Qualitative Forecast Address

Qualitative Forecast Address
H-D has multiple risk factors that it calls out in the annual report. Many of these factors include items identified in revenue and cost factors. One of the main increased costs that results in potential revenue is the expansion into immature markets. There are many things to consider when entering a new market such as India. First, what are the social implications and what does the brand mean in that country. Though population is high and units of motorcycle sales are one of the largest in the world, what existing product is similar to high end motorcycles? International expansion means understanding governmental affairs and working with multiple parties to open channels to sell product. Prior to 2007, H-D

was not able to exchange goods in India. There was agreement between the U.S. and India’s Minister for Commerce and Industry that H-D could sell goods in exchange for sale of mangoes from India. In addition to exports to India, the company faced import duties and taxes which would increase the sales price compared to domestic prices. (Wikipedia, 2014)
Logistically, the company now has to plan for shipping and production costs of items that come from Kansas City or York. To overcome this, H-D is focusing on sub assembly in countries with high tariffs. By leveraging suppliers that are in that country’s area and decreasing logistic costs, this would help overcome export issues. The company may be able to leverage lower costs of labor in these countries but they also need to maintain quality expectations that customers have.
The success of motorcycle sales is dependent on a strong dealer network. The strength of the dealer network varies by location due to economic variables and situations like weather. If an area of the country has high unemployment this would decrease the amount of disposable income and sales would be expected to be lower. Long or harsh winters result in inventory that does not move off the sales floor as fast as times where temperature allows for more and more customers to want to ride.
H-D will increase revenue as a result of offering innovative product offerings that they can differentiate from other products. The launch of the Livewire™ was not intended for revenue purposes as not a single unit was sold or available via the H-D dealer network. H-D not only showed innovation but they also explored a new strategic market that is being seen in the motorcycle industry. At the time of the launch, the other primary market share owners did not have an all-electric model
Risks of this forecast include potential technological changes in motorcycle products that may result in lack of interest of current models.

If there is a large push for electric motorcycles and H-D is not ready to mass produce units, they will not meet demand. Pressure from government agencies for regulation, testing, and more may impact performance options of a V-Twin motorcycle. Time spent on leisure goods is another variable that has risk. As new products become available, customers have the option to spend time enjoying items such as gaming, streaming movies, etc.
Cost revenues are expected to increase. The largest impact of cost as noted in the previous section is raw materials and commodities. Though technology is increasing in areas of production, items such as GPS and fuel injection are new add-ons that H-D is using in its product mix. As new technology is added, suppliers may be limited compared to something like steel that has multiple sourcing options. Costs need to be contained in this area by proper supplier

management.
Based on the findings of this economic brief, the most critical cost factors are expected to increase. At the same time, revenue factors are expected to increase for H-D. The critical variable are the economic factors that impact a customer’s ability to purchase products. No matter how great of a product the company produces, a luxury good is elastic and change in the ability to purchase goods will decrease the demand of motorcycle.
Strategic Evaluation/Conclusion
The largest threat to H-D is the economy.

If the amount of disposable income decreases, customers may choose to leverage products outside of this industry. Harley-Davidson differentiates as they do not advertise motorcycles, they focus on the lifestyle as a rider. This challenges customers to evaluate giving up a choice in lifestyle versus a single product. According to the IBIS World Industry report, revenue volatility is very high in the motorcycle manufacturing industry. The motorcycle industry volatility is expected to be 21.6; anything above a 20 is very high. (Molavi, 2010) The University of Michigan found that the index of consumer sentiment was 80 in their March 2014 report. (Survey of Consumers - Thomson Reuters, 2014) From March 2013 to March 2014, there has been a span of 73.2 to 84.5. Consumers are anticipating decline in the economy in the next five years. Evidence of how volatile the industry can be was seen in 2009 during the

recession.
Harley-Davidson leadership recognizes that strong brand loyalty and offering a product mix that meets demand of its core customers and outreach is the key to success. A threat to H-D is the increasing age of its core customers. Harley-Davidson has introduced multiple models in the last few years that through market studies they feel would meet the demand of young riders. Leadership recognizes that in order to grow, immature markets with large customer opportunities such as China and India need to be tapped into.
H-D executives recognizes that in order to increase supply is to rely on innovative technology and becoming lean which results in elimination of waste. Growth in international markets to reduce manufacturing costs with techniques such as CKD allow for lower costs internally and ultimately lower prices for customers. Items that are increasing in risk include potential labor issues that will occur as a result of union contracts expiring. There has been a lot of investment in the York plant for manufacturing and the York union did strike during the last contract negotiations. Delay in product availability will impact customer decisions to purchase and lack of output will impact stock performance as seen in Q2 2014 lowered production measures.
The volatility of the motorcycle industry shows that economic recession impacts all companies in the industry. H-D needs to continue process improvement and eliminate waste to be as productively efficient as possible in the event of a recession. If H-D continues to grow internationally, maintain brand strength, and improve supply without incurring additional costs, they will maintain market share with the potential to grow.