Month: January 2019

The news for Harley-Davidson, America’s most famous motorcycle manufacturer, looks bad.

In business for 116 years, Harley disappointed Wall Street this week by saying it actually did not make a fourth quarter profit. He cited tariffs imposed by President Donald Trump that hurt Harley in growing markets outside of the United States.

This was a worrying sign, because while Harley has been under commercial pressure for years – its owner base is aging and motorcycle sales in the key US market are in terminal decline – it has also been a mainstay of revenue. Since 2006, the company has had exactly one quarter in which it grossed less than $ 1 billion, and that was during the financial crisis.

Harley’s top of the line is enviable, but it’s based on selling big bikes at high prices. This market has been dominated by HOG for decades, with alternatives provided by Japanese cruisers – great bikes, but without that Harley attitude, roar and V-stomp and, of course, outlaw credibility. .

Read more: Here are 4 big opportunities that Harley-Davidson will tackle in the future

But nowadays Harley faces local competition from a resurgent Indian Motorcycle, a historic rival that faded in the 20th century to come back under a new owner in the 21st. Brands such as Ducati and Triumph have made a better pitch with young riders, while urban and entry-level markets are under attack from new entrants like Royal Enfield.

The outlook for Harley isn’t as bad as the headlines. Trump’s damage is undermining the brand’s growth and profitability in Europe and Asia, but Harley already has her hands full to develop the right product for those markets. The major problem is the timing of the decline in the United States.

This deadline is almost a classic business school case study. It could take decades for Harley to enter a serious decline. With its flagship product, bicycles with displacements greater than 600 cubic centimeters, it controls half of the American market. It’s like General Motors in the 1950s – and although GM’s business declined after the Eisenhower era, it took 59 years for the automaker to go bankrupt.

Hard work for the CEO

Harley-Davidson CEO Matt Levatich.

Thomson reuters

CEO Matt Levatich has a tough job ahead of him. He could presumably sit down and communicate to investors that even though stocks have fallen 45% over the past five years amid rapidly growing major stock indexes, Harley is paying a
from 3 to 4%, well ahead of the inflation rate. Those quarters of over $ 1 billion will continue to arrive. In the long run, everyone’s dead, but until then the only ride we could do is in the “Wild One” subdomain of Elon Musk’s Mars-based World Simulation.

Instead, Levatich tries to keep the business relevant, developing smaller bikes for new markets and younger urban riders, while also offering an electric bike, the $ 30,000 LiveWire, in the US market later this year. Harley has been here before – in the 1990s and early 2000s he supported a sports motorcycle brand called Buell, but put it to rest in 2009.

Harley has also tried to create a buzz around the legacy brand through merchandising, but it is more helpful to think of this as advertising. And it’s a big step to go from a $ 25 t-shirt to an entry-level $ 7,000 bike. (For starters, you have to learn how to ride it – something Harley does a great job of teaching through its dealerships – but it’s expensive and time-consuming.)

The news makes it look like Harley is doomed to fail. But it’s no more doomed than, say, Ford. The automaker is also over 100 years old, has seen its stock prices fall, is reinventing itself – and has made money for nearly a decade selling highly profitable full-size pickup trucks.

Obsession with Growth on Wall Street Makes Driving Difficult

The Harley LiveWire electric bike.

Harley davidson

Both companies are victims of Wall Street’s obsession with growth. Growth companies, historically, have been risky investments with stories to sell. You buy them knowing you could lose everything. Amazon changed that logic by fueling seemingly endless growth by forgoing stable earnings; the giant will not give in until the government accuses it of being a monopoly.

Harley doesn’t really need to grow, but because of that, investors have to pay a low stock price to access the company’s cash flow. Sadly, it’s a timed proposition, even though it will be the second Ocasio-Cortez administration before the last pig hits the road in the United States.

Meanwhile, Harley will stay cool. His product is glorious. Tariffs are generally bad business and could eventually go away. Electric motorcycles could become a thing. None of this will free Harley from the clutches of Wall Street short-termism, with markets pricing the stock for access to dividends rather than big future returns.

Worse yet, the sales trends and brand demographics are unlikely to reverse in the United States. But they’re not going to collapse either. This is why Levatich is in an impossible position. All About Harley makes a case for the stewardship of this latest group of baby boomers on their final commutes before heading to that big biker bar in the sky, while simultaneously bringing up a small group of members of Generation X and Generation Y on “real” motorcycles so that Harley’s decline was extremely gradual.

No CEO wants to oversee such a depressing narrative; as the generals say, nothing is more difficult than a combat retreat. What’s likely going to happen is that Harley will continue to struggle, at least until the next one.
– unless, of course, the company becomes delusional and borrows more money to continue growth, which adds to an already high debt situation.

Look, I know this is a little sad. But sometimes you have to accept that you are in the last chapter. Luckily for Harley, this chapter could take decades to write.