Having recently visited the good, the bad, and the chronology, we're ready to close out the last leg on our Harley-Davidson (NYSE: HDI) road trip by turning our visors toward the future.

Certainly, the performance of the company, both in terms of business execution and reward to shareholders, has been nothing short of stellar to date. While past performance isn't a clear-cut indicator of future success, it's not at all difficult to correlate a lengthy span of near-flawless past execution with a promising future. After all, the fruits of labor for an efficient, robust, dominating business are exactly the resources needed for future prosperity. By establishing a strong brand, generating loads of cash, and perfecting the business model that resulted in an outstanding history, the seeds of continued success are sown.

Demand rides higher than supply
The demand for heavyweight motorcycles remains high. The clear leader in this market with very little significant competition, Harley-Davidson continues its motorcycle allocation process (much like a waiting list), despite a production increase averaging 13% annually over the past five years and 17.5% in 1999. With registrations for Harley and Buell models up 20% through May, the incentive to further increase production is high.

Production capacity, a limiting risk factor in the past, has been addressed with significant investments in new manufacturing facilities. The opportunity to ramp up production without compromising quality now exists. It's unlikely, however, that Harley-Davidson will ever eliminate allocation altogether, as it creates a scarcity which further fuels consumer desire. Barring a prolonged recession, it's almost certain that demand will exceed supply for the foreseeable future.

In a survey conducted by Harley-Davidson, 17.6% of U.S. adults, or roughly 30 million people, indicated that they are interested in owning a heavyweight motorcycle. Of those, 43% would choose a Harley and 30% would seriously consider a Harley and may consider a competitor. With a little over 200,000 units expected to ship in 2000, there is considerable room for market expansion.

The company recognizes this potential and is taking the initiative to attract and develop new motorcycle owners. The recent introduction of the Buell Blast bike and a new learn-to-ride program are among these efforts. Although a lower-margin cycle, the entry-level Blast line is crucial strategically in attracting and developing new riders, as well as competing in the European market.

Above and beyond motorcycles
Beyond motorcycles, the company has stated that it expects the growth rate of its Parts and Accessories divisions to exceed that of motorcycle shipments. This would favorably affect the bottom line in the long run, as it include higher-margin products. The product margins, from highest to lowest, are as follows:

* Parts
* Accessories
* Harley-Davidson Motorcycles
* General Merchandise & Buell Motorcycles

The Rider's Edge learn-to-ride program is aimed at broadening the market and grooming new riders. Launched in February, the early returns indicate a near 50-50 mix of females to males taking the course. This bodes well for the company, which currently counts women as only 9% of Harley-Davidson buyers. The program is also reaching a younger audience, with 36% of those taking the course being 18-34, much lower than the average buyer who is in his mid-40s.

In addition, the company took over control of HDRENTALS.COM, a Harley-Davidson rental program that has rented more than 25,000 bikes. Surprisingly enough, the average renter is a local resident and not a vacationer. The company believes it can raise the number of renters-turned-buyers to 10% from the current 3%.

A small curve in the highway
I should note, so that potential investors are not surprised: the Buell cycle division suspended production in June and initiated the recall of approximately 11,000 units due to a problem with the shock absorbers. The estimated cost to the company will be $3 million. Full production should return to normal by the end of August and unit targets are not expected to be affected. The interruption of the Buell lines will result in a higher mix of lower-margin Sportsters, as production is temporarily converted from Buell. The increase in both Buell Blast and Sportster models will have a slightly negative effect on gross margins in the near-term.

A revved-up conclusion
Harley-Davidson has surpassed the premier franchise elevation and has achieved icon status. After all, how many other brand names will you see tattooed on consumers' bodies? The company is selling much more than motorcycles -- it is selling a life experience, freedom, adventure, and the pride of owning an American legend. And, demand for that experience is stronger than ever. As a Harley shareholder, I continue to find Harley-Davidson to be a very compelling investment idea going forward, worthy of consideration for any interested Fool's Drip portfolio.

Drip on, Fools!

--Vince Hanks, TMF Elwood on the Fool discussion boards.