The Recession and Harley Davidson Motorcycles

(There are no quantitative calculations in this

question, but I expect you to use the data presented as I guide when you provide me your thoughts and

graphs).

Harley Davidson is an American Icon and has a strong brand that many Americans and recently some

Europeans and people from around the world are loyal to.

(You don't need to know this but there was an extremely famous movie in 1968 or 1969 called

Easy Rider

starring Jack Nicholson, Peter Fonda and Dennis Hopper that made the brand famous for many

Americans aged 40-65.

Harley was making profits 10-12% for most of the last decade until 2008. Their revenues peaked in 2006

at 6.3 billion and are expected to be 4.2 billion in 2009. Their production (quantity fell from 304,000

motorcycles in 2006 to an expected 212,000 in 2009. The median price of a motorcycle has fallen from

$23,000 in 2006 to $20,000 in 2009. By the way, that median price is higher than almost every other

motorcycle maker.

Year

2006 2009

Revenues

$6.3 billion

$4.2 billion

Profits $800million -100million

Median Price $23,000

$20,000

Employees at

4,000

2,800

Main Plant

Even before the recession, Harley was worried about their aging demographic. The median age of a buyer

is 48 and has been rising for 15 years.

(My in laws, although a decade older than the median Harley

buyers are lifelong motorcycle riders. My mother in law has stopped riding due to her knees and my

father in law rides less than in the past and is likely on his last bike. Their case is not atypical.).

The vast

majority of Harley buyers are older, wealthy, white males.

The largest Harley Davidson plant in the country is little more than one-hour north of College Park in

York, PA. It is where the vast majority of their motorcycles are produced.

. (Yes, they are headquartered in

Wisconsin, but much more of the production occurs in PA)

Much like the northern car industry, they are a union plant with high wages, close to comparable wages to

the auto industry. In 2006, the plant had 4,000 full-time workers but by 2009, they had 2,800 full time

employees.

After a decade of strong profits, the firm has lost money the past two years. In Spring 09, the company

declared that the York, PA plant was unsustainable in its current form.

Here are some of the options that Harley Davidson had considered for their future.

1). Move the main plant to a town in either Tennessee, Kentucky or Alabama where "right to work" laws

make unions more difficult to form and where wages are generally lower.

2).Split the production into three or four different plants with perhaps one to two of those plants in Europe

where the greatest growth in Harley sales has occurred in the past decade.

3). Promote sales in minority communities, amongst women and amongst the young.

4). Stay in York, PA but outsource (means pay other firms to do) much more of the work to competing

small firms and only do final assembly at the Harley plant.

a). Take your best guess using all the microeconomics you know, why Harley has been able to sell

their motorcycles for a median price of $23,000 in 2006, while most other motorcycle companies

average a $12,000-$18,000 median price. The more suggestions or guesses you provide here the

better...just make sense economically.

b). Use appropriate micro graphs and equations to compare Harley in 2006 compared to 2009.

(Hint, discuss supply and demand framework and revenue, cost and profit framework and

whatever else you find useful.) Be sure to discuss and provide several economic guesses why profits

have not fallen as much as revenues.

c). Analyze each of the options put forth by Harley for the future. For each option, explain the

desired benefits for Harley, but also point out any costs or disadvantages that you might guess could

result from each option.