Detroit: Harley-Davidson Inc.’s Chief Executive Officer Matt Levatich stepped down Friday after failing to arrest a chronic sales slump, leaving the iconic American motorcycle maker midway through a multiyear makeover.
Levatich will be replaced on an interim basis by Jochen Zeitz, a board member credited with reviving the Puma sneaker brand, the company said in a statement.
Levatich, who joined Harley in 1994, had been wrestling with several headwinds as CEO, including an aging customer base in the U.S., its biggest market, and heightened tariff costs from President Donald Trump’s trade wars. Harley’s first electric motorcycle, LiveWire, won positive reviews but has yet to kickstart sales or help it achieve greater market share abroad.
Harley was caught flat-footed by competition from more affordable, lightweight bikes as heavy motorcycles like Marlon Brando rode in the movie “The Wild One” went out of style, said David MacGregor, an analyst at Longbow Research in Independence, Ohio.
While there’s no denying it’s a difficult niche of the consumer market, there were also missteps by management, MacGregor said. “They’re finally figuring it out, but they’re three years behind the curve,” he said by phone. “The board members and investors were just not willing to wait.”
Road to Recovery?
Shares of the Milwaukee-based company have plunged 18% this year, and its $4.6 billion market capitalization is down by more than half from when Levatich took over. Harley’s stock declined 2.3% to $30.47 Friday before Levatich’s departure was announced.
U.S. sales dropped for a fifth straight year in 2019. That period covers most of Levatich’s tenure as CEO, which began in May 2015. Retail sales in the U.S. have risen only once in the past 21 quarters. That inability to spur growth presaged an earnings miss when Harley reported its latest quarterly profits in January.
As recently as last month, Levatich expressed confidence the company was on the road to recovery. “Our return to growth is not in the distance - it’s right around the corner, and 2020 is our pivotal year,” the CEO told investors on a Jan. 28 earnings call.
Levatich’s departure comes after the company moved in January to grant long-term shareholders the power to directly nominate board members, a concession meant to boost investor influence.
Harley has been investing in new products including electric motorcycles and middle-weight models to appeal to a younger demographic, but that has added pressure to margins. To help find younger buyers, Levatich hired the company’s first-ever brand president last April, only to dismiss him six months later, citing unspecified conduct that didn’t align with its corporate culture.
The stock staged a recovery in late 2016 when a new engine briefly boosted U.S. sales volumes and Levatich, who is reportedly 55, announced a restructuring plan designed to save the company millions. But the boom proved short-lived.
“They had it, they lost it, they got it back and lost it again,” said Ken Harris, co-founder of Cadent Consulting Group, a Chicago-based marketing and sales consulting firm. “When people aged out, they had no one to replace those buyers.”
“A millennial would rather have a powered scooter than a Harley Davidson,” Harris said. “I’m not surprised that they had to make a change.”
Trade War Woes
Levatich’s tenure came at a time when many manufacturers were tested by mounting tensions between the U.S. and its biggest trading partners. The Harley CEO went from being one of the first company leaders to be welcomed to the White House in early 2017 to contending with angry tweets about closing a U.S. factory and adding production overseas to avoid tariffs.
Those extra costs dented profits at the company, which had pinned its near-term turnaround hopes on growth in international markets. After Harley announced in June 2018 that it would shift some production out of the U.S. to sidestep tariffs imposed by the European Union in retaliation for U.S. levies on imported aluminum and steel, President Trump attacked the company for months - even threatening to back a boycott of the company’s bikes.
Harley went ahead with plans to ship motorcycles to Europe and China from a new factory in Thailand, which allowed it to mitigate almost all of a $100 million cost burden from the tariffs on U.S.-made bikes. This was part of an effort to get half of its revenue from outside the U.S. by 2027, but that promised growth hasn’t come fast enough to offset the drag from the steady decline in sales in its home market.
Levatich’s acting replacement, Zeitz, who’s been on Harley’s board since 2007, was named chairman as part of the reshuffling announced Friday. The company said he will remain in that role “once a new CEO is appointed” as a permanent replacement.
Zeitz was the youngest executive to head a German public company when he became CEO of sporting-goods maker Puma SE in 1993. The 56-year-old led the company for nearly 18 years, increasing sales about 15 over during his tenure.