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Riding High

Wait Two Years for a New Harley-Davidson? That's How Long It Can Take to Get Delivery on America's Motorcycle Wait Two Years for a New Harley-Davidson? That's How Long It Can Take to Get Delivery on America's Motorcycle
Mark Vaughan
From the Print Edition:
Ron Perelman, Spring 95

(continued from page 2)

Like many companies in the 1960s, Harley-Davidson made a disastrous mistake: it failed to take the Japanese threat seriously. While Harley rested on its laurels, the big four Japanese motorcycle companies (Honda, Yamaha, Kawasaki and Suzuki) were having a major impact on the U.S. lightweight bike market, and by the late 1960s, all were jealously eyeing the heavyweight segment. By then, consumers were beginning to view Harley's machines as outdated, oil-leaking heaps that stood in poor contrast to the sleeker, high-tech, oil-tight Japanese bikes.

In 1969, faced with an urgent need to upgrade production, capitalize expansion plans and prevent a hostile takeover bid, William H. Davidson urged company stockholders to accept an offer from American Machine & Foundry to buy Harley-Davidson outright for $22 million. The deal ended more than 60 years of family control of the company.

Though Harley had an enthusiastic friend in AMF's CEO Rodney Gott, the marriage got off to a bad start and never really improved. Gott's strategy for Harley was to expand production rapidly, something the motorcycle maker was ill equipped to do. Between 1969 and 1972, total output zoomed from about 27,000 to 60,000 units a year. At the same time, quality control went out the window. Bikes were rolling off the line with wrong parts, rusty parts and sometimes not enough parts.

To be fair, under Gott's direction, AMF pumped millions of dollars into research and development at Harley, including a $10 million new engine-development project (which was eventually shelved). But in the meantime, the manufacturing side of the business was a shambles. The Harley hog continued to leak oil, and the company to lose customers to the Japanese. By 1980, Harley's once whopping 78 percent share of the U.S. motorcycle market had dwindled to 30 percent, only slightly ahead of Honda.

"In the late '70s, Harley quality was horrible," says Mike Lombardi, third-generation owner of the F. Lombardi & Sons Harley-Davidson dealership in Staten Island, New York. "We didn't know if a bike was going to make it out of the showroom and down the street without us having to go after it with a pickup truck to collect the pieces." Harley CEO Teerlink agrees that "there was a perceived quality problem in the marketplace. The fact is, the Japanese were doing it better for less."

In February 1981, a group of 13 Harley-Davidson executives signed a letter of intent to purchase the company from American Machine & Foundry. By then, Rodney Gott, who had become a self-proclaimed "Harley freak," had retired, and AMF had lost its enthusiasm for the motorcycle trade. The deal was engineered by Vaughn Beals, an AMF executive sent to Milwaukee to reorganize Harley in the mid-1970s and the current chairman of the company's board of directors.

Beals structured a leveraged buyout requiring only $1 million in cash and about $80 million in loans (Harley was valued at about $300 million at the time). Financing was easily arranged through a consortium of eager banks led by Citicorp. As one Citicorp executive later observed, "what hit me was that this was the only product I'd ever seen that people had tattooed on their bodies."

* * *

Jeff Bleustein's favorite story about Harley's drive to regain its reputation as a manufacturer of high-quality motorcycles has to do with his wife, Brenda. Bleustein, now president and chief operating officer of Harley-Davidson's motorcycle division, was vice president of engineering during the AMF years. When he first moved to Milwaukee and bought a house, Bleustein came home one afternoon with a new bike and parked it in the garage. The next morning, there was a big puddle of oil under the bike. Bleustein says his wife told him, "I know you want to ride a motorcycle, but you'd better fix those oil leaks because there will be no motorcycles in our garage until you do."

One measure of the success enjoyed by Harley since the Beals-led leveraged buyout is that its engines no longer leak oil. In fact, the V-2 Evolution motor, designed by Bleustein's engineering team and introduced in 1983, is so precisely engineered that he can park a bike in his living room without fear of ruining the carpets.

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