Alarm bells are ringing today among Harley-Davidson fans of a return to the dark days of AMF ownership as rumours circulate of a takeover of the American motorcycle giant by a private equity firm.
Harley shares leapt almost 20% on Friday (July 1 2016) as traders reacted to unsubstantiated talk of a possible takeover by private equity company Kohlberg Kravis Roberts & Co (KKR & Co).
There was similar unsubstantiated speculation of a takeover in December 2015, but the market reaction this time seems to suggest it may be more likely.
We contacted HD HQ in Australia for comment but obviously they can’t even speculate or supply background information. KKR in New York and HD in Milwaukee have also refused comment.
So what does it mean for Harley owners, fans and potential customers?
It’s difficult to say at this stage, but it is also difficult to have a lot of optimism.
For many, it will signal a return to the ‘70s when American Machine and Foundry (AMF) bought the company, cut production costs, slashed the workforce and produced lower-quality bikes.
In 1981, Willie G Davidson led the buyback of the company which has since flourished.
Now, it faces increased competition from fellow American motorcycle companies Indian and Victory under Polaris ownership and discounted Japanese imports.
Harley reported a 1.4% increase in worldwide sales in the first quarter of 2016, led by a 4.5% increase in international sales while domestic performance was slightly down. There is not expected to be much difference when HD releases its second-quarter results on July 19.
One of the problems for Harley has been its ageing male core customer base. They have responded in recent years with a new-model boom and a marketing direction that targets younger riders, females and ethnic communities.
The concern for Harley aficionados will be that the new models will dry up under new ownership.
Private equity firms are notorious for buying companies where they believe they can either extract costs or combine with a similar company to reduce overheads, pump up the bottom line for shareholders, then sell in three-to-five years for a large return.
Extracting costs usually means less money for research and development, marketing and new models.
KKR is one of the original private equity buyout firms. They’re the big boys in this space and are famous for having acquired companies such as Eastman Kodak, RJR Nabisco and Toys “R” Us.
We spoke to a corporate guru who wished to remain anonymous. He says KKR is also notorious for stripping and selling off!
“No one ever hangs on in this space,” he says.
“They usually put in a fresh management team and run things more efficiently which is code for sacking people.
“Sometimes they buy a couple of companies in the same space and instead of having two production lines they put everything through the same line and run it 24 hours a day.”
Interestingly, MV Agusta, who were momentarily owned by Harley may be back on the market … just sayin’!
It would be such a shame if Harley is acquired by a company intent n striping and re-selling as the American giant has developed some very appealing models in the past few years, notably the Rushmore Project update to the Touring range, the Softail Breakout and the Dark Custom range.