Part 1 of our discussion with The Motor Company’s new boss.
In May, Matt Levatich, a trained engineer who has been with Harley-Davidson in a variety of positions since 1994, takes over as President and CEO of The Motor Company from Keith Wandell, who is retiring after six years in those roles. Levatich, 50, a graduate of Rensselaer Polytechic Institute, is taking over the handlebar at Harley at a tough time, right after news of the stock price falling and reduced sales forecasts. But in this, our first conversation with Levatich, it's apparent that he's eager and well-equipped to tackle the challenge.
Cycle World: What do you ride?
Matt Levatich: I have two bikes, and my wife has one. I have a Softail Slim and I have an XR1200X, which I will never sell. It will be the [XLCR] Caf'e Racer, but it won't take 40 years to become something everybody wishes they had bought when it came out.
CW: Do you get to ride them often?
ML: Here's the irony of the position I'm in. The opportunity that I get to ride motorcycles is either to work, or for work. I often don't have the time to be out on weekend rides, but I do get to ride a lot.
CW: Do you get the chance to ride competitive products?
ML: Absolutely. A big part of our process is to understand the landscape. With the development of Rushmore, back in the fall of 2009, we got our leadership team together. We got every touring bike from every manufacturer at our test track in Arizona. And we spent two full days riding everybody's product, including several development ideas for our own products. We had what we called a “Bag Rod,” which was a V-Rod engine grafted into our touring chassis, that the engineers had figured out to do for demonstration purposes. What would that type of powertrain deliver in that type of chassis? We, and more importantly, our engineers, spend a lot of time on competitive product to understand how we could be better.
CW: Can you mention a competitive product you've been on recently?
ML: Not really. At our test track four or five months ago, we had a bunch of different products for different reasons. It's a regular part of our process, in particular for our development engineers.
CW: You've been with Harley-Davidson more than 20 years. How do you compare the company you're about to lead with what you experienced through the years? Are there elements of company culture or processes from your earlier experiences you'd like to bring back or use to influence Harley-Davidson's future?
ML: That's a great question. At the highest level, 20 years ago, and probably for the next 10 years, the company was all about manufacturing capacity. When I joined, we had made 86,000 motorcycles the prior year. Compare that to the peak in 2006 at about 350,000. It's less today, but we're working hard to get that volume back up. But the emphasis has shifted from making motorcycles to what I would say is identifying and finding customers-with product, with distribution, with everything we do at the company.
We're customer led in everything we do. Who's out there who identifies with what we stand for as a brand, and how do we reach them? How do we do a better job of getting there with product? How do we talk about ourselves? How do the dealers relate to customers of different types?
That has been a very key and important shift. What has remained constant, and what I love-you mentioned the culture of the company-this company has been in existence for 112 years. The culture is very important and very present. And I would say it's not easily changed, and not appropriate to change. We have a lot of talent in the building. A lot of passion. A lot of understanding for who we are and what we stand for. And people bring that with them every day. So our task is to make sure it's focused in the right way to meet the current challenges and opportunities we have going forward.
We've done a lot work in the last six years bringing focus to the business. Alignment. What are we here to do and, more importantly, why? We understand what we mean to people. Why do they have the passion for Harley? Why do they have the loyalty that they have for Harley? Are we sure we understand that, so that everything we do serves to reinforce that for existing customers? And what more can we do to bring people in who are maybe on the outside and thinking “Wow, this Harley thing is kind of interesting. I'm not sure how I might participate, how I might get involved.”
And that translates into all of our activities in product development. Being more flexible in manufacturing, building bikes in the season, when bikes are in demand so we can build the right bikes. And not focusing our energy on cleaning up inventory after the season ends, which is what most of the other industry does. We have a capability now that we've never had-to more or less have seasonal production that follows the seasonal demand curve of the industry. That's helping us do the right thing in manufacturing every day.
CW: Okay, for all our readers who aren't CEOs: What are the three or four most important parts of your job as the company leader?
ML: The most important part of the job, to me, is clarity. I talked about focus and alignment and helping the organization remain clear on what it is we're here to do. As a company now, we are “un-confused” about who we are, what we stand for, and what we need to do. In the last six years we made tremendous progress in that. There aren't different people thinking different things about what the company should be doing. We spent a lot of time on clear strategy, this idea of being customer-led in everything we do. Helping people understand the role that they are playing in delivering that. Being what we call “one company” in that pursuit of delivering more for the customer. It has led to the transformations in product development.
I'll compare a decade ago to today: A decade ago, we had platform teams. Dyna platform, Softail platform, largely modeled like automotive does. And each platform team was competing for the next big capital investment so they could say now it's Dyna's turn to have a major refresh. Or now it's Softail's turn. Or now it's Touring's turn. And that doesn't exist anymore.
The prevailing mindset right now is how do we reinforce our current customers and how do we attract new customers. We're not platform led at all; we're customer led. And if we have existing chassis and engines that can help us do that, we can repackage them differently. If we need new chassis and engines, something like the Street, or Livewire that brings that potential, we need to invest in those things that deliver those customer-growth objectives, not chassis-growth objectives. It sounds kind of trite: We're not really in the business of manufacturing motorcycles. We're in the business of building customers. And we're going to be very smart about those product-development investments because they are big, and they're time-consuming, and they need to have the right impact in the marketplace. And that's a big shift.
CW: Harley has massive engineering and marketing resources, and a history of working in other types of mobility such as golf carts, snowmobiles, even the Trihawk acquisition/experiment. Can you foresee Harley-Davidson moving into other areas of transportation?
ML: This goes to your prior question about what do CEOs do. Clarity of direction is critical. So when you look back to the period of '09 and after the crisis and us exiting Buell and MV Agusta, we focused number 1 on the Harley brand. It's been very powerful for us. Building snowmobiles or golf carts is a manufacturing-led strategy.
We have capacity in the off-season. We have engineers that can design parts and moving pieces that propel vehicles. Let's do snowmobiles because we can run the factory in the summer building snowmobiles and in the winter building motorcycles...that's a manufacturing-led approach to maximizing shareholder value. We have a customer-led approach. We are in the motorcycle business. We have a great, powerful brand. We have tons of potential with future customers. What do we need to do within motorcycles to do that? This is what we are going to do, and we are going to be great at it. We are not going to confuse ourselves with these other things because that would take us away from being great at motorcycles.
CW: What's behind Harley-Davidson's downward trend in stock price and what are the forces behind the recently reduced sales forecasts here and abroad?
ML: Last Tuesday, we had our first-quarter earnings, and we communicated a couple things. Number 1: We were going to reduce our full-year shipment forecast from 4-6 percent down to 2-4 percent. Behind that is our analysis of the current market conditions globally, because that's a global number. Within that are a lot of moving pieces. Some economies like Brazil, and increasingly Europe, are struggling just with general economic strength. And within the United States, in the fourth quarter last year, we started to see increased competitive discounting, which is enabled by currency, which has switched pretty dramatically in the last 12 months for non-US manufactures.
It actually impacts Harley in two significant ways. The direct effect of a strong dollar is that every sale we make (our costs are dollar-based because we are a US manufacturer) internationally comes back as fewer revenue dollars, with the same dollar costs. There's a direct impact on our profitability with overseas sales, and what we started to see in the fourth quarter-which has accelerated in the first quarter this year-is what I would call the indirect effect of a strong dollar, which enables all of our competitors to now have 25 to 30 percent more profit, automatically.
And it's up to them what they want to do with that profit. Some will take it as profit. Some will turn it into promotional investment to grow their sales in this marketplace. Some will reduce their retail prices to move existing product and keep their factories running. In a lot cases, our competition in manufacturing-led, and they want to run their factories at full tilt. The US market just became a lot more lucrative, and they're trying to move units. The industry grew 9 percent in the first quarter in the US. We did not grow. We were down slightly in the United States, and a lot of that was fueled by discounting. That's what's going on in our business. That's what we communicated last Tuesday. Importantly, we were very clear and strong in making a statement that we were not going to play that game. And why.
And why are we not going to play that game? Because I, as a consumer, when I walk in and buy Brand X, and I'm proud of my purchase-maybe it was a $20,000 touring bike-and if I go in two or three months later and that exact same motorcycle is $3,000 less, I am not proud of the brand I've associated with. I'm not pleased with what that company did to the value of my new motorcycle. And we don't do that to our customers.
Our great strength at Harley is the passion and the loyalty and the trust that we have with our customers because we don't play those games. We're not going to go there, because it is a slippery slope. Once you go there, you totally take away the value of the brand and the trust and the loyalty that we enjoy with our customers. So we also communicated that on Tuesday, and our stock price took a hit because of what I would say is a very courageous view of who we are, what we stand for, what we are going to do, and what we are not going to do. We are not going to over-supply motorcycles into the marketplace. And we are not going to play the discounting game. The consequence of that is we are going to take units out of our plan this year. We are still going to deliver a great bottom-line performance because we are challenging ourselves within the business to offset those impacts of currency by being smarter and more focused in our work.
In Part 2 of our interview with Levatich, we ask him about the Street 500/750 models, the Livewire electric Harley, and recent recalls. Check back soon.