The initial market reaction to Artie Starrs’ appointment as new President and CEO (effective October 1) has been very positive, especially among dealers. So far, he has made it clear that his starting policy priority is "it's all about the dealers", and for that he deserves a resounding round of applause.
From his motorcycle education at Maverick H-D in Texas, to his discussions at the Milwaukee Dealer Forum, and extensive touring visits to the network, it is clear that this "outsider" is determined to understand it all. For Starrs, it is not about himself.
Listening to his statements and responses in the Q&A session with analysts and investors following the Q3 results release (Nov 4), it became quickly clear that he is a 'good student'. An experienced executive who has mastered the leadership temptation of thinking that the office automatically bestows all the answers on you.
The only observation that did not entirely convince me was when he described Harley as making the world's best motorcycles. If it were true, the company would not have gotten into the current mess in the first place.
However, let us be clear: Harley makes the best Harleys. Indeed, the best ever, and a range that tens or even hundreds of thousands of current non-Harley riders could benefit from if they took a closer look.
Nonetheless, as regular readers know, my complaint about how Matt Levatich and Jochen Zeitz have been replaced is that this board of directors is tragically guilty of underestimating and misunderstanding the shifts that have taken place in the international motorcycle industry since the end of Harley's post-AMF 'golden age' in 2008. Sadly, Harley has abjectly failed to keep up with, let alone embrace, the altered attitudes to motorcycle ownership expectations and riding experiences that define the new emerging generations of prospective customers as the industry's tectonic plates shifted.
Full marks to Starrs
My view that Harley needs experienced leadership drawn from within the international motorcycle industry is well-known and remains unchanged.
Given a fair wind, there is nothing that Harley-Davidson's research, design, engineering, and production engineers cannot achieve given the right vision and backing. The Pan America has proven that. Therefore, spending most of the money raised from the KKR/Pimco HDFS deal on share buybacks, rather than on their in-house "skunkworks," will not be judged favorably by industry historians. Although, to be fair, as with other questionable asset sales, that was before Artie Starrs' tenure began.
His focus will be correctly on what he can influence and how he intends to confront the problems that previous decisions have accumulated. In these respects, he has already shown that he "has the chops."
Backing his dealers and, ultimately, his engineers, is absolutely the place to start, and everything else should flow from there. That appears to be exactly where the new CEO's "head" is at.
In the investors' web conference, Starrs outlined four decisions he said he had already made.
First, accelerating the focus on further improving inventory management, and specifically mentioning Touring and CVO model inventories, reducing the oversupply of higher-end and, by definition, more capital-intensive models, certainly fits with other statements attributed to him, especially in terms of optimizing "capital-efficient" growth.
Second, focusing on "market-responsive, customer-centric promotions. They are designed to drive traffic to our dealerships, help close more sales, and support the reduction of touring inventory by moving units through retail." It is almost embarrassing that previous marketing initiatives apparently fail that test.
Third, "we are evaluating alternative approaches to e-commerce, working closely with our US Dealer Advisory Council. The goal here is to better meet today's consumer expectations while maintaining the appropriate balance with the needs of the dealer network." Dealer-centric marketing. Yes, yes and a thousand times yes.
Fourth, "we are reviewing the Fuel Facility Program guidelines to provide more flexibility to dealers. While that review is underway, penalties for non-compliance will be suspended for twelve months." For a brand that supposedly stands for freedom and individuality, that is a good chunk of corporate imposition disappearing at a stroke.
The initial observations on strengths and opportunities focused on "brand and community," offering "the best products for our customers," "strengthening our manufacturing capabilities," and third, the dealer network. "It is clear to me that the exclusive dealer network is a unique and powerful differentiator. We need to build on that foundation."
It is also somewhat shameful that a 123-year-old business has to talk about "building on foundations," but such has been the fraying of that most fundamental primary asset in recent years. So far, there has been no mention of going private again. That will be a difficult genie to put back in the bottle. Besides 'Pizza and Golf', Starrs has spent time in the investment world, so perhaps that will be too far an undoing for him.
"We will continue to invest in supporting and strengthening the dealer network as we all navigate the evolving commercial environment." He said that HDFS "continues to be a strength and significant asset to the company and to the HD dealer network," and that "post-transaction, this will remain the case."
In terms of opportunities, he noted that the continued interest rate environment means that "affordability will be critical to win in the market. Our product portfolio must balance aspiration with accessibility." He aims to ensure that Harley does not "overweight in one product family while continuing to attract new riders."
It is worth noting, however, that the average interest rate on consumer credit in the US was more than twice what it is now when Harley could not make bikes fast enough to meet demand. Just saying.
"We must improve our speed to market [Hooray!]. We need to move faster to bring innovation to market and capture new riders. Finally, in the current demand environment, we must sharpen our focus on cost and capital efficiency." There is that phrase again: capital efficiency. Good start. Simple, practical, realistic: full marks to Starrs.
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