Skip to comments.Wandell slashes costs, cuts jobs in effort to save motorcycle firm
Posted on 04/27/2010 11:50:48 AM PDT by BraveMan
Having climbed aboard an American icon at one of the most difficult points in its history, Keith Wandell has been driven by an overriding thought:
Don't let Harley-Davidson become General Motors.
Now, nearly a year into the job, Harley's chief executive officer has cut millions of dollars in costs, eliminated thousands of jobs and brought a sense of urgency to the world's largest maker of heavyweight motorcycles.
Some of the changes, particularly the job cuts, have been painful. But in his first extensive interview since taking the reins, Wandell told the Journal Sentinel last week that the actions he took were necessary and designed to keep Harley relevant and profitable in the long term.
"There is not one of us who wakes up in the morning and says, 'Wow, this is another opportunity to ruin someone's life,' " Wandell said. ". . . But you cannot turn your head and look the other way when there are issues that are going to ruin the company. I wish we could be totally clear about that."
Given that the global economy was in a tailspin a year ago, Wandell was a logical choice for Harley's top spot. In his previous job as president and chief operating officer at Johnson Controls Inc., he was responsible for controlling costs and answering to Wall Street. He had testified in Congress, along with Detroit auto executives, when the automakers were seeking federal loans to keep them out of bankruptcy.
So after joining Harley-Davidson, he absolutely did not want the 107-year-old Milwaukee manufacturer to behave like General Motors. And he was taken aback by Harley employees who worried that his experience at an auto-industry supplier such as Johnson Controls might be a bad thing - a close tie to an industry that had fallen into deep trouble.
Look in a mirror, he told them - Harley was already so far down that same path "it wasn't even funny."
"We had too many dealerships, there was too much inventory and we had driven down the residual value of our products. Doesn't all of that sound familiar?" he told the Journal Sentinel.
During the past 11 months, though, "Everything we have done has been just the opposite of that," he said.
Stock analysts have praised Wandell for showing aggressive leadership.
"You only have to look to the auto industry for evidence that if you don't make changes early enough, it could be really bad for the company and the employees, long term," said analyst Robin Diedrich with Edward Jones Co.
Since January 2009, Harley has announced the closing of two factories and a distribution center. The company also has announced cuts totaling about 25% of its workforce - at least 2,700 hourly workers and 840 administrative employees.
The labor union at its plant in York, Pa., grudgingly accepted a seven-year contract that eliminated more than half of 1,900 jobs but kept the York factory from being relocated to Kentucky. Work has been outsourced so that Harley can focus on its core competencies, such as making motorcycle frames and engines, and painting and assembling bikes.
"We are never going to be as efficient or as competitive as outside suppliers" on other things, said Wandell, who took over at Harley last May 1.
Harley's expansion plan in Milwaukee was placed on hold, largely due to the economy. The plant on Capitol Drive is closing, with the work sent to the Pilgrim Road factory, and a distribution center in Franklin is closing and being outsourced.
Buell Motorcycle Co., an East Troy bike manufacturer that won accolades on the race track but was not profitable for Harley, its owner, was eliminated during Wandell's first six months.
"We were selling seven, eight, maybe 10 (Buell) bikes a day worldwide," Wandell said. "This was a business that had been looked at repeatedly by the board of directors. But what was different this time was the depth of the recession."
Harley decided to sell its MV Agusta motorcycle division, which it had acquired in 2008 for $109 million but did not live up to expectations.
"We were allocating our limited resources to different brands and were starving the Harley-Davidson brand," Wandell said.
All told, Harley expects its restructuring will cost $430 million to $460 million and will lead to annual savings of $240 million to $260 million when finished. For 2010 alone, restructuring will save $135 million to $155 million.
"I don't really have any misgivings," Wandell said. "That is not meant to be self-serving, but I can honestly look you in the eye and say I don't know that I would have done anything a whole lot differently."
Harley said shipments of its bikes to dealers in 2009 fell 27% to 223,023. For 2010, it expects shipments to fall another 5% to 10%, to between 201,000 and 212,000 motorcycles. That's a big drop from 2007, when the company shipped about 350,000 motorcycles.
Going forward, Harley-Davidson will be a smaller but more focused operation, said Diedrich, the Edward Jones analyst.
Like many companies, it needed to shed some pounds, according to analyst Ned Douthat with Ockham Research. Things would have been far worse if Wandell had not taken aggressive actions, he said.
This will be a challenging year for Harley on many fronts, given lingering uncertainty in the economy and cautious consumer spending. Still, there have been encouraging signs such as a sales increase in Europe and cost savings from restructuring.
The company has launched several new motorcycles, including a three-wheeler aimed at older riders and a macho Sportster aimed at a younger crowd but with styling from the 1940s.
The latter has become one of Harley's hottest-selling bikes, along with another Sportster where more than half of the buyers are under age 35 - a pivotal demographic as the company attempts to lure younger riders.
Harley knows it must get better and faster at developing new products while not offending loyal customers who have treated the brand with reverence.
"We are not naïve about that," Wandell said. "I believe that as long as we don't change those products that our customers love, they are OK with us going outside of the boundaries a little bit to bring new riders in."
The company can't afford to start 10 product design projects and hope that three of them reach the marketplace, Wandell said. There's going to be a "rifle shot" approach to new ideas rather than a wasteful "shotgun" approach.
Looking ahead, his mettle will be tested by contract negotiations with the United Steelworkers in Milwaukee and Kansas City.
It's a difficult time for organized labor, said Mike Masik, president of United Steelworkers Local 2-209 in Milwaukee.
"Right now, it doesn't seem to matter if you are hourly or salary, everybody is getting banged," he said.
Putting on the miles
Meantime, Wandell is answering critics who say he does not have enough grease under his fingernails to understand the Harley culture - since becoming CEO, he has put more than 5,000 miles on his Road King bike, including a trip to the Sturgis, S.D., motorcycle rally last summer.
Not long ago, Harley could sell every bike it manufactured and then some. As recently as 2006 it had a profit of $1 billion, compared with a $55 million loss in 2009.
The boom times ended in the recession, but Wandell is determined to restore the critical balance between supply and demand, keeping Harleys as hot items in the marketplace.
"We have to find ways to make sure this company is as great going forward as it has been in the past. And those ways are different now than they were 10 or 15 years ago," he said.
Wandell is aware that Harley's heritage runs deep and that its brand has incredible staying power, partly because previous management had not tinkered too much with the winning formula. He is the first Harley CEO to come from outside the company since at least 1986, when the company became publicly traded.
But he is not going to let tradition get in the way of setting a new course for the company, one that includes cutting costs, attracting younger customers and strengthening the value of the Harley brand in non-traditional ways.
"I give it everything I got. And I honestly believe in what we are doing," he said. "I am probably the last guy in the room who wants to see us imitate what the auto industry has done."
Shut down Buell Motorcycle Co., a specialty sports bike manufacturer based in East Troy.
Decided to sell Harley's MV Agusta motorcycle division, which it had acquired in 2008 for $109 million.
Since January 2009: Harley has announced the closing of two factories and a distribution center and announced cuts totaling about 25% of its workforce.
Hope and Change comes to Harley. That sucks for the people who lost their jobs.
For the Hooligans . . .
It is a common thread for many of Milwaukee and Wisconsin’s businesses...expensive union labor and oppressive state and local taxes are like a lamprey preying on a company’s lifeblood. This is all the more problematic as the depression of 2009 really sets in...
Another story in which if you dig deeply enough you find problems with labor unions...
Bravo to Harley...and good luck!
This is what should have happened at the Federal level of the U.S., but our sissie-in-chief didn't have the cojones to even consider it.
Harley would do well to look at their older styles of bikes as they are quite beautiful as compared to most of today’s offerings which a bit BauHaus.
H-D managed Buell into the ground and I am sure they would have done the same to MV Agusta.
Pssssst...Keith..... the way to save money is to cut down on the number of motorcycle models you offer. 32 models is too many! Pare it down.
I miss my 06 Buell Lightning Long. A year and one half of unenployment causes you to make painful decisions. Mortgage payment or awesome toy, mortgage payment or awesome toy . . .
Oh, to be in a position to add an XR1200R or a V-Rod Muscle into the stable.
One of the monthly motorcycle talked about how H-D hit Buell with charge back costs that Buell could not absorb. But I am sure it made H-D brad management look better at the expense of the rest of the company.
There are almost as many Harley dealerships as there are Walgreens.
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I appreciate the unemployment issue. I went 6 months burning off vacation hours to keep the bills paid last year. My backlog of hours is slowly recovering. I never take time off just be make sure that fallback reserve is available.
Elevation is a problem. I had a Suzuki 600 bandit that wouldn’t run right no matter what jets I tried. Switched to a Kawasaki Concours which worked fine.
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