Without reinvention, Harley-Davidson is a dying brand

In the early 1980s Harley was in a very similar position as they are today: The economy was in a recession, motorcycle sales had plummeted and Harley was in dire straits. In 1981 thirteen senior executives bought out Harley-Davidson’s owner AMF and, like today, engaged in massive restructuring. But that wasn’t enough to turn sales around.

That’s because restructuring addresses the business of running the corporation but can’t create consumer demand: money saved is not money earned. As in the 1980s, so in 2010—sales did not pick up and, in fact, plummeted.

Back in the 1980s, Harley got the federal government to institute a punishing tariff on foreign motorcycles. But that alone wasn’t enough to up sales either. Tariffs  can shift existing demand to the favored corporations, but only if the protected industry is not too inferior to the penalized foreign ones. And, at the time of the takeover, Harleys were perceived to be inferior by a great many motorcyclists because of its terrible reputation for mechanical problems.

So much so that the brand was the butt of jokes such as “Why are so many Harleys still on the road? Because the tow trucks haven’t arrived yet.” That reputation affected consumer demand beyond the effect of the recession.

Over the next several years, Harley embarked on a series of dramatic technological advancements—the 1340cc V²® Evolution engine and a superior powertrain as well as rubber-mounting among other innovations. They also fixed perennial problems like oil leaks—and sales increased so much so that Harley petitioned the feds to allow  the tariff to lapse two years early. But without that tech fix, the tariff would’ve had little effect.

Iow, consumers didn’t care how the company was run; they cared about how the motorcycle ran. And that’s what separates yesterday from tomorrow when it comes to H-D’s current troubles: the bike is reliable (enough) nor are there any cutting-edge technological advancements that the core is demanding. Iow, there’s no ready way this time to improve the product to increase demand.

Style also works against Harley’s resurgence now: In the mid-1980s, Harley also introduced a new model, the Softail, which was very much like earlier Harley models, and then the Heritage Softail. which recalled the famous Indian motorcycles—particularly the Chief.

That typifies Harley design since then: In the 1990s, the Motor Company took a cautious step toward modernizing design by producing the V-Rod.

When that failed to attract many riders, they slightly change it to the Street Rod, which also failed to make a significant impact. Harley swiftly returned to their endless variations on past glories. Witness how Harley’s website describes two of the three latest models:

the 2009 two-wheeler “the history-inspired Cross Bones, a bobbed factory custom,” and the 2010 XL Forty-Eight that recalls “the raw, custom Sportsters of earlier days.”

Iow, Harley’s design is, in a good friend’s words, “putting their boots on backwards to stumble forward into the past.”

And that’s just what Harley’s base wants—more of the same with just enough little changes that one year can be distinguished from another—by the faithful and few others.  Baby Boomers identified with Harley’s iconic American corporate mythology, and the rugged individualist  achieving the American Dream mythology the motorcycle symbolized.

Fear of alienating the base has prevented the Motor Company from reinventing the brand to appeal to a changing society.  For example, many dealers refused to carry Buell motorcycles because even though Harley owned Buell, it was not a Harley. Harley fanatics have a strong, inflexible image of what the brand is—and isn’t. And it isn’t a bike that looks un-American since the “sport” look is associated with the bikes made in Japan or Europe.

In this way, the famous Harley brand image is both the best and worst thing that happened to Harley. It was responsible for the phenomenal success of the corporation but keeps it frozen in a time that’s increasingly irrelevant to not only younger generations but older men and women (and minorities).

Consider it this way: Not everyone likes a cola. What if Coca-cola only could produce variations of Coke? By diversifying with Sprite, Barqs, Canada Dry, Crush, Dasani, Minute Maid, Nestea and Gold Peak iced teas and four  hundred other varieties of beverage (including Barcardi mixers), there’s something for everyone. And Coke fanatics don’t mind, nor do stores that carry Coke. This provides multiple revenue streams, protection against market swings (like the growing aversion fad for carbonated soft drinks) and more.

But for some strange reason, Harley is not Coca-cola: In the 1960s when Honda Super Cub were selling like crazy, H-D’s foray into selling scooters failed. That same year it founded Aermacchi Harley-Davidson to produce small single cylinder motorcycles in Europe. Fail. The three-wheel Servi-Car. Fail. H-D snowmobiles. Fail. Making engines for lawnmowers. Fail. The move into RVs with Holiday Rambler Corporation. Fail. Buell. Fail. MV Augusta. Fail.

For almost 50 years every single attempt to diversify[i] has been unsuccessful no matter who ran the corporation. Since Harley’s major competitors, Honda, Suzuki, Kawasaki, Yamaha, Polaris and BMW, all have successfully diversified—and drawn their bases to their other products—this is a singular mystery. But it’s one analysts should consider: What happens if Harley loses its base?

Or rather, when Harley loses its base. The average Harley rider is now closer to 50 than 40—and 40 is considered old by younger people. This has a double whammy for the Motor Company:

The visuals are negative—the more older riders seen on the roads on Harleys, the more Harley is seen as the Geezer Ride. That will not appeal to younger riders nor to those new motorcyclists over 40 who want to ride to feel younger—not older.

But it has another effect: Several years ago, BMW—who shares the well-off, white collar worker demographic with Harley—found out that riders buy their last new motorcycle in their early 60’s.[ii] Iow, a great many of the Harley Faithful have bought their last bike or are about to—and worse still, every year more of them are passing that “last bike” milestone. Since the last Boomers turned forty in the late 1990s, it’s a trend that will accelerate as the bulk of the Boomers hit 60-years old in a couple years. Iow, even if H-D miraculously attracts a great number of young people in the next few years shipments may only stay even with 2007 results and not grow. And that’s something analysts should consider: very soon, it will take a phenomenal number of new customers to produce modest growth.

But to attract young people the Motor Company has to overcome the Geezer Factor and make its hallmark yesteryear styling relevant to a society that values speed, flexibility, daring and ability to adapt quickly—none of which are associated with their products. Buell–despite it having the “old-fashioned” Harley engine–did appeal to younger riders and those who wanted to be thought of as younger. But Harley treated Buell as if it was a sideline like the pathetic Topper scooter or lamentable snowmobile rather than the path to a vibrantly growing future.

Iow, the kind of turnaround the Motor Company experienced in the 1980s is highly unlikely in the second decade of the new millennium.  Unless Harley finds a way to brilliantly reinvent their line, Harley-Davidson literally may be a dying brand.


[i] Except into making motorcycle loans and selling them to Wall Street investors.

[ii] BMW promptly began designing motorcycles that would (and have) appealed to younger riders. Harley, has failed not only with a younger design in their main product line but with the more youthful Buell style.

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19 Comments on “Without reinvention, Harley-Davidson is a dying brand”

  1. gymnast Says:

    That pretty well describes it, the sum and substance of the the Motor Company, past, present, and future. Trouble is, the Motor Company has never been blessed with “good listeners” in the past. It appears to have squandered the opportunity of prosperity when it existed and is now, even more out of touch than it was during the AMF years when it lost a considerable base of the dealers who had sold the bikes that current models try to emulate.

    I am sure that the debt load being carried by current Harley Davidson dealers is a matter of concern to the top HD corporate executives and likely transcends their concerns about inroads into the “youth market”. When it comes to the future of the Motor Company, one has to wonder how much longer there will be a “there” there.

  2. Jim Says:

    Porsche faced a similar dilemma as HD is in the 70’s. The brand’s partisans defined Porsche as a rear engined sports/GT car powered by a boxer motor. In spite of this Porsche brought out models that had the V8 and I4 engines mounted in the front, called them Porsches and found a different buyer for those vehicles. Today the hardcore Porschephile still views rear mounted, boxer engines as the true Porsche, but the brand is selling a successful SUV and a (hideous looking) sedan.

    HD’s made a mistake in not calling the Buell a Harley and compounded it by taking the cheap route to market and reusing an existing motor rather than developing something different, i.e. not a V-twin. Yes the hardcore would have screamed, but so what, HD would have been seeking a different buyer. The dealers would need to offer the model(s) as it is a Harley and HD could have manipulated the hold back to ensure that the dealers were presenting the bike properly. It probably is too late now, but HD should at least go down this path.

  3. Nick Says:

    I agree with this well written article for the most part be would make one exception as far as comparing the economic difficulties of HD today versus say the AMF/80’s time…

    That would be the general state of the economy in the US today versus then.

    While the “solutions” for economic malaise were similar (the steps taken by “conservative” Ronald Reagan of busting federal budgets wide open(deficit spending) courtesy of the gov’t ability to print money) the outcome will be drastically different this time around. I predict a lower standard of living, inflation, etc.

    “Recovery” occurred at a time when the US still had a substantial industrial base and productive capacity that allowed for a high personal income rate relative to the cost of living.(or standard of living)

    Today we have an entirely different economic condition under which Harley has to try to recover from. There is mass unemployment, crushing personal, corporate, and gov’t debt. (way more so then the early 80’s)

    Complicating things more is the utter destruction of the true productive capacity of the US in terms of an industrial base. (enabling a chance for Harley’s potential customers to have a decent job)

    Even if HD was being run properly(and it’s not), these conditions don’t speak well towards any hope of recovery for them any time in the next 5-10 years. This situation is no where like the one in the early 80’s.

    That being said, I agree Harley has suffered tremendously from its inability to diversify.

    If you assume for a moment that the bulk of motorcycle purchasers in the US buy them strictly as a luxury item or for personal enjoyment only(which frankly still represents most of the public in the US, unlike say the Euro market) you can understand that the economic conditions today will make it unlikely for HD to recover that substantial segment of their “luxury” market anytime soon as those expenditures are the first ones cut by a suffering motorcycle buying public…

    What you have left long term are those people who view motorcycles as practical transportation. Looking at their options from HD they generally speaking can’t get a bike from them for under $8000….

    Compare that to Suzuki for example, where you can get a DRZ for $6200 at MSRP or Honda-a CRF230M for $5400 that both get better gas mileage, can carry a second passenger for no extra money, and can handle saddle bags cheaply.

    HD could have easily tapped into the youth or “practical” market by doing what everyone else is doing by manufacturing in China…but instead they took an incredibly conflicted approach of subsidizing Buell for high cost motorcycles in trying to appeal to youth (not considering the “Blast” which appealed to few and cost too much for what it’s feature set represented) and buying MV Augusta towards the “finale”.

    What genius was making the “executive” decisions within The Motor Company is not important as the fact they literally flushed hundreds of millions of dollars down the toilet that they could have spent on a simple market directed approach to that missing segment of their motorcycle selling market is astounding…it’s simply incredible incompetence.

    I’m afraid that HD will most likely not recover from what has been the ignoring of a substantial segment for some time. The market for a high dollar motorcycle of little practical value in terms of cost/dollar analysis for the “youth/practical” segment is non-existent in their lineup

    The future is with companies that have long fostered their products in that segment(Honda, Suzuki, et al)…and to those breaking new frontiers like the Brammo with their Empulse, et al.

  4. wmoon Says:

    Nick, I generally agree with you on the different conditions nationally between now and then–though you forget that it was under Reagan that the huge exodus of American manufacturing jobs to Mexico and overseas really took off. I totally agree that the USA is in dire need of manufacturing jobs that can provide good wages. However, unemployment was worse in the early 1980s when it went over 10%, though in terms of debt it is truly far worse today. I agree with you that the outcome for the “average” American will be a decreased standard of living

    I would suggest your analysis when it comes to H-D is somewhat off. H-D’s demographic’s median income is almost $90,000–meaning, of course, half the incomes are above and half below. As of 2009, the median income in the USA was almost 50,000 making far more than half of H-D’s base far more well-off than half of all Americans. Once again, this is not the group that has been hit the hardest in this recession. Nor are blue-collar workers (i.e. the factory workers you allude to) H-D’s base any longer (as in the 1980s when motorcycling was mainly blue-collar for all motorcycle manufacturers). In fact, most H-D’s customers have white collar jobs and some college–iow, it’s not their jobs being shipped overseas. While their investments and 401k’s have suffered, it’s not so much they can’t afford a Harley it’s that they’re afraid they can’t–or won’t be able to afford it in the future.

    The absolute worst thing that H-D can do is lower their prices or start a “cheap” line given that the only reason people were willing to plunk down tomorrow’s prices for yesterday’s technology was the prestige factor. Nor can H-D outsource manufacturing because their base is rabid about the American madeness of H-Ds. However, as you may know, H-D is outsourcing the actual building of the bikes in India (shipping kits to be assembled there). I suspect–have nothing to back it up–that soon all bikes sold in that area of the world will be sent to India to be assembled and reshipped from there.

    Riding for transportation is an extremely small portion of the USA/Canadian market and NO motorcycle manufacturer aims to please them first, second or even third–there’s a vast number of far more affordable cycles that are not imported into the USA by the Big Four, for example. In fact, the Big Four need America’s lust for big bikes (which are more expensive) to pay for R&D that’s needed for tech improvements for the low-end bikes where margins are razor-thin. They make money on the small bikes by quantity of sales–but even then its the margins that are problematic (which is why manufacturers have outsourced making the bikes from Japan, for example). But the real money is in the USA (and to a much lesser degree, Canada and Western Europe). The last thing ANY of the motorcycle manufacturers want is for Americans to suddenly want cheap bikes.

    It’s not that young people want cheap motorcycles as much as they want the sport/adventure style of motorcycle. If they just wanted cheap, they could get a wannabeaharley from any of them for much less than an actual Harley. Polaris, btw, is suffering in terms of sales because Victory is only a copycat Harley.

    Motorcycling has far more to do with great socio-cultural tides, eddies and currents in America–and what Harley symbolizes to Americans (and the rest of the world) is not what resonates with the young. Harley’s biggest mistake was jettisoning Buell–though I myself am not a Buell fan. It could have been the next Harley for the next rise of motorcycling, but the short-sighted idiots in Milwaukee preferred to look good on quarterly statements even though it would ultimately mean the corporation will die.

  5. Mark Weiss Says:

    H-D has seen this coming for a very long time. I recall attending a conference some 15 years ago where a H-D rep’s speech carried the message of, “Our core market is getting old and we don’t want to start building three-wheelers.” Of course this was around the time that H-D purchased a controlling interest in Buell.

    Today, we see that H-D has shut down Buell (just as the division was really becoming successful) and has started building three-wheelers. To a large extent, this may be because of what the Motor Company really sells. Motorcycles are an accessory to their main emphasis, the “Lifestyle”. Lifestyle is H-D’s main emphasis, and their Lifestyle does include a motorcycle. The problem that I see is that styles change and eventually everything goes out of fashion.

    H-D continues to sell the same Lifestyle to new audiences. Buyers who don’t have the same cultural background as buyers who moved into the market decades ago. As the Lifestyle loses its audience, there’s no amount of paint and chrome that will make the accessories (the bikes) continue to appeal.

    Buell was an intersting attempt by H-D, and one that they clearly did not fully understand. Buell sold motorcycles. The lifestyle that came along with a Buell was the accessory, not the bike itself. Buell owners came from many backgrounds and their new bikes added to what they already had. H-D expected things to go the other way ’round.

    As you have pointed out, other companies have successfully diversified. They’ve build new models, stuck with them, and appealed to different markets. Adventure bikes, naked bikes, sport bikes. Look at what BMW’s building now (S1000rr). Who’d have expected THAT 20 years ago? It seems that the manufacturers who are moving forward succefully are adjusting themselves to fit the desires of new motorcyclists. H-D is still trying to get the riders to see things the H-D way.

    Mark

  6. wmoon Says:

    Mark, couldn’t agree with you more–especially the part about Buell. They bought the rest of it (they had already owned about 45% of the company) once they decided to offer training as part of attracting the younger and female markets but they never ever understood how to market it and develop a distinctive brand that stood out among parity products.

  7. Gunslinger Says:

    One need only to look to Detroit to see what will happen to HD. During the 1980s while HD was reinventing itself GM resorted to badge enginerring. Ford on the other hand came out with new and somewhat exciting product. Chrysler was busy being Chrysler which was trying to keep both feet out of the grave.

    In Detroit’s hey day they catered to a youth market. It was essentially abandoned and left to the Japanese.
    How many high school, college, and unmarried 20 somethings does one see driving around in a modified Impala, Taurus,or Charger? No they drive around in modified Hondas, Acuras, Subarus, and Mitsubishis.

    HDs R&D is to reach into the parts bin to stick a springer front end on a Sportster or remove the tour pack off an Electra Glide and then call it a new model and paint spray engineering. It is not unlike Detroit’s badge engineering which was to place a Pontiac emblem on a Chevrolet or Cadillac one on a Chevrolet. Not a whole lot of uniqueness there, was there?

    HD followed Detroit and abandoned the youth market long ago as was stated. If one were to look through the product line over the years anything remotely resembling a sport bike failed. As evidence what ever happened to the Low Rider Sport, Electra Glide Sport, Super Glide Sport, and let’s not forget the Sportster Sport.

    One item that hadn’t been mentioned regarding Buell was attempting to sell them through HD dealerships. The dealer sales staff had no clue how to sell a sport bike. When enterprising dealers tried to employ a ‘sport bike guy’ he/she ended up leaving. Had HD followed Honda with its Acura line, Toyota with its Lexus and Scion or even Yamaha with its Star line things might have been different. What does it tell you when someone buys a Buell and then received a complimentary HD t-shirt?

    HD followed the Detroit ‘leaders’ by allowing itself to be run by a ‘finance guy.’ Go back, take a look at good old Roger Smith a ‘finace guy’ and then compare him to the departed HD nitwit.

    In the end HD will end up like the remnants of the ‘Big Three’ now perhaps ‘Big Two’ or maybe two and one half. It will be a shadow of itself producing perhaps 100,000 units per year if that.

  8. Nick Says:

    Wendy,

    $90,000 median income still seems relatively high to me. In my geographic specific area the white collar workers are still getting laid off and they are all nervous about their future. Yes the blue collar workers has suffered disproportionately but I think they economy has substantially affected those in the higher income ranges as well.

    As far as a “cheap” line goes I think you’ve maybe stereotyped some aspects of that need in Harley’s lineup. “Cheap” bikes don’t need to be low on technology as fuel injection and electronic ignition has filtered down to even 250cc dirtbikes. Secondly, “made in China” or India doesn’t automatically mean the motorcycle is “cheap”. Much like “made in Japan” meant low product quality in the 50’s and early 60’s it only took a decade for the entire situation/perception to change.

    We all know under the current cost structure in the United States(until a dollar collapse or something equally bad happens) there is virtually no way HD could make money on an low priced motorcycle directed at the “youth/transportation” market.

    I understand your point about the transportation market being small-but if you look at the youth market combined with it(because a low priced bike appeals to both) I would suggest it might be much larger than you think.

    The margins don’t have to be huge for that market but it does one hugely important thing:

    It exposes the youth/transportation segment to HD to increase the probability of them buying a higher dollar model down the road. This is almost the equivalent of a “loss leader” in retail except that if you outsource this particular model to get a good model at a reasonable price you can still have a margin(even if it’s low) and increase the exposure of HD to the youth market.

    Young people don’t want “cheap”, that I grant you…but let’s be honest…how many 20 year olds can afford any HD in their lineup? The driver of that market segment is value versus price(and to some extent an “upper price” level).

    As oil rises via “quantitive easing” and salary across all demographics continue to remain stagnant or actually shrink I can only see the youth/transportation market only increasing…unlike about every other demographic in motorcycling.

  9. wmoon Says:

    Nick, Americans and Canadians don’t ride motorcycles because of money–to save it or spend it. They may fool themselves that it’s for transportation or its economical (it isn’t in almost every case) but it’s really about what motorcycles mean at that point in society. Harley was able to ride on what that image was for a couple decades but that’s changed in the past 10 years. Core elements remain the same (freedom, daring rebellion against the status quo, for example) but even those have taken on new configurations (like man of action is now man or woman of action, taking one’s destiny in one’s own hands) and elements that were always there but minor elements are key now like acceleration and maneuverability.

    Motorcycling has always been a cyclical activity that moves through boom then bust cycles that peak a couple years BEFORE economic hard times and start declining well before recessions occur and do not recover for several years AFTER the economy improves. This last cycle was far longer than any previous one. These cycles ALWAYS are about what’s happening in society and is a bellwether to social changes.

    In addition, there is an equation (don’t ask me what it is, I just know there is one) where X number of any generation are attracted to riding–these ride without any marketing directed to them, they find a way in to the activity. There’s just not enough people in Gen X to be the salvation of any motorcycle company let alone Harley. Only when Gen X returns to riding in about 10-15 years in combination with Gen Y still in it (before leaving for family/career) and Gen Z is old enough to be on the streets will we see numbers of bikes sold approaching the heydays of the past boom cycle. Ultimately, it’s a function of the numbers given motorcycles role in American society.

  10. gymnast Says:

    Here is the latest product from the company that Harley Davidson sold for three bucks (two Euros).
    http://www.gizmag.com/mv-agusta-675cc-f3-oozes-technology-style-class–power/16848/?utm_source=Gizmag+Subscribers&utm_campaign=74a80ee062-UA-2235360-4&utm_medium=email

    Harley Davidson managed to write down $162,000,000 on this piece of managerial stupidity on it’s original purchase price of $109,000,000.
    http://www.biztimes.com/money/2010/8/10/harley-sells-mv-agusta

    and, http://blogs.wsj.com/drivers-seat/2010/08/10/did-harley-davidson-have-to-pay-buyer-to-unload-its-sport-bike-unit/

    Harley Davidson appears to be attempting to break new ground by reverse financial engineering itself into oblivion. But T-Shirt sales are doing great! Or, are they.

  11. wmoon Says:

    Gunslinger, thanks for the links–but the one dollar sum is not backed up in any official manner. H-D, though, does appear to have lost its shirt in the sale and did not find it with the sales of t-shirts since revenues from Motorclothes is down 9.4% from the same quarter last year.

  12. Fred Wheeler Says:

    Harley is not he only enity with these issues look at GWRRA in Phoenix and you see the mirror image of what is happening to HD. Too many folks my age and not enough new blood to keep the organization going.

  13. Mark Weiss Says:

    Didn’t H-D do a similar deal with the Castiglionis a few decades ago?

  14. Mark Weiss Says:

    Nevermind. I just read the second link.

  15. wmoon Says:

    It’s not just GWRRA but the BMW groups as well as the rights groups–the national organizations AMA, MRF and all the state motorcycle rights associations. I could care less about HOG, GWRRA and BMW groups. But the massive failure of the national and state rights associations to make a convincing case for people who aren’t older and especially for those older and younger who don’t ride cruiser/tourers is a huge problem that will cause untold grief for riders in the future.

  16. Jim Says:

    The clubs, whether national or local, look more like a senior citizens gathering than MC clubs. I jokingly issue a ban on conversations of medical problems and medications at our local club events.

    A few years ago the club publication of the BMWMOA, featured a contentious interview with then BMW Motorrad US boss Tom Pulchinsky (sp), at one point the interviewer somewhat provincially asked what BMW planned to do about the aging ridership, noting that BMWMOA’s average member was in his middle 50’s and getting older. Pulchinsky’s snarlingly replied that the average age of BMW buyers was 47-ish and trending younger and that the clubs age problem was a problem with the club.

    This was a wake up for MOA and to their credit they have made great efforts to reach out to younger riders.

  17. wmoon Says:

    Gee, only 47-ish! My, my that makes all the difference. Not.

    I’ve been to traditional events and been to bike nights and one Rough Rider event. It’s very difficult for me to see how younger people would want to join in the traditional events or that older people who come from the GWRAA, HOG, BMWMOA side would fit into the younger scene.

    But my point is that the failure of the motorcycle rights groups to attract young people will seriously affect the future of riding. I don’t really care about the social stuff incorporating youth.

  18. Jim Says:

    Mid 40’s is close to the sweet spot for luxury manufacturers in general and what is BMW and HD if not luxury brands?

    Your point about the rights groups is well taken, but don’t underestimate the importance of the social aspect that keeps younger riders, riding or at least close to motorcycling when they begin raising families. The social networks created by the clubs is one funnel that brings new and returning buyers to the brand and they have served a promotional outlet for motorcycling.

    That said I see no reason why a young person would want to go to some of these club events as they have all the excitement that socializing at the senior center has. Additionally while many club events were once a cheap weekend or night out, far too many have migrated from campgrounds to luxury resorts.

  19. wmoon Says:

    Jim, ok, I’m going to need an entry for some of the economic ramifications for the USA motorcycle industry…


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