from FORTUNE MAGAZINE
By John Helyar

It redefined the motorcycle industry as it roared through 16 years of growth. But as its customers age--and the stock market slides--the ride could get uneasy.

Wearing black leather and riding huge Harleys, a motorcycle gang thunders through northern Georgia as if en route to a rumble. But the only rumble for this gang--the Atlanta Harley Owners Group (HOG)--is the one in their stomachs. It's another Sunday ride in the country for the group, and as usual it ends with a feast. "We live to ride, and we ride to eat," says club assistant director B.K. Ellis, a systems analyst.

Ellis is one of 55 HOG members on the outing, mostly white-collar types with secret lives as bikers--and total devotion to their Harleys. "It's the imagery, the mystique," says Ellis. The group was gearing up for a huge national rally of HOG chapters in July: 20,000 owners were expected to ride into Atlanta for a three-day party to mark the start of Harley-Davidson's 100th anniversary celebration. Some would be hard-core guys with big tattoos and bad tempers, the sort who once typified the Harley customer. But most would be playing hooky from $78,000-a-year jobs (the average salary of today's Harley customer), riding $16,000 motorcycles (the typical cost of Harley's biggest bike, a cruiser), and pledging fealty to an open-road cult that doubles as a $4-billion-a-year company.

This is the motorcycle world that Harley-Davidson has reinvented, one that seems--and is--a century removed from the Milwaukee shed where William Harley and Andrew Davidson first collaborated in 1903. Harley today has more to do with fraternity than with machinery. You buy a Harley, you join a ready-made motorcycle gang: the 600 U.S. HOG chapters, operated under the dealers' aegis. Style is as important as speed. On dealers' floors, leather-draped mannequins can outnumber the bikes. Harley has artfully parlayed the romance of the road and the independence of the biker to capture baby-boomers. Its core customers have reprised their 1960s rebelliousness with a product that bespeaks their 1990s success.

By selling a lifestyle while competitors sold mere motorcycles, Harley left others in the dust for leadership in the most lucrative segment of the market, the big cruiser bike. It has a 45% share in the U.S., vs. Honda's 23%. Harley hasn't built better bikes than its four main Japanese competitors--it once had persistent quality problems--but it has built a far better brand. It licenses its logo to more than 100 manufacturers, which gives the company ubiquitous exposure. It fosters the HOG clubs, which are rolling convoys of free advertising. So even though it sells a niche product, Harley consistently ranks among the ten best-known American brands, in the company of Coca-Cola and Disney.

Harley also ranks among America's top growth stocks since its 1986 IPO. Its 37% average annual gain runs just behind the 42% pace of another '86 debutante: Microsoft. While the earnings of so many other companies have gone into the tank, there's still plenty of gas in Harley's. During the first half of 2002 net profits rose 27%, to $264 million, on an 18% gain in revenues, to $1.9 billion.

Yet even as Harley is posting those robust results and beginning its centennial bash, some of its key growth engines are sputtering. Its customer base has grayed, as the average age of a Harley rider has risen from 38 to 46 in the past decade. Moreover, customers' ardor may be cooling along with the economy. "It's an upper-middle-class toy," says Chad Hudson of the Prudent Bear fund, one of a number of prominent short-sellers convinced that Harley will skid. "As people run out of disposable income, that's going to hurt."

Plenty of people who make and ride motorcycles would savor the comeuppance of Harley, despite all it has done for the industry. When Harley accelerated out of near bankruptcy in the mid-1980s, it revived the whole motorcycle industry. Following 15 long years of decline, it has now had 11 straight years of sales growth. Yet old-schoolers still can't forgive Harley for its introduction of yuppie poseurs and high-style duds. To them, it's a company of fancy-pants bean counters and marketers, with the only remnant of the old Harley being vice president of styling William G. Davidson, grandson of the co-founder, biker to the core, and known to all as Willie G.

Willie G. dismisses the charge without quite denying it. "There's a lot of beaners, but they're out on the motorcycles, which is a beautiful thing," he says, noting that he recently co-led a national rally of Canadian HOG groups with Harley's top suit, CEO Jeff Bleustein. He isn't exactly of biker stock, being a former engineering professor at Yale. But Bleustein made his mark as Harley's chief engineer, leading an engine redesign that ended chronic problems like oil leaks.

Harley's appeal still lies more in image than in performance, however, and fashion-driven companies are vulnerable to changes of fashion and generation. The future of Harley's business is in Gen Xers and Yers, not exactly the forte of a company attuned to baby-boomers' rhythms and values. Naturally the boomers' kids want to ride anything but the old man's model. They're drawn to machines that are the anti-Harley. American sales of light sport bikes, aimed at 25- to 34-year-old men, increased 90% from 1998 to 2001. Suzuki, Honda, Yamaha, and Kawasaki have a combined 92% of that market. The 114,000 bikes sold in the category still pale beside the 262,000 in Harley's cruiser segment. But the youth of America have spoken. They prefer sleeker, sportier machines than the Harley hog, and Harley's brass had better listen.

The company needs to make inroads with today's twentysomething bikers because of the dearth of thirtysomething ones. The prime age for motorcycle customers is 35 to 44, according to Donald Brown, a consultant to the industry. Brown says this age group's numbers began to decline in 1999 and will continue to do so through 2016. Since Harley can't replace all its boomer customers from a limited pool of busters, it must reach deeper than before into the youth market. The result, says Brown: "It will have to compete more head-on with the Japanese."

Give Harley credit for not burying its head in the sand, as the Japanese did when they were atop the market in the early 1980s. They wrote off a near-bankrupt Harley, failed to respond to its resurgence, and then ceded to it the boomers and cruisers. That won't happen at Harley, vows Bleustein. His message to a national meeting of 650 dealers in July: "The only thing that can stop us is if we get complacent. Even though we've been successful, we can't stand still."

To that end, Harley has poured money into developing new, youth-oriented models. The $17,000 Harley V-Rod--a low-slung, high-powered number known formally as a sport performance vehicle and colloquially as a crotch rocket--is meant for hard-charging youths. Harley has also tried to go young with the Buell Firebolt ($10,000), its answer to Japanese sport bikes, and the Buell Blast ($4,400), a starter motorcycle. But Buell, a subsidiary Harley bought in 1998, has captured just 2% of the sport-bike market, and Harley will make only 10,000 V-Rods this year. Bleustein insists that those numbers aren't the point: "These aren't one-shot deals. These are whole new platforms from which many models will proliferate."

Making changes is tricky for a company with Harley's cult following: They risk alienating current customers. The V-Rod's water-cooled engine is a big departure from Harley's traditional air-cooled one, and to some uneasy riders a portent of additional unwelcome changes to come. "If they ever do anything with that [roaring] sound, they've lost their customer base," says B.K. Ellis.

Harley has designed its year-long, ten-city 100th-anniversary bash to appeal to both the old riders it has long satisfied and the new riders it needs. On the first day of Atlanta's party, the HOG clubs were to mingle and get their first look at the anniversary models. On the weekend Harley would invite the public to its Open Road Tour, featuring country singer Tim McGraw and other draws for nonbikers. The company was hoping for daily weekend crowds of 40,000 to 50,000. But it had never staged anything like this and was counting on a whole lot of people having a whole lot of curiosity about Harley--plus a whole lot of cash to pay $55 a ticket.

The people who catch Harley fever will be directed to a hometown dealer. Many offer Rider's Edge courses for novices. Bleustein began the program two years ago because he felt that lots of people were interested in motorcycling but intimidated by the bikes. About half the Rider's Edge graduates are women. Harley's proportion of woman customers has about doubled in the past decade, to 9%, partly because the company required dealers to transform their grimy bike shops into retail emporiums. Dealers who reaped the benefits of directives like that seem confident that the company can keep reinventing itself. "They've done an awful lot to be forward-thinking," says Chris Houghton of Harley-Davidson in Atlanta.

Yet privately, some dealers worry. The customer waiting list for new motorcycles has shrunk from as much as two years to a matter of months. Dealer premiums that used to range between $2,000 and $4,000 have disappeared for most models. Dealers are grateful the company is playing the centennial to the hilt. But the question, says a dealer, is "What's going to happen in 2004?" The answer: Harley must get ahead of the demographic curve with new customers while somehow keeping faith with its fanatical old ones. If it doesn't, the born-to-be-wild company will begin its second century with profit growth that is doomed to be mild.