1. Strategic Audit of Harley-Davidson Case 16 Strategic Management MGMT 436 Group 5

2. Current Situation Jw A.Current Performance 2008  Revenue 2008 $5.59 billion down from $5.73 billion in 2007  Net Income $654.7 million down from $933.8 million in 2007  Earnings per stock share $2.70 down from $3.74 in 2007  Motorcycles sold 303,470 down from 330,619 in 2007 http://investor.harley-davidson.com/ReleaseDetail.cfm?ReleaseID=360949

3. B. Strategic Posture  Mission  We ride with our customers and apply this deep connection in every market we serve to create superior value for all of our stakeholders.  Objectives  We fulfill dreams inspired by the many roads of the world by providing extraordinary motorcycles and customer experiences. We fuel the passion for freedom in our customers to express their own individuality.

4.  Strategies  Get Cost structure correct  Obtain funding for Harley-Davidson Financial Services  Invest in the Harley-Davidson Brand

5.  Policies  Customers for life…. Harley-Davidson values the deep emotional connection that is created with our customers through our products, services and experiences. We are fueled by brand loyalty and trust that our customers place in us to deliver premium quality and the promise of a fulfilling lifetime ownership experience. We exemplify this commitment by embracing a culture of personal responsibility and stewardship for quality in everything we do.

6. 2. Corporate Governance Jw A.Board of Directors DIRECTORSJOB TITLE CHAIRMAN OF THE BOARD DATE OF BOARD COMMENCEMENT NOMINATING AND CORPORATE GOVERNANCE COMMITTEE AUDIT COMMITTEE HUMAN RESOURCES COMMITTE E OTHER DIRECTORSHIPS Barry K. Allen Senior Advisor to Providence Equity Partners President, Allen Enterprises, LLCXMay-92X Fiduciary Management BCE Inc. Richard I. Beattie Chairman of Simpson Thacher & Bartlett LLPAug-96XX Heidrick & Struggles International Inc. Evercore Partners Inc. Jefferey L. Bleustein Chairman of the Board Harley-Davidson, Inc.XJun-97 George H. Conrades Executive Chairman, Akamai Technologies, Inc.May-02XX Akamai Technologies, Inc. Oracle Corporation. Ironwood Pharmaceutical s, Inc.

7. Judson C. GreenVice Chairman, NAVTEQNov-04XX DreamWorks Animation. Aon Corporation. Donald A. James Co-founder, equity owner and Chairman and Chief Executive Officer of Deeley Harley-Davidson Canada/Fred Deeley Imports Ltd.May-91 Sara L. Levinson Former Non-Executive Chairman of ClubMom, Inc.Feb-96XXMacy’s Inc. George L. Miles, Jr. Chair, Chester Engineers, Inc.Aug-02XX WESCO Intn’l Inc. EQT Corporation. American International Group, Inc. HFF, Inc. James A. Norling Chairman of the Board, GlobalFoundries Inc.Dec-93XX James L. Zeimer President and CEO, Harley-Davidson, Inc.2004 CFO Harley- Davidson Jochen Zeitz Chief Executive Officer and Chairman of the Board, Puma AGAug-07XXPuma AG. PPR.

8. B.Top Management NamesTitle NamesTitle Motor CompanyLeadership Joanne M. BischmannVP, Marketing Steven R. Phillips VP, Quality, Reliability and Tech Services David P. BozemanGM, Powertrain Operations Harold A. ScottVP, Human Resources James M. BrostowitzVP, Treasurer Patrick SmithGM, General Merchandise Leroy ColemanVP, Advanced Operations W. Kenneth Sutton Jr.VP, engineering Rodney J. CopesVP & GM, Powertrain Operations Michael van der SandeManaging Director, HD Europe William B. DannehlVP, North American Sales and Dealer Services Jerry G. Wilke VP, Customer Relationships and Product Planning William G. DavidsonVP, Chief Styling Officer Karl M. EberleVP & GM, Kansas City Operations Corporate OfficersHarley-Davidson, Inc. Robert S. FarchioneGM, Parts and Accessories James L. ZeimerPresident and CEO Fred C. GatesGM, York Operations Thomas E. BergmannExecutive VP and CFO James E. HaneyVP, Chief Information Officer Gail A. LioneVP, General Counsel and Secretary Michael P. HeerholdGM, Tomahawk James M Brostowitz VP, Treasure, Chief Accounting Officer Timothy K. HoelterVP, Government Affairs Ronald M HutchinsonVP, New Business Harley-DavidsonFinancial Services Leadership Michael D. KeefeVP & Director Harley Owners Group Lawrence G. HundVP, Operations, CFO Kathleen A. LawlerVP, Communications Kathryn H Marczak VP, Chief credit and Administrative Officer Lara L. LeeVP, Enthusiast Services Saiyid T. NaqviPresident Matthew S. LevatichVP, Materials Management Gail A. LioneVP, General Counsel Beull MotorcycleCompany Leadership James A McCaslinPresident and COO Erik F. Buell Chairman and Chief Technical Officer Jefferey A MertenManaging Director, Asia Pacific and Latin America Jon R. FlickingerPresident and COO Louis N. NetzVP & Director, Styling John A OlinVP, Controller

9. External Environment (John Taylor) A.Natural Environment Rising gas prices will affect transportation and shipping costs, negatively affecting company profits. Some consumers will not buy another vehicle to put expensive fuel in while others may buy a motorcycle for better gas mileage during higher prices.

10. External Environment (John Taylor) -North American market is steady and the international market is growing. Numbers reflected that sales in the foreign markets were... 19% in 2005, 20% in 2006, and 27% in 2007 of Harley Davidsons overall sales. --Constant rising gas prices since the Terrorists attacks on the US in 2001, have a continued impact on sales and the cost of production and overall company profits. Rivalry High.. Competition Motorcycle manufacturers continue to improve designs and provide a competitive market for Harley Davidson to compete for new consumers.. Buyers Power High, With many 30 different models of Harley's ranging from $6,695-$20,645 and 8 models of Buell Bikes from $4,695-$11,995, consumers have many options of finding the bike that meets their needs while staying in their price range Distributors Power High. Harley-Davidson has 684 independently –owned full-service dealerships, 307 of them which are combined H.D. and Buell Dealers. As of 2007, 370 Independent H.D. Dealerships and distributors serving 32 European Countries. 323 of which were combined H.D. and Buell dealers. A new dealership coming to South Africa in 2008. Threat of Substitutes Medium. Honda is a big competitor of motorcycles from small “crotch rockets” and large cruising and touring bikes.

11. External Environment (John Taylor) B. Societal Environment STEEP CategoryISSUEThreat/OpportunityRanking EconomicRising Fuel pricesThreat1 Pending recessionThreat2 Double digit growth in international dealer network during 2007Opportunity4 Planned opening of dealership in S. AfricaOpportunity3 Addition of Buell motorcycles to H.D. dealershipsOpportunity5 TechnologicalCreation of www.harley-davidson.com in 2001www.harley-davidson.comOpportunity2 Just-in-time InventoryStrength1 Political-LegalU.S. and Foreign environment control (EPA)Threat1 National Traffic and Motor Vehicle Safety Admin. (NHTSA)Threat2 SocioculturalRider Training and SafetyStrength1

12. External FactorsWEIGHTRATING WEIGHTED SCORECOMMENTS Opportunities Double digit growth in international market0.140.4Growth doubled in international dealer network for 2007 New dealership in S. Africa0.130.3New dealership being built in South Africa in 2008 Addition of Buell motorcycle line0.251Soaring Profits from adding the Buell line to H.D. dealers E-commerce, online catalog0.031 www.harley-davidson.comwww.harley-davidson.com developed in 2001 Threats Rising Fuel Prices0.310.03Steady sharp rise in fuel prices since 9/11 Pending recession0.220.4 Consumers may keep aging motorcycles or wait to purchase U.S and Foreign environment controls (EPA)0.0320.06 Stricter Government environmental controls add to cost of production. National Traffic and Motor Vehicle Safety Admin0.0320.06 Stricter Government environmental controls add to cost of production. Total Scores12.28 EFAS Table (John Taylor)

14. 4. Internal Environment

15.  C. Corporate Resources Travis Toborg  Marketing Marketing was divided into several different areas that are common for most all companies. These Areas included Dealer promotions, Customer Events, Magazines, Direct Mail advertising, Public Relations, Cooperative Programs with Harley/Buell, and TV commercials. You will also see Harley promotions at several popular sporting evens such as racing and even UFC.  Finance In 1985 Harley-Davidson was 4 hours from shutting there doors. Citicorp, Harleys main lender denied lending money in 1985 but with only 4 hours remaining to find a lending company, Harley made a deal with Heller Financial and managed to save the company. At this current time it is now funded by HDFS (Harley-Davidson Financial Services). Which is a lending company for Harley-Davidson motorcycles among several other helping factors. This means the company basically now funds itself.

16.  R&D Harley feels that research and development of there custom and touring motorcycles is a large part of the way they compete against the competition. They spent $178.5 million in 2005, $177.7 million in 2006, and $185.5 million in 2007 in areas such as style, purchasing, and manufacturing.  Operations Harley-Davidson has 684 dealerships in the U.S. and of those 307 were also Buell dealers. Their are 104 Secondary Retail Locations (SRL's), 68 Alternate Retail Outlets (ARO's), and 12 Seasonal Retail Outlets (SRO's). This makes the US the largest supplier in sales of Harley-Davidson motorcycles. 22% of the companies sales came from foreign Operations in Europe/Middle East/Africa at 370 dealers with 323 being combined with Buell, Asia-Pacific 130 Harley dealers with 57 selling both brands, Latin America with 31 dealers none of which also sold Buell's, and Canada which has 75 dealers, 45 of which sell both brands of motorcycles.

17. Human Resources Approximately 50% of the manufacturing employees of Harley-Davidson's own Harley's themselves and buy from dealerships so they have first hand experience with what they are contributing too as a work force. There are roughly 9,000 employees of Harley-Davidson Information Systems

18. VI. Strategic Alternatives and Recommended Strategy ( Shavera Leveille) A. Strategic Alternatives 1. Stability Strategy: Pause/Proceed with caution. Analyze the effects the recession will have on the company then react accordingly. a. Pros: Acknowledgment of areas that are weak and need improvement. The profit strategy would not beneficial it only masks the issues instead of confronting them. b. Cons: Strong Competition from competitors that are larger, established, and more diversified. 2. Growth Strategy: Horizontal growth strategy; concentric diversification, strategic alliance, and joint ventures. Target new market segments by developing products and services for females and younger bikers both domestically and internationally.

19. 3. Retrenchment Strategy: Turnaround strategy; close down unprofitable foreign plants and consolidate operations. a. Pros: Allows for concentration on business segments and plants that are profitable. Prevents further losses. b. Cons: Hinders growth B. Recommended Strategy a. Pros: New markets would help increase customer base, brand loyalty, and profitability. b. Cons: The new market segments may not be able to afford the products and services offered. Strategic alliances and joint ventures may result in loss of control over operations, conflicts, and higher risks.

20. Recommend alternative #2 which is growth for Harley-Davidson. The current customers are mainly comprised of the Baby Boomers. Harley-Davidson Inc. may benefit from recruiting younger customers to possibly build lifetime customer loyalty that can be passed down to younger generations. Women are also a great market segment to target because research shows that the number of female riders has risen significantly over the past few years. Concentric diversification, strategic alliances and joint ventures enable entry into foreign markets, knowledge of local conditions, sharing of costs, resources, and assets. Although, the company is facing a recession the costs of Harley-Davidson products and services should not be reduced, but rather competitively priced so that quality is not sacrificed