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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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  • IACS International Conference

  • LEHMAN TRIKES:

  • A STORY WITHIN A STORY

Don Looney

Annette Ryerson

Black Hills State University


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A New Strategic Alliance


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Harley-Davidson - Lehman Trikes


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Lehman Trike History


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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


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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)


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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


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Lehman Trike Product Line


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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


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Harley-Davidson


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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


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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)


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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


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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”


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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


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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


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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?


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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?


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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


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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


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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”?