Harley Davidson: Sustaining a Competitive Position in the Market

Topics: Harley-Davidson, Motorcycle, Pension Pages: 5 (1605 words) Published: March 28, 2012
Harley Davidson’s net profit in 2010 was 146.55 million versus a net loss of 55.12 million in 2009 (Global Data, 2011). There are three key elements in which the company has to improve to continue making profit. First, resolve the Unfunded Employee Post-retirement Benefit plan to keep employees producing a good product and maintain a top level company/employee relationship. Secondly, intense competition in the motorcycle market has to be addressed if Harley Davidson plans to increase sales and profit, finally, competition is strong and the brand name alone will not increase its profitability. Strategic Global Branding is the main key to Harley Davidson’s continued rise, and without it the company will stagnate and be reduced to a minor player in the motorcycle industry.

Issue #1: Unfunded Employee Post-retirement Benefits
Causes: Poor stock market performance depleted the plan's assets. Harley Davidson losses profits due to “Federal regulations that require that when a pension plan, or defined benefit plan, is underfunded by 15 percent or more, the employer must contribute to the fund to bring it back to more than 85 percent in funding” (Rovito, 2003). The Pension Protection Act of 2006 required the company to contribute to its pension plan when profits are minimal due to a lagging economy (Harley Davidson 10-K, 2011).

Impacts: Harley Davidson could continue paying contributions to benefit plans, but the slow economy and stocks continuing to fall could hinder benefits paid to employees (Global Data, 2011). Harley has unionized employees and if the potential retiring class gets delayed a strike is inevitable. A strike will slow production and cause significant profit loss. Recommendations: To keep from mounting up more retirement benefits the company should consider using more temporary labor. This would save the company from additional employee benefits being tacked on to an already challenging problem. The motorcycle market overseas offers the company immense potential by lowering manufacturing cost by outsourcing parts (Hagerty, 2011). The company has to look at innovators like Ford Motor Company and IBM. Ford changed their assets from stocks to bonds. This change allowed Ford to be less susceptible to market variations concerning their pension plan, which are depleted during a recession. Ford predicted a seven billion dollar pension fund deficit from 2007 to 2009 without implementing the plan (Treasury & Risk, 2010). IBM replaced the last of its pensions with a 401(k) plan. The plan came with matching contributions, low fees, custom portfolios, financial help, and more (Feldman, 2009). This allowed the IBM employees to control their own money and take risks as they see fit. Harley Davidson has to look at empowering the employees with a 401(K) plan similar to IBM and Ford. With ninety four percent of one hundred thousand IBM employees active, the plan averages one hundred and twenty seven thousand dollars per employee. This doubles all United States companies’ national average for 401(k) plans (Feldman 2009).

Issue #2: Intense Competition in the Market
Causes: A sluggish global economy has driven prices down and forced consumers to demand a better product for less. One problem for the company is loss in domestic customer base as the result of changing market. The baby-boomer generation is heading away from motorcycles into retirement. The primary consumer will soon disappear leaving the company searching for consumers to fill this void. The younger generations seem to prefer sport bikes. These types of motorcycles are controlled by Japanese manufacturers (Ong, 2011). Impact: The company will lose potential bulk sales and massive profit loss if it is not formulated to compete in the global arena of young motorcycle riders. Honda will continue to look for ways to improve their profitability and product marketability to maintain the strong hold on the...

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