Are Harley-Davidsons Too Reliable?
Harley-Davidson has a mind-boggling statistic it likes to call out when asked about new competition and market share: 70 percent. That’s the share of all Harleys ever made that are still running, according to the company’s estimates.
If accurate, it’s a testament to the sturdiness of the bikes and the dedication of Hog owners when it comes to taking care of their prized rides. The problem with that metric? There are scads of used Harleys out there.
Here’s a spartan beauty from 1948 that “runs STRONG” and can be had for less than $10,000. Here’s a 1951 version that costs about as much as a new cruiser. And here’s one with a sidecar for your dog (good luck finding one of those in today’s Harley catalog).
As the stock market swoons and oil industry jobs dry up, the strong secondhand Harley market is a bit of a problem for the Milwaukee-based company. Plenty of people are still keen on Harley-Davidson, but more of them are going to Craigslist and motorcycle auctions to get deals on lightly used Hogs.
In the most recent quarter, Harley unit sales worldwide slipped 0.6 percent, to 46,857, and the company’s revenue dropped 2.3 percent, to $1 billion.
Harley-Davidson Chief Financial Officer John Olin acknowledged that used-bike prices have been a bit soft, particularly at auctions where lenders hawk repossessed machines. Dealers are offering incentives as well, as a rash of foreign competitors have realized pricing power presented by the strong dollar.
“Our dealers are independent folks. They can offer discounts, and some of them do,” Olin said. “We don’t condone or want our products to be discounted. … The best thing we can do is aggressively manage inventory and supply.”
Exacerbating Harley’s challenge is Polaris Industries, which keeps expanding the product line of its recently revived Indian brand, a badge that plays the heritage card as heavily as its Milwaukee rival.
“Without a doubt, we’re currently in the most competitive environment we’ve seen in years,” Harley-Davidson Chief Executive Officer Matt Levatich said on a conference call Thursday morning.
Controlling supply hasn’t gone so well for Harley lately. The company had $586 million worth of inventory on its books at the end of the recent quarter, a 31 percent increase from a year earlier. For a manufacturing company, “inventory” is a dirty word—particularly when it comes in $25,000 chunks of steel, rather than $25 chunky sweaters.
Harley’s warehouses, however, aren’t just full of big cruisers. Much of the inventory surge can be attributed to new models aimed at new riders. While savvy shoppers can find a great deal on a softail cruiser babied by a baby boomer, there are plenty of Harleys that aren’t on the used market yet. This year the company plans to increase its spending on product development by 35 percent.
“All of these [new models] allow people to come in and think about upgrading,” said Sean Cummings, Harley’s senior vice president for global demand.
On Wednesday, Harley pulled the cover off two models: the Low Rider S and the CVO Pro Street Breakout. Like many of the brand’s new rides, these are aimed at the “outreach segment,” which Harley defines as customers who are at least one of the following: female, Hispanic, black, or age 18–34. In the past five years, business from this swath of buyers has grown at an average annual rate of nearly 7 percent, according to Levatich.
The used-Harley market isn’t going anywhere, but if all goes as planned, it will have a whole new crop of customers by the time boomers take off their leather chaps and coast into the old-folks’ home.