In recent days Harley-Davidson has trickled out more information about their new “Hard Wire” plan. While there is a lot that goes into this, including information consumers aren’t privy to, the plan in general sounds like “cut expenses, maximize margins, and concentrate on core products”.
From most other companies, that might be dabbling in markets outside their main customer base, I would say this strategy makes perfect sense (coming from a guy that’s never run a company). Unfortunately, Harley-Davidson has a very clear track record of NOT drifting away from its core products. Buell was closed, MV Agusta was sold, the V-rod was a one-off project, and I’m sure there are other stories akin to these.
So what’s the problem?
Harley-Davidson shareholders are unhappy with the company’s performance.
Why is this happening?
I’ve written about this before, but there is a myriad of reasons, and I suspect all of them are correct in one way or another. Harley’s are expensive in an age where wages have not kept up with inflation (allegedly). Boomer and Gen-X helicopter parents have given birth to a generation of tech-savvy, risk-averse children. Millennials want to have “experiences” and not accumulate “stuff”. Boats and motorcycles are no longer the status symbol of choice… and the list goes on.
As a guy born on the leading edge of the millennial generation, the son of a Harley owning baby boomer, in my mind there are a couple of obvious reasons this is happening:
Harley-Davidson has an image problem and only sells premium cruisers.
Translation: Until recently, Harley-Davidson commanded “premium” status but more recently began to signify the pinnacle of “Keeping up with the Joneses” in the Millennial eye, if not just “the bike my grandpa rode”. One could feasibly buy two new motorcycles for the price of one staple Harley-Davidson, each of which offering a wider range of riding capabilities.
Before I go any further, I want to clarify: I like Harley-Davidson motorcycles. I’ve never owned a Harley, but I have ridden many of them. For folks unfamiliar, my first “motorcycle” was a cruiser. I was a member of a military motorcycle club for a while and like to think I understand that demographic and what many cruiser owners enjoy about motorcycling. Cruisers are not currently high on the list of “how I like to motorcycle”, but I suspect they may be again someday.
I’ve also gone through a phase of “Harley isn’t worth the money”, “I’d never buy a Harley”, “they’re not that good of a motorcycle” and (insert trope here) but have come full circle at this point. Motorcycles are tools, each of them does something different. A day on a motorcycle is better than a day at work, every time. What everyone likes best about motorcycles is very different, and the bikes moreso. This sentiment will mean more in the words that follow.
What do I think Harley-Davidson is doing?
According to the news, they’re cutting expenses, trying to maintain profits, and focusing on what they think they’re good at. This means concentrating on selling bikes with larger margins, eliminating low profit bikes, and most importantly, deliberately trimming the number of units built each year, limiting the supply in an attempt to prop up demand from a shrinking customer base.
All of that to say that I believe what they’re actually doing is trying to appear “profitable” to appease shareholders and strategically position the company for purchase by a larger company that can inject capital into the brand so that it can evolve and survive.
All of this makes me think of when I first started looking at motorcycles. I didn’t want a bike that “everyone else had”, so I looked at Triumph and Indian motorcycles. The latter is of particular interest in this case because, at the time, dealers were scarce, prices were high, and I suspect the number of units sold each year was low.
I bring up the “King’s Mountain” Indian era because that is who I believe Harley-Davidson will become. If Harley-Davidson stays on this road, I believe they will become irrelevant. The Motor Company will become an American boutique brand offering a premium product for a niche market that appreciates that image and can afford to pay for it.
Now, if Harley received the correct injection of capital, perhaps it too could have the Cinderella story that Indian is currently experiencing. That said, while there are lots of Indian motorcycle dealers around the country now (my closest is an hour away), they too are still struggling with their identity. The FTR 1200 is a step in the right direction, but Indian is also a very slow-moving ship, selling primarily heavyweight cruisers, both in kilograms and pounds sterling. If they don’t get it in gear soon, they too will be facing similar financial hurdles.
It doesn’t have to go this way.
Where did Harley go wrong?
Someone sitting behind a desk, looking at financials did what they always do with publicly traded companies, they fired someone recommending they evolve and experience a fundamental change in values. They slashed every project that appeared unprofitable (that’s any research and development project as it by definition hasn’t realized any profits), asked what their best selling products are, who their primary customers are, and said “let’s focus on selling these products to those people”.
Amid the “stick to what we’re good at” conversation, people sitting behind desks missed out on some key strengths.
Have you ever seen anyone with a Honda tattoo? I’m sure they’re out there, but I’ve never seen one. However, I’ve seen dozens of Harley-Davidson tattoos. People love what the Motor Company represents so much they permanently mark their own bodies with a logo. That’s marketing and brand loyalty that most brands would kill for.
Harley-Davidson is a marketing machine, like none other. Jensen Beeler of Asphalt & Rubber has said that HOG (Harley Owners Group) is a major topic of discussion in business school because it’s been so successful in keeping a customer base loyal to a brand. Say whatever you want about their motorcycles, how fast they go and how they sound, like “Kleenex” and “Coke” the word “Harley-Davidson” and “Motorcycle” are interchangeable for a lot of Americans.
The best article I could find suggested that there are over 700 Harley-Davidson dealerships in the US; roughly 2 for every major metropolitan area. I can think of 3 right off hand here in Dayton; 4 more in Cincinnati 45 minutes away.
When shopping for a new bike, I hear many riders lament that they would purchase motorcycle brand “X”, but they don’t have a dealer in town and they worry about having problems with the bike. Aside from having a shop on every street corner, Harley-Davidson is also known for its stocked showrooms, merchandise, and proximity to the interstate. The orange and black showrooms are strategically located to dominate the attention of prospective riders and build a network that sets fear at ease with regards to getting parts and service.
Simplicity and Ease of Ownership
I have a Triumph twin that requires valve clearance checks every 12,000 miles. In the past, that meant I was tearing it apart twice a year. Do you know what would have been less work and cheaper? Buying a Sportster.
Akin to “they leak oil”, I often read comments to the effect of “unreliable” and “1930’s technology” when the latest Harley article is published. For whatever reason, people seem to think that push-rod engines are antiquated technology and shouldn’t be on motorcycles. I assume these comments are made by people that don’t adjust valve clearances every season. Again, engines are tools, for different jobs, and like all things, design features come at a cost. Two-strokes have double the power of four-strokes but also require top-end maintenance twice as often. Inversely two-stroke maintenance is cheap because the system is simpler, so which do you prefer? In the case of Harley-Davidson, their engines don’t spin very fast, are under-square (stroke is longer than bore diameter), and have push-rod valve trains. Straight-fours spin well over ten-thousand RPMs and make 200 horsepower, but have cam chains and manually adjusted “shim-under-bucket” valve tappets. Not to mention the painstaking process of removing the Tupperware and electronic gadgets necessary to get to the engine. Performance comes at a cost, not to mention, most of that performance cannot be realized at legal speeds. Longer stroke means gobs of torque, resistance to stalling, but pushrods limit RPMs and therefore truncate horsepower. However, pushrods with hydraulically adjusted valves means never opening an engine until it’s time for a major overhaul. Different strokes for different folks.
Look, neither studs and leather nor farkles and techno-wiz-bang-ery do much for me. However, that’s absolutely “a thing” for a large portion of the rider population, regardless of riding taste. The Starbucks brigade and the asphalt pirates both enjoy bolting stuff to their bikes and geeking out over it in the parking lot with their buds. More power to them. The selling point here is that if there’s something you want to do with your Harley, someone has tried it before, and someone is ready to sell you the parts to get it done. Want to slam your bagger or scramble your sporty? No problem. Moreover, this circles back to dealer network and market share, it’s less work to find “how-to” walkthroughs for wrenching on your Harley, and as I just said, part sourcing is infinitely easier and is likely right up the road.
So where is Harley now falling short?
First, if reduced supply is what is going to maintain demand and by extension profitability, then I expect dealers to close. That whole spiel about dealer network becomes a moot point. There’s an argument to be made that this was going to happen anyway. That’s certainly a possibility, and we can discuss that further at some point as well, but in the meantime, that’s a business plan with brand wounding potential. To the layman, news of dealers closing sounds just as bad as profit losses.
However, with regard to simplicity and ease of ownership, they may be maintaining that streak by focusing on high-margin touring bikes, but I suspect the new engine platform is radically different. The new revolution max engine appears to be an overhead cam design. This isn’t Harley’s first foray into DOHC architecture, the V-rod was a performance engine, and that’s actually why I’m concerned about this choice.
Under Levatich, “more roads to Harley-Davidson” felt like a branching out approach to bring more riders onto the brand and “100 new bikes” to offer models these new riders were interested in. The MoCo was already heading down that road when someone pulled on the reigns and suggested they trim expenses. These new platforms, like the Pan America, were already too far along to halt production. Harley suddenly seems very tight-lipped about “Bronx” and the host of other new models we expected to see at this point. This new engine platform is likely a radical departure from the push-rod big-bore V-twins that will continue to dominate the showroom. In a culture where folks have said “that’s not a real Harley”, I have a hard time believing the rank and file dealership staff is chomping at the bit to sell this new bike that Harley suddenly seems reluctant to talk about. Meanwhile, crusty Aerostich clad spacemen will suddenly be entering showrooms to see this new Pan America, adding a whole new customer demographic that is typically diametrically divergent from their “core customer base”.
What would I have done differently?
In short, use the marketing machine to promote the simplicity, reliability, and capability of the brand. Branch out into new riding segments, but focus on the strengths of the brand to differentiate, not imitate the motorcycles from the competition. Simultaneously, embrace the millennial mantra that a motorcycle is a vehicle to an experience.
Again, some folks may scoff at “Harley-Davidson reliability”. Initially, those people are not likely to be future customers. That’s okay, not everyone wants a certain type of motorcycle. However, when more and more people start seeing bikes like the Pan America in the wild, they see what the bike can do, and suddenly realize it’s a viable option for the kind of fun they are looking for. That’s the key, people must see it to believe it. People have seen leather and chrome for generations. That’s what Harley was selling, and what the majority of the American motorcycle population was looking for. The Bar & Shield needs to shift the marketing machine’s focus toward what Harley owners have known for a long time; having a Harley means simple maintenance, ease of ownership, and bikes that have character in spades.
I agree Harley-Davidson would be wise to slow down on loud pipes, copious chrome, and slammed suspension. However, I think evolutionary change is a better game plan for the brand than radical swings in product offerings. I fear the Harley faithful are confused by what the brand is doing and the naysayers still shy away from the “new” products they’re selling. However, as I’ve published elsewhere, if the brand embraces a scramblerized and “sportier” Sportster, it’s low effort from the engineering department and incremental change among the customer base. Aside from looming emissions standards, these are changes Harley and be doing now, not waiting on a new model release. With that, a cruiser chassis with an advanced new engine is unlikely to stir interest from non-traditional customers. However, a simple, reliable V-twin in a more neutral chassis could merge into a solid “standard” motorcycle, with the potential to become Harley’s Bonneville. At the same time, I’m not saying Harley shouldn’t evolve into more advanced technology, but as other brands are doing, new engine platforms must go into multiple chassis. I also think it’s important that a brand and its engineers don’t forget where they came from and abandon the entrenched strengths of the brand to reach new customers. Harley-Davidson needs to evolve, but it cannot wake up tomorrow and stop being Harley-Davidson.
While I certainly don’t speak for all Millennials, in general, I find most of my peers are value-focused shoppers. They already have the latest smartphones and televisions and frankly don’t need expensive infotainment and navigation systems. TFT dash and Apple CarPlay might be moves in the right direction, but where the bike is going to take them and who’s going to join them is the real kicker. To Harley’s credit, the marketing machine is already starting to move in this direction. Advertisements now include helmets and fully geared riders, along with a wider demographic.
With that, Adventure and off-road riding is obviously a growing segment, and there’s no reason Harley can’t throw their hat in that ring. Most importantly, you don’t need a $20,000 motorcycle to do it. A Sportster with some knobbies can do as much off-roading as a 1250 GS Adventure (ask me how I know ). Harley is right to get into the premium adventure market, but they would be foolish to abandon the younger crowd; a population that has less money to spend, but the youth to afford “bad decisions” in the name of “it makes for a good story”. Buying a simpler, more affordable Harley means more money for gas and tires, and more beers with their friends around the campfire, and wrenching in the garage because it’s feasible to do so. As folks get older, they shy away from risk but typically have more disposable income. That adventure touring motorcycle starts making a lot more sense, and the creature comforts that come with it.
Harley-Davidson might be wise to maintain its premium status. I won’t debate that, it’s a business decision for people with experience in “business”. Triumph made a hard shift in that direction in 2016 with the new Bonneville platform and subsequent models since. Best as I can tell, it’s working for them. However, selling a premium bike that’s not as expensive as a car, is also an option (again, the Triumph Street Twin).
Moreover, an expensive bike with “new” technology that still weighs a ton is a non-starter. If the bike is affordable, but maintaining the bike implies selling an organ, that reputation is going to get around and become another deal-breaker with a generation of future buyers. (I.e. the Ducati of a not so distant past). It’s essential that Harley-Davidson attract the attention of the Millennial generation now. If they wait until Millennials can afford premium touring machines, they’ll be confronted by the memories of “their dad’s bike”, and that’s not necessarily a good thing. That is why I’m concerned about this “5-year plan” the MoCo is on now, if they wait much longer, I fear the ship has sailed.