In July 2017, Harley-Davidson significantly revised down its sales forecast for the year and announced that it would both cut production and reduce its hourly workforce in the US by about 100 people -- just under 2% of its total employment. The company now expects its motorcycle shipments in unit terms to decline between 6% and 8% in 2017, while earlier projections showed flat or modestly decreasing output compared to 2016. With this new outlook, Harley-Davidson now expects its motorcycle shipments to decline for the third year in a row.
A Wave of Criticism
In the wake of the revised forecast, the company’s stock value fell sharply; many financial analysts downgraded Harley-Davidson’s stock rating; and numerous commentators questioned the company’s ability to succeed in the future, particularly in the vital US market. Most analysts and commenters attributed the drop in sales and perceived weak long-term growth prospects to demographic factors (i.e., an aging US population) and lower levels of motorcycle use by millennials compared to earlier generations. Many also contrasted Harley-Davidson’s declining product shipments with the strong 2014-2017 performances of other premium motorcycle manufacturers, such as BMW and Triumph, which are active in a greater number of overseas markets.
What the Critics Get Wrong About Harley-Davidson
According Gleb Mytko, an analyst with The Freedonia Group, “Recent critiques of Harley-Davidson overlook a number of important factors and don’t adequately take into account the company’s iconic stature and position in the global motorcycle industry today.” In fact, The Freedonia Group’s study World Motorcycles projects nearly 10% annual growth in medium and heavy motorcycles between 2015 and 2020, which is certain to provide additional sales opportunities for the company.
Despite the declines in motorcycle shipments being projected for 2017, profits are only expected to fall by 1% relative to 2016 because of the cost cutting measures the company has taken. For example, revenues per motorcycle sold rose by $437 to $15,530 in the second quarter of 2017, and Harley-Davidson’s operating income grew by approximately 25% compared to the first quarter of 2017.
The extent to which the lower popularity of motorcycles among millennials in the US threatens Harley-Davidson in the long-term has been exaggerated by some analysts. Because of the financial difficulties that younger people in the US have faced in recent years (e.g., rising student debt, stagnant wages), many have put off motorcycle purchases or instead bought used models. However, as the US economy continues to grow, wages in the country will rise, and as better performing and more stylish motorcycles are introduced, more millennials will purchase new models.
Harley-Davidson remains an iconic brand with a long history of success. Despite losing market share in recent years, it will remain by far the most recognizable motorcycle brand in the US. In part, the company’s position in the US motorcycle market deteriorated in recent years because of price cutting by Honda and Polaris (the maker of Indian motorcycles). However, such measures are unlikely to continue in the long term because of their negative impact on profitability, and Harley-Davidson’s motorcycles will become more cost competitive as the prices of other manufacturers’ products rise.
In addition, Harley-Davidson has seen its popularity outside of the US grow considerably in recent years as the firm expanded its global footprint. In May 2017, for example, Harley-Davidson announced plans to build a factory in Thailand in order to strengthen its competitive position in the Chinese and Southeast Asian markets, and this trend is expected to continue, helping bolster overall sales and profitability.
Harley-Davidson is also expected to use strategic acquisitions to improve its position in the global motorcycle industry. For example, the company is currently considering purchasing Ducati from Volkswagen, which would greatly expand both its product portfolio and global distribution network.
Electrifying Sales in 2018 and Beyond
To strengthen its market position globally, the company plans to introduce a variety of new, innovative models in 2018, which should stimulate both new and replacement motorcycle sales. The ability of Harley-Davidson to partner with other companies -- because of its long history and iconic status -- will also help the firm succeed in the future. In fact, a number of analysts have recently speculated that the company is interested in collaborating with Tesla to manufacture electric motorcycles.
Find Out More
Interested in learning more about competition in the global motorcycle industry? Check out The Freedonia Group’s World Motorcycles study, which covers demand by product type and region between 2015 and 2020.
About the Author:
Gleb Mytko is an Industry Analyst at The Freedonia Group, where his work covers the global automotive, transportation, and machinery markets.