Tuesday, November 22, 2005

Harley Worth More than GM

“Our first ad was…Thank God They Don’t Leak Oil Anymore,” Richard Teerlink, former Chairman and CEO of Harley Davidson told us at the Ernest & Young Entrepreneur of the Year Conference. He was talking about how 12 management people who invested $1 million and borrowed $85 million tried to turn around the motorcycle icon in 1981. “The joke was that no one owned only one Harley. You had to have a second one for parts. Our quality was horrible.” The company’s market share had shrunk from 65% in its heyday down to only 14% in 1981.

The company was facing heavy Japanese competition and was on the verge of bankruptcy. It had horrible labor relations. Its dealer network was in shambles. Sales in 1982 were $210 million with an operating loss of $15 million. Today Harley has a 49% market share, $5 billion in revenue and an operating profit of $1.4 billion.

Contrast that with GM, which announced yesterday that it was closing nine assembly plants and laying off 30,000 employees. GM was on top of the world when Harley was fighting for survival. Harley Davidson made the hard decisions, invested in new products and has excelled. GM has dawdled and the results are crystal clear. Today GM with 40 TIMES more sales than Harley has a market cap of $13.3 billion compared to $15.1 billion for Harley.

Teerlink also told us about his father who emigrated from Holland in 1920. “Dad was a tool and dye maker with a six grade education, but in Holland he knew that he would never be able to own his own business, so he came to the only country in the world where he knew he could. He eventually owned a machining shop in Chicago.”

The lessons learned? Anything is possible in the USA. If you produce a great product and take care of the customer, you can be wildly successful. If you don’t, watch out! Even a giant like GM can be humbled.

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