, HOG events and all the cross country rides.  Looking at you Sturgis!

The whirlwind of 400,000+ motorcycle enthusiasts half-hearted adherence to CDC guidelines, while gathering all week in a number of local bars, and eating VEGAN-burgers could be viewed as a controlled experiment to determine the virus’s true incubation rate.

I have some gray in my hair and beard, something you will see in a majority of Harley enthusiasts.  I find the idea of a Harley specifically aimed at men deeply patronizing.

Photos courtesy of Harley-Davidson.

All Rights Reserved (C) Northwest Harley Blog

Read Full Post »