I feel it best to begin this article with the statement. I hope I’m wrong. I look forward to writing a sequential piece correcting my flawed premise. Time will tell.

Fourth-quarter earnings calls came out at the beginning of February. As one can imagine, lots of eyes were on Harley Davidson as they’ve been hemorrhaging for years now. Despite growth from many European brands, H-D claims their sales were down 8% globally for 2022 (vs. 2021 global quantities).

During the call, Edel O’Sullivan, Harley’s Chief Commercial Officer made a statement that’s stuck in my craw, “…continue to emphasize the balance of desirability and profitability… but also restrained and very, very careful management of inventory…”

But before unpacking that, let’s rewind the clock a bit. When confronted with aging demographics and market headwinds by any other name, former H-D CEO, Matt Levatich launched an initiative he called “more roads to Harley-Davidson”. He promised something like 100 new Harley models, plans to attract younger riders, and so on. We know that the Pan America we see today is the fruit of this labor. We also know, after several quarters of negative press, Levatich left the Motor Company. His replacement, Jochen Zeitz, countered with “Project Rewire” and “Project Hardwire”. Most of which is a bunch of corporate buzzword jargon to send messages to savvy traders and snow the public wherever possible. In short, Zeitz directed the company to slash spending, slash offerings, and stifle supply to boost margins and keep the stock price aloft through “very, very careful management of inventory”.

I don’t begrudge profits. Nor do I oppose change and evolution. I do oppose cutting off your nose to spite your face. I believe Zeitz’s slash program is killing the golden goose, moreover this it’s a symptom of a global problem. That being, publicly traded companies have no stomach for hardship.

What is the golden goose?

Harley-Davidson, as recently as I’m aware, is half of the American motorcycle market in new bike sales. Yet, Harley-Davidson, until very recently, only participates in one segment, cruisers. From the 50s until now, Harley has arguably been selling “lifestyle” accessories to American consumers. Not all that long ago, for ten to thirty grand you could land a piece of Milwaukee muscle. Arguments aside, “entry-level” up to luxury touring models were available for all customers. I’m told Harley even had a commercial that said you could have a motorcycle for the cost of a cup of coffee a day (hat tip to Aled). In the pursuit of higher-margin, uber-premium status, I think those days are ending.

Regime change

I’m not a savvy stock trader, nor am I a Harley insider. Thus, this is my theory, and again, I hope I’m wrong. That said, I suspect the new models we’re seeing released today are carryovers from the “More roads…” program. The Pan America, a record-selling bike, is the flagship of that program. Further spin-offs of the revolution max engine, to a much lesser degree. And for all intents and purposes, it appears that the Bronx has been sacked.

After seeing recent press releases of the new Nightster (Sportster), I was reminded of a couple of legacy Harleys, and came to the conclusion, if someone at the bar and shield was ever phoning it in, that’s what it would look like. Ironically, AMF legacy paint schemes are suddenly in vogue. Those color tones, along with new styling blunders, tell me that a regime change is immanent.

To further expand, I suspect that the powers that be were forced to launch the new Revolution Max line of new bikes. The research and development and perhaps even the production money already spent. The Pan America, while aesthetically radical by Harley standards, still fits inside the “touring” bubble that Harley commands. The rest of the models, however, are dramatic departures from (most) Harley styling and culture.

Some will say that this redesign was necessary because of emissions. Others will say it was prudent to attract the next generation of riders. At first, I believed this. I may even concede this was the initial intent, however upon further inspection, I believe these new models are a result of the bare minimum effort required. This perspective is further solidified by the fact that the Street line of motorcycles was discontinued in 2021, and yet these new Sportster models follow so many of the “unfinished” styling cues that plagued the budget 500 and 750 twins.

I believe the bigwigs in Wisconsin don’t want to sell these base-model bikes. They’re only on the showroom floor because they need to recoup the start-up costs. I arrived at this conclusion judging by the lackadaisical, piss-poor fit and finish, combined with premium price. In a statement, holy leaf blower Batman!

Infinite growth is a fantasy

I understand Zeitz’s strategy, and on its face, it makes sense. Trim the fat, focus on what people are buying, and invest in core products. With regard to shoes, appliances, and cars, I get it. However, Harley Davidson is selling products to something like 1% of the road-going population. Slashing and cutting whilst having at least one eye on the horizon is an even more delicate dance when we’re talking about one segment of one sector of recreational goods. This is compounded by the fact that Harley-Davidson’s business model has more in common with a ford dealer than most motorcycle shops. Dealerships are selling a solely branded riding experience, with bloated overhead, and an ingrained culture making for a much larger ship to steer. Are dealers interested in evolving their internal culture? Are they interested in contracting the motorcycle supply? Will they sell these new models with the same vigor as the bloated touring models? The success of the stock is hinged on more than just what motorcycles roll off the line.

These challenges also run deeper. As others have pontificated before, are these actions just a temporary strategy to make the company profitable long enough to broker purchase from a larger organization that will invest in the brand’s future? To me, it seems feasible. Whether or not this strategy is true, and whether or not it succeeds or fails doesn’t change the fact that most investors don’t care if Harley Davidson is profitable in ten years. Stockholders are not in it for the long haul. Most people own shares in Harley because it makes money. When it stops appreciating, for long enough, they’ll jump ship. This is a systemic problem all across the nation. Companies are beholden to shareholders who are only concerned about returns over the next few quarters. Losses now to invest in a brighter future is not something Wall Street has the stomach for. Amazon, until very recently was the poster child for Wall Street because of its infinite growth business model. At some point, that strategy becomes unsustainable, and that’s fine because when it is, those shareholders have realized their gains and moved on. The company be damned. Unless Harley is privatized post-sale, this is one likely outcome.

Define premium

Limited supply, desirability, quality, and the perception of value, that’s how I see a premium product. Ducati, BMW, and the MoCo have historically held these attributes. Some of these attributes can be fake, others not so much, but just being expensive isn’t enough to sustain a business model built on premium status for long. Shoddy craftsmanship and high prices for fugly modern cruisers are unlikely to keep desirability aloft. I realize I’m picking on one flavor from the menu, but regulation and shifting customer taste could make their better offerings obsolete as well.

Harley Davidson is desperately trying to cling to its premium status as a way to prop up value and zero in on the fattest profit margins. Again, solid strategy, but I don’t think it has longevity on its current trajectory. Holding onto premium perception is a tricky task. Ferrari, Chanel, and Tiffany’s come to mind when I think of brands that are regarded as perennial premium brands. Inversely Kirby (vacuums), Pan American Airways, and Minolta strike me as premium brands that have not stood up to the test of time. Harley Davidson has had its fair share of flop models in the past, so certainly it would be premature to assume copious plastic and exposed wires on new models is the ultimate downfall of the company. However, a shift into “modern performance” isn’t instantaneous and it seems unwise to leave the existing customer base out in the cold.

Know yourself & play to your strengths

Per my above comments, a new, lighter-weight, comfortable touring alternative was a solid strategy with the Pan America. Undoubtedly, aging touring riders are meeting more of their peers at motorcycle hotspots sporting the 1250GSA. Harley band loyalty is literally tattoo worthy, so many folks weren’t going to stray from the black and orange so the flagship ADV machine capitalized on existing strengths in a growing market. Solid move.

On the flip side, I fear that the current Harley leadership has embraced their bean counters and lost sight of what makes Harley Harley. In my opinion, outside of the Pan America, the launch of the new Sportster is half-assed, and while they may see the new Sportster as sacrificial, their impact on the brand reputation will still be felt. Are they going to fix the apparent low quality or just let it ride? Will they axe the new stuff and claim youngsters aren’t interested? I honestly don’t know. I’m completely dumbfounded by the new bike launches. Harley absolutely needs to get people in the door as early as possible, but they can’t sacrifice who they are to do that.

I’ve recently discussed this, people like Harley Davidson for a reason. The reason, as silly as it sounds, is sex appeal, character, quality, and status. Essentially, they sell a premium motorized accessory. Do people want more performance? Sure, but it’s evident that sex appeal and fit and finish have greater pull than the stat sheet; this is also not exclusive to Harley Davidson. On the other end of the spectrum, despite extremely “premium” touring bikes, I don’t think Harley can successfully hang its hat on large-margin bloated touring bikes long term. They have to design and sell bikes that aren’t my grandpa’s bike, but still hold the image of premium quality and sex appeal. Something most of their “new” offerings find lacking.

A lot of words to say what exactly?

I believe Zeitz’s and his associates believe they can look profitable long enough to soak up cash for either meaningful evolution or land a potential buyer that will invest to do so. They may think they can stay afloat as a boutique brand that deals in high-end touring bikes, but I find it hard to believe that strategy has legs. History books are loaded with American car companies that have attempted it. Some may say Cadillac is that brand, but at this point, it’s seldom listed in the top ten luxury brands; if I’m wrong, it’s definitely no Ferrari. That’s what Harley would have to become, a premium motorcycle brand dealing exclusively in top-tier motorcycles that are not known for performance. Perhaps Rolls Royce is a better parallel, but I still don’t think that’s conceivable in the motorcycle micro-economy. In addition, I think there’s a tactical reason they have spun off the Live wire brand as a separate company. I don’t know if it is so they can mothball the petrol-powered company or the electric company when they fail, but I’m sure there’s a reason.

Also, without serious effort invested in cleaning up the imagery of the new revolution max line of motorcycles, these bikes will struggle to sell against similarly priced Milwaukee-8 powered cruisers. The new bikes have better performance than the Harleys of yore, but we also know the V-rod, while it had a cult following, never caught on the way classic pushrod twins did. These new bikes look more soulless than ever, and that’s a major strike against bikes that sell on status and sex appeal. I think Zeitz’s direction was to expend the least effort necessary, and that’s what we’re seeing.

As far as the Pan America, if it’s not already evident, I’ll concede it’s been a success. However, as of late, I’ve noticed a great deal of used Pan Ams for sale on market place. Many of these are top-level trim models with low mileage listed at prices near the base models new. For a bike this new, that doesn’t bode well. In a 2021 economy when credit was cheap, I see why a lot of buyers snatched these bikes up. I question whether or not the initial rush of customers will continue. A few years back, Triumph”s Bonneville Bobber broke all previous sales records. I have a strong suspicion that dealers struggle to move those new cruisers these days. I expect the Pan Am will face a similar fate if certain things aren’t changed. It’s good, but against the competition, it’s not as great as the price would indicate. There are rumors of major quality issues to boot, but that’s a different article.

Again, I hope I’m wrong. I look forward to saying so. If I’m not, I expect we’ll see some interesting shakeups in the next 3 years. If I forget to set an alarm, please be sure to come comment here and remind me to follow up.