Wednesday, March 14, 2018

Will HD fall afoul of the proposed US tarrifs?

(this taken from a US news article. Photos and opinion after, are my own)

Harley-Davidson implemented just-in-time manufacturing, different management strategies, relentless product improvement, and many other ideas stressed by William Edwards Deming. Ironically, many of these theories had been put into (successful) practice in Japan after World War II by companies employing engineers, managers, and scholars trained by Deming. The tariff gave Harley-Davidson a bit of breathing room, which Harley used wisely, by making enormous quality improvements, improving labor relations greatly, and modernizing their business practices.

Harley-Davidson reclaimed its market share and more. In 1987, Vaughn L. Beals, Harley’s chairman and CEO told the U.S. International Trade Commission, ''We're profitable again. We're recapitalized. We're diversified. We don't need any more help.'' He requested the ITC end the tariff plan a year ahead of schedule.



Harley-Davidson largely saved their own bacon. Many business studies of the turnaround have been done, and the results are nearly unanimous: their metamorphosis was nothing short of transformational, and through loads of hard work, Harley pulled themselves up by the bootstraps.
However, that’s not to say the tariff was unimportant to Harley’s future. Even if relatively minor in terms of actual economic impact, It was probably a crucial action serving to calm the frayed nerves of Harley’s creditors. The investors who bought Harley back from AMF were very over-extended, and the paucity of excess operational capital was likely causing much temple-rubbing — Even though Harley was visibly righting the ship.

Darwin Holstrom, in "Harley-Davidson: The Complete History," notes that Citicorp, their lender, had continued to lend not out of generosity, but because it was felt that their chances of recovering the loan was better with Harley operational — they didn’t even believe Harley’s carcass would cover the debt. Eventually, even that plan was abandoned, and in November of 1984, Citicorp announced over-advances would stop as of March 1985, which they later pushed to December 31, 1985. Peter C. Reid notes in "Made Well In America: Lessons from Harley-Davidson on Being the Best," “...Citicorp officials began to worry about what would happen when the tariffs on big Japanese bikes ended in 1988.”

Harley CFO Rich Teerlink simultaneously prepared the company for bankruptcy filings and searched for an investor, which only came at the last moment and after much negotiating and pleading. Would their new lenders have materialized without the temporary protection offered by that tariff? Highly unlikely. Harley-Davidson became a publicly traded company in 1986. “Going public was a hard decision, but we had such difficult financial problems it was the only decision,” said Beals.
Was the tariff the correct action for President Reagan to have executed? Can such a complicated topic ever have a “right” answer? That’s certainly a multi-faceted and complex issue, and likely not one I could answer, nor could a consortium of scholars and economists. (They’ve tried, and they have the same problem I do — they leave more questions than answers.)

Even Beals was fairly blunt. “For years, we tried to figure out why the Japanese were beating us so badly. First we thought it was their culture. Then we thought it was automation. Then we thought it was dumping. Finally we realized the problem was us, not them.”

Oddly, among all the politics and money surrounding this issue (and others like it), there is one statement Ronald Reagan made that sums up the issue completely accurately and can in no way be refuted no matter what side of the issue anyone found — or still finds — himself on. “I have determined that import relief in this case is consistent with our national economic interest.” Perhaps that statement cannot be construed as an explanation for enacting the tariff. On the other hand, perhaps it was all the explanation the situation warranted.

This mumbo jumbo is interesting to anyone that was around in the Reagan years.  That was back in the day that HD was repurchased from AMF (American Machine and Foundry) and to ensure the survival of the brand, a multi year tariff was placed on MC with displacements over 700cc originating in J A Pan.  The first year tariff was a whopping 49.4% 

That affected a large portion of Japanese imports being unfairly (?) penalized.  The long and short is HD survived and by successfully selling an "image" to the public (do I need to tell you... okay in case you've been lost in the Amazon for 30 years) dentists/construction workers/lawyers/politicians took on the visual persona of weekend "bad boys".  Watch Wild Hogs on Netflix!

I even had a guy working in my Financial office who came to live with me (big mistake) during his divorce, that bought an '03 Anniversary Heritage.  This guy didn't even ride bikes!

He ended up being so "f__g" obnoxious that my riding friends wanted to beat the crap out of him when he would come up to a group of us, flashing his $40 zippo, wallet chained to his jeans, the Beanie lid proclaiming that helmet laws sucked and proclaiming US as riders of Jap junk!

Today, there is much talk and reading on what is happening with the North American market for motorcycles.  With HD sales falling by double digit sales figures and the entire Big Bike market feeling the hurt, and... with much talk about smaller, lighter, easier, cheaper to ride motorcycles growing in the market place (albeit it it's the international marketplace, not American or CDN) it makes for great speculation. 

If you are a long time motorcyclist as I am, and if you came in during the mid to late '60's when the British and American industries' were on the cusp of collapse, teetering on the brink of oblivion, and the Japanese who were accused of being transistor radio makers and nothing else of any consequence... you know what happened in the next decade.  The once powerful British MC business went the way of the dodo, HD got bought out by a tractor outfit and the 100cc Yamaha's and CB 125 Honda's begin the switch for hundreds of thousands of new riders moving up to 350's, then 400's, 650's and bigger, while the little bikes eventually disappeared altogether. 

History tends to repeat itself, lessons go unlearned and those that paid no attention, fall by the way side.



In our case, that is the case of Motorcycles, which we all love, this likely won't happen again.  Why you might ask? 

To quote Albert Einstein... the "Fourth World War will be fought with rocks and sticks"

ps Coming up...

"If money was no object, what would you buy and why...?"

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