As Harley-Davidson's (HOG -0.06%) sales enter their fourth year of decline, investors should ask whether the motorcycle maker needs a shakeup. The problem may not just be the soft industry in which it operates, but rather also the front office in Milwaukee. Maybe instead of 100 new models in 10 years, Harley-Davidson needs a new CEO and board of directors.

A long way down

Investing legend Warren Buffett once noted, "You only find out who is swimming naked when the tide goes out," which is another way of saying that everyone looks like a genius in a bull market.

Harley-Davidson Sportster Seventy-Two

Image source: Harley Davidson.

When times were good in the motorcycle business, it was easy for CEO Matt Levatich and the board to appear to be geniuses, but now that the tide is running out on the motorcycle bull market, the CEO and his board are increasingly looking like they're swimming naked.

During Levatich's tenure as CEO, which began in May 2015, total motorcycle sales fell 5%, U.S. sales are down more than 6%, foreign sales are off over 1%, and Harley-Davidson's stock has tumbled 11%. Over that same time frame, the S&P 500 has gained more than 25%, and rival Polaris Industries (PII 0.63%) has seen sales of its Indian Motorcycle brand soar (its stock is down over 9%, but it has been dealing with a massive recall situation in other divisions of its company).


1-Year Total Return

3-Year Total Return

5-Year Total Return

S&P 500




Polaris Industries








Data source: YCharts.

For investors, Harley-Davidson's stock trades at the same price it did 17 years ago. It's had ups and downs over that time, rising and falling beyond that threshold, but the fact remains there has been no value creation over nearly two decades.

While Polaris CEO Scott Wine agrees with Levatich that there are significant challenges facing the motorcycle industry today, he's still managed to keep Indian sales growing at a double-digit rate. To get Harley-Davidson to start growing again, too, maybe it's time the company had new leadership at the top.

Where are the motorcycle people?

Levatich came to Harley in 1994, serving in a variety of capacities, until being elevated to the position of president and COO in 2009 before being appointed to his current position of president and CEO.

Of the nine directors who serve with Levatich on the board, four have come in the last two years, and none has any relevant experience in the motorcycle or related industries. The chairman of the board, who was appointed to the position last year, is a former senior VP at Boeing, while the longest-serving board member (since 1996) is the founder of a digital entertainment company.

Others include a division of General Electric that deals with LED lighting and solar power; a co-founder of a not-for-profit sustainable business practices consultancy; a former Starbucks executive; a former executive of Levi Strauss; an executive with the Bill & Melinda Gates Foundation; one from engine maker Cummins; and the CEO of YUM! Brands Taco Bell division.

Although it's important for a business to bring in outsiders to a board who can provide a fresh perspective, it's equally important to have people serving who understand the industry, too, otherwise they'll be more likely to defer to the CEO. In Harley's case, Levatich is seen as "the motorcycle guy," and his prescriptions for rectifying the situation will be viewed in a more positive light than perhaps they ought to be.

Agitating for change

This year in particular, it seems activist investors have staked out positions in companies across a variety of industries with one of the goals in mind being ousting the CEO. From aluminum specialist Arconic, railroad operator CSX, and chicken wings and beer restaurant Buffalo Wild Wings, all have seen activist investors successfully champion replacing their chief executives who presided over a declining business with no discernible plan for change.

It may be time for an activist investor to take a closer look at Harley-Davidson and seek not only the ouster of Matt Levatich, but also try to gain several board seats for itself and fill them with knowledgeable people from within the industry. Because without new leadership, it may be the shareholders who are the ones left swimming naked.