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IACS International Conference LEHMAN TRIKES: A STORY WITHIN A STORY

IACS International Conference LEHMAN TRIKES: A STORY WITHIN A STORY. Don Looney Annette Ryerson Black Hills State University. A New Strategic Alliance. Harley-Davidson - Lehman Trikes. Lehman Trike History. Lehman Trikes. Founded in 1984 Headquarters: Spearfish, South Dakota

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IACS International Conference LEHMAN TRIKES: A STORY WITHIN A STORY

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  1. IACS International Conference • LEHMAN TRIKES: • A STORY WITHIN A STORY Don Looney Annette Ryerson Black Hills State University

  2. A New Strategic Alliance

  3. Harley-Davidson - Lehman Trikes

  4. Lehman Trike History

  5. Lehman Trikes • Founded in 1984 • Headquarters: Spearfish, South Dakota • Publicly traded: TSX Canadian Exchange • CEO: Ken Hines, formerly VP Lockheed Martin • Employees: 140 • Operations: 5 days / week/ 2 shifts / day – capacity 5000 units per year • Marketing: 122 dealers worldwide, 112 in the U.S. • Customer Loyalty: Pride Matters Magazine

  6. Lehman Trikes • Revenue: 2008 - $22.6 million • Revenue: 2009 (Q1-Q2) - $17 million ($35million annualized, a 51% increase) • Net Income: 2008 – ($570K) loss • Net Income: 2009 (Q1-Q2) - $597K ($1.2 million annualized, a 299% increase)

  7. Lehman Trike’s Business Model • Sales of conversion kits to dealers - $13,000 • Factory assembly from new O.E.M. motorcycles – price range $18,000 - $33,995 • Factory conversions for dealer supplied-customer owned motorcycles - $13,000 + • Conversion & assembly of the Tri Glide for Harley-Davidson – Retail price $29,999 - $32,339

  8. Lehman Trike Product Line

  9. U.S. Motorcycle Market • Value of $10.2 Billion • Volume of 1.05 million units • Second Quarter 2009 – GDP declined 2.5% • Second Quarter 2009 – motorcycle sales down 40% • U.S. market 15.9% of global total

  10. Harley-Davidson

  11. Harley-Davidson • Founded in 1903 • Publicly traded (NYSE: HOG) • Market Cap $6.69 Billion • Headquarters in Milwaukee, Wisconsin • Employees: 10,100 • Operations: eight unionized manufacturing facilities • 2007 machinists union strike - $27.89 maximum wage • Marketing: 684 dealers in the U.S., 74 in Canada

  12. Harley-Davidson Performance • Revenue: 2008 - $5.594 billion • Revenue: 2009 (Q2) - $808.7 million ($3.234 billion annualized, a 31.7% decrease to prior year Q2) • Net Income: 2008 – $222.8 million • Net Income: 2009 (Q2) - $19.8 million ($79 million annualized, a 91.7% decrease to prior year Q2)

  13. Harley-Davidson Performance • Share price declined from $78 per share in Dec. 2006 to $7.99 in March 2009 a 102% decline • CEO, COO, & CFO replaced April 2009 • 1500 jobs reduced (15%) April 2009

  14. Harley-Davidson - Lehman Trikes • 2008 – Three year exclusive supply agreement for the Tri Glide, prices renegotiated annually • Lehman must maintain capacity to supply Harley orders • Harley currently selling “all the Tri Glides they can get”

  15. Harley-Davidson’s Expectations • Low cost, low risk entry into a new market segment • Non-union production shop • Satisfied enough to launch Street Glide Trike for 2010 • Allows a ‘wait & see’ strategy for next move

  16. Lehman Trike’s Expectations • The Harley agreement will legitimize the trike segment • The agreement is providing the cash flow & critical mass for Lehman to grow even during the recession • Lehman continues to talk to other major motorcycle manufacturers but now with the Harley seal of approval • Lehman continues product development with the 2009 launch of the Victory Cross Bow

  17. The Future For Lehman • Lehman’s product sales mix now favors the ‘Harley side’ • Will that reverse or become more balanced as the recession ends? • Will the Harley agreement really legitimize and grow the three-wheel market? • Can Lehman capitalize on the Harley agreement to sign supply agreements with other manufacturers? • Has Lehman already become overly dependant on the Harley agreement?

  18. The Future For Harley • With Harley’s ongoing financial difficulties are they at all focused on the developments in the trike market? • Should Harley acquire Lehman to establish a non-union bridgehead? • Will Harley use the Lehman agreement with their unions to negotiate more favorable terms? • Will the new management’s new strategies include the trikes?

  19. Epilogue for Harley-Davidson • Q3 2009 sales down 21% net income down 84% • Announced “go forward” strategy • Discontinue Buell line, divest MV Augusta business • Announced “two path” study of York, PA factory • Major union concessions or relocate plant to Kentucky

  20. Epilogue for Harley-Davidson • Dec. 3, 2009 announced a new union agreement • Job cuts of 50% from 1950 hourly to 750 & 250 “casual” workers • Savings of $150 million per year • Allows York to resize & become more flexible • Job classifications cut from 60 down to 5 allowing workers to do more & significantly different tasks

  21. Epilogue for Lehman Trikes • Jan. 16, 2010 H-D announced Lehman will no longer assemble their trikes after 2010. • H-D announced moving trike assembly to York, PA plant. • Can Lehman effectively restructure to reflect loss of over half their volume? • Will economic recovery occur in time to revitalize sales on the “Lehman Side”?

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