Over the weekend The Wall Street Journal used Harley-Davidson as an example of America’s new, “lean” model of manufacturing. The term “lean” means what you probably already think it means. Lean means fewer hourly workers, reduced job security, more robots, higher profits and bigger bonuses for executives. Lean does not mean better or cheaper motorcycles.
This manufacturing model is sometimes called just-in-time manufacturing. It is largely the creation of an American statistician named W. Edwards Deming who went to Japan after the Second World War and helped reinvent Japanese manufacturing. Sometimes lean manufacturing is called “The Toyota Model.”
Harley is now leaner because of Chief Executive Keith Wandell. One of Wandell’s first decisions was that the York Assembly Plant, opened in 1973, was “obsolete.” At the time, the York plant employed about 2,400 workers who each made about $23 an hour, or about $45,000 a year. Wandell threatened to fire all those workers, close the plant and build a new one in Shelbyville, Kentucky. The workers’ union, the International Association of Machinists and Aerospace Workers, had virtually no leverage in the negotiations. The union could save some York jobs or lose them all. So, union members voted to save what they could.
The plant now has five job classifications instead of 62. The breadth of collective bargaining has been reduced. The old contract was 136 pages long. The current contract is less than half that. The York plant now employs about 1,000 hourly workers and a tenth of them are “casual” employees without job security. Robots and modern presses now do much of the work that used to be done by human beings.
Last year Wandell made $7,232,147.
Big Bang Transformation
Ed Magee, the York Plant Manager told the Journal “This is a big bang transformation.”
A key idea in Harley’s new, lean relationship with its workers is to make the company better prepared to survive the next wave of economic recession expected in 2013. Harley sold about 350,000 motorcycles in 2006, about 230,000 bikes in 2011 and is on track to sell about 220,000 motorcycles this year. At the company’s peak six years ago, most new Harley’s sold in America were financed with home equity loans. Now many of those mortgages are either underwater or have been foreclosed. Harley has adjusted to the impoverishment of its traditional customers by concentrating on marketing to women, ethnic and racial minorities and young people, although Wandell told the Journal that this years sales “partly reflect ‘pent-up demand’ as some customers who held off during the recession finally returned to the market.”
Harley-Davidson’s net profit margin is now almost 16 percent. The company’s profit margin was about 12.5 percent when Wandell took over. The margins are notable. By way of contrast grocery stores have an average profit margin of about one percent. Movie studios average profit margins of about 10 percent. Service businesses usually have higher margins than manufacturers and other hard businesses. Physicians enjoy profits of about 13 percent. Law firms average profit margins in the Harley-Davidson range – around 17 percent.