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Vaughn Beals. Jr" Harley-Davidson's Chairman of the Board end Chief Executive Officer; times are improving for the American company, ~nBvals: "ew life at Harley By Bruce Newton "It's been very tough, but we've survived. I can't say we've prospered, but I think it's a major accomplishment." Vaughn L. Beals, Jr., Chairman of the Board and Chief Executive Officer of Harley-Davidson Motor Co., relaxes in an armchair in his office looking confident and healthy, just like the motorcycle company he runs. [t's'the end of a long day. The top button ot his white business shin is undone, the tie ~oot loosened. Beals has been playing catch-up today, after 10 days spent travelling across the country on a Harley-sponsored ride to raise money for the restoration of the Statue of Liberty. lL's doubtful that just a couple of years ago, Beals would have been able to find the time to get away from his desk at the Juneau Ave., Milwaukee, H-D headquarters for even one day, let alone 10. Back in 1981, Beals, along with 12 other company officers, had contributed to a $60 million leveraged buy-back from H-D owner American Machine and Foundry (AMF) and set the company on an independent course once more. However. times were tough and the company spent both 1981 and 1982 deep in the red, and it laid off 1600 of 3000 employees. HarleyDavidson's share of the over-90Occ market had slumped to just 5.2% in 1981. . Times are improving for the last remaining home-grown American motorcycle company, though. Small profits were reponed in 1983 and 1984 and will again be in 1985, while its market share has risen to 15%. While much of the return to profit can be attributed to successful defense subcontracting, it is also due to the big V-twins, which are gaining a reputation for quality and reliability lost during the years under AMF control. The word qualitI' along with cost, is constant in Bea s' discussions about his motorcycle company. 1L has been since it went independent. "When we invested in the company, we did soon the belief wecould be quality- and cost-eompetitive with the Japanese," he says in his rolling Eastern accent. "That was really a statement of faith rather than having a lot of know ledge of how we were going to do that." It was an emotional decision tempered by the realization that the 13 were putting their life savings into the business. Massive streamlining within the company, including the introduction of Japanese-style production techniques and new machinery, helped, but so did President Ronald Reagan. Harley-Davidson convinced Reagan to sign in a five-year import tariff on over 700cc motorcycles in 1983. It gave the company much-needed breathing space from the onslaught of big-bore Japanese motorcycles," says Beals. "I think the main gain from that (the tariff) was that it kind of stopped or slowed down the Yamaha/Honda war and got everyone to go back and adjust their production schedules and stop making the problems worse," says Beals. "Everyone was concerned that Harley-Davidson would increase the cost of its motorcycles substantially and everyone was going to have to pay 20 to 30% more for their bikes. It turned out that in the first year of the tariffs, the imponed heavyweights dropped 2% in price. . "There's been very little tariffs paid because all the 750s become 699s, so they evaded the tariffs. Honda and Kawasaki moved all their assembly on-shore, so the only motorcycles that are subjected to the tariffs are more than 750s made by Yamaha and Suzuki. "Japan has a tariff-free quota. probably around seven or 8000 motorcycles, and they don't sell a whole bunch of motorcycles in that category anyway, so I dOQt think there's been much tariff paid - if any, "1L hasn't affected the price of motorcycles. If you have a look,they're typically selling for 40% below what they were three or four years ago. The carryover models have been selling for 40 to 50% below what they were threeorfour years ago. so there's been heavy, heavy discounting to move that tuff. There's still a lot of it." There would have been more if there hadn't been tariff though, contends Beals. "There seemed to be no self- n'strdint built into the system, and [ think this would have brought everything to a grinding halt. "!l's been tough 'anyway,'.' he says. "Competing with he-dvily discounted stuff like 750 Viragos for instance, that sold for $3000 three or four years ago, which is now selling for $160001' $1700. That's bad. God knows what it would have been like if they'd kept on filling up their warehouses. . "I think the tariff provided some encouragement in some very difficult times to the financial institutions that support us, because someone finally said 'whoa, business is nO,t going to get worse, it is going to get better·... The tariff ends in April 1988, and Beals says Harley needs the full five years to be in a competitive position. "That's why you hear me talk about quality and cost, and that' what we're really pushing hard on, Our objective is, by April '88, we will be in a position to say we are quality and cost competitive. We are very close to quality-competitive, if not ahead, of our foreign competition, but that's a very hard thing to measure. We're not cost-competitive yet. We haven't achieved cost parity." Harley will want to be, asserts Beals, because he fears another rush by the Japanese to clog the market once more and ci tes the current threeand four-wheeler boom as an example of their marketing philosophy. ''There's got to be enough ca paci ty to make enough three-wheelers for every man. woman and child in the world and four-wheelers right behind that," he asserts. "Some of these things tend to be faddish and manufacturers tend to increase production and everybody wants to get in on the act and they kill each other." That, of course, has been a problem for Harley, with the Japanese factories aiming their cruiser-styl ing, sometimes right down to the tank badge. "They're not very creative;" says Beals. "The, press has pretty well characterized their look-alikes as Harley clones. It would be kind of nice if they developed their own style. I guess we're flattered that they've copied us, but we've had enough flattery to last a lifetime!" While the Harley look which 'the Japanese have tried to capture has changed only subtley in recent times and will continue to do so, underneath the skin major changes have happened and are planned. The Evolution motor and belt drive system are both successes, and the muchpublicized Porsche-deveLoped Nova V-four mOlOr is the next major step. And that is where the reality steps in, in the form of the $20 million necessary to build it. An amount which is not that re"ddily obtainable for a company which produces less than 40,000 motorcycles a year and' lacks in capital. "The V -four is remaining static mainly because we've got development to such an advanced stage. we've got to have tooling to go to the next step. and that's a major capital investment right now." Half of the amount is easy to raise, but the other half is difficult, explains Beals. If it all comes together tomorrow, Nova would be ready to go in two year's time. "We'd love to do it, but it's not as imponant a priority as improving quality and cost of the V-twins. and that's why the capital we have is going in that direction rather than going into ova." The three-wheel spons car TriHawk, which Harley bought the rights to last ye-dr, reputedly at a gift price, has also been stalled through lack of capital. But why would HarleyDavidson choose to involve itself in such a project at this time? "We think it's a'super concept." explains Beals. "This country doesn't offer a $10.000 spons car. Spons cars are now a 20,000 to $25,0000 investment with power windows and air conditioning, which to me a spons car doesn't make. "We really feel the time is right for a moderately priced Cdr which handles well and performs well, and TriHawk does that in spades." Judging by the reception, the time is also right for the 883cc Sportster XLH, the new smaller Harley introduced 'with the 1986 range with a price tag under $4000. With the arrival of the'883, the 1000cc Sponster is going and an 1100 has replaced it. The idea of the 883, says Beals, was to make Harley-Davidson motorcycles more accessible, "A lot of guys couldn't get ':Ip .t~~. ...