Road hogs are getting high-tech.
Harley-Davidson Inc. (HOG)’s newest models feature a voice-activated and touch-screen GPS system, the first on a production motorcycle. When the bike is getting low on fuel, the system finds the nearest filling station and maps out directions on a 6.5-inch (16.5 centimeter) screen the rider can control by voice, touch or joystick.
What’s also new is how the company decided what to include: It asked its customers. For the first time, 110-year-old Harley is using customer focus groups and dealer clinics as it develops models and features. Last week, the first wave of new bikes from those changes began arriving in dealerships.
“Harley was an ‘if you build it, they will come’ kind of company,” Sharon Zackfia, an analyst at William Blair & Co. in Chicago, said in an interview. “The recession was really what brought them into the 21st century. A lot of other companies had those moments long before.”
Chief Executive Officer Keith Wandell, 63, also speeded up the process by avoiding late changes that add cost and can reduce quality.
Harley shares, which bottomed at $8.20 in 2009, have more than tripled since Wandell was named CEO of the Milwaukee-based company in April 2009, while the Standard & Poor’s 500 Index almost doubled. Harley, which trades under the ticker HOG, rose 0.6 percent yesterday in New York to $59.20. Last week, the shares closed at the highest level in more than six years.
“Since day one, we’ve been trying to transform the company in a way that is going to make us stronger and more sustainable in the future,” Wandell said in a telephone interview this week. “That’s what we said we wanted to do four years ago and, voila, here it is.”
While revenue rose 17 percent from 2009 to $5.58 billion last year, net income soared to $623.9 million from a $55 million loss in 2009.
For most of its history, Harley sold as many motorcycles as it could make to customers it knew well: older, affluent, white American men. The global recession changed that. Revenue dropped by almost a quarter from 2006 to 2009, prompting Wandell, newly installed from auto-parts maker Johnson Controls Inc. (JCI), to cut costs, speed development and seek more advice on how to put new customers on bikes.
“This is truly a monumental mentality shift,” Matt Levatich, 48, Harley’s president and chief operating officer, said in an interview. “There was 107 years of inertia.”
In Minneapolis, about three dozen people gathered in a hotel conference room for a few days. They handed over their smartphones at the door and got early peeks at prototypes and were asked to weigh in on the strengths and weaknesses of the competition’s bikes. Harley staged focus groups as far away as Europe and Tokyo.
The company also opened the doors of its product-development center in nearby Wauwatosa last year to dealers and sales managers. About 800 engineers and designers there are developing future Harley motorcycles. Only a third of Harley’s 5,800 employees have access to the building and it wasn’t until last year that a group of its dealers was allowed in for a briefing on new product planning.
The new Touring line of motorcycles, some of Harley’s priciest and most profitable, start at $18,249 for the Road King and $25,899 for the Ultra Limited, and can cost more than $40,000. The line appeals to Harley’s traditional customers, as well as its new buyers: women, younger drivers, African-Americans and customers outside the U.S.
The Street Glide, starting at $20,399, is Harley’s top-seller. It’s the kind of bike state troopers ride, with saddlebags, fenders and a fairing, which keeps the wind out of the driver’s face and holds the infotainment screen.
Bill Davidson, great grandson of the co-founder, rode an amber whiskey Street Glide Special straight from the York, Pennsylvania, assembly line to Milwaukee for the company’s 110th anniversary celebration on Labor Day weekend.
The infotainment system linked to his iPhone with a USB cord tucked into a compartment to the right of the screen. He could control the song selection and navigation system by voice, buttons, touch-screen or joystick. He said he preferred the joy stick, which he could work barehanded or with gloves while driving in the rain.
“I love the looks of the motorcycle,” he said in an interview near Detroit. “We didn’t lose that iconic look, but we made it more contemporary.”
The 2014 model-year bikes in dealerships are an early start to a cadence of new products the company says is the strongest in its history as it seeks new and different buyers.
“The thing that really drove this project was the customer focus,” said Davidson, who runs Harley’s Milwaukee museum. “In the past, we’d go out and maybe hand-select a few customers or dealers. This was more sophisticated, global and much more thorough.”
Harley, which received about 25 percent of revenue outside the U.S. in 2006, is forecasting 40 percent of sales from international markets by next year. More than half of its dealerships are outside the U.S. as the company tries to broaden its traditional customer base.
In its home market, Harley faces established foreign rivals, such as Kawasaki, Honda and BMW, and a returning domestic challenger: Polaris Industries Inc. (PII) is bringing back Indian-brand motorcycles priced from about $19,000 to $23,000.
Of the 282,000 new heavyweight motorcycles registered in the U.S. in 2012, 57 percent were Harleys, a gain of 2.3 percentage points since 2010, the company said in its annual report. Heavyweight motorcycles represented 62 percent of the new bike registrations in the U.S. last year, the company said.
Harley cut the product-development cycle to three years from about five or six. By reducing 11th-hour tinkering, the company accelerated the process and lowered the cost, Wandell said.
“One of the kisses of death in a product-development process is late changes,” he said. “That’s like two steps forward and three steps back.” Such changes add complexity for suppliers and increase “issues around quality at launch,” Wandell said.
Other innovations include electronically linked front and rear brakes that shorten stopping distance and a twin-cooled engine that lowers the temperature of the air in the exhaust pipe, an important feature for a rider astride a bike idled at a stop light on a hot day or a passenger whose legs straddle the exhaust pipes.
Harley also made the saddlebag bigger and with a latch that can open with a quick twist.
“It sounds boring, but luggage capacity isn’t unimportant on a motorcycle,” Michelle Kumbier, 45, Harley’s senior vice president of motorcycle operations, said in an interview. “People want to stuff a lot of things into them. They can be game changers.”
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