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The Honolulu Advertiser
Posted on: Monday, September 29, 2008

Venerable Harley feeling pain of weak economy

By Susan Carpenter
Los Angeles Times

Owning a chromed or custom Harley-Davidson is "not about transportation; it's about an experience," says the company's chief executive, James L. Ziemer.

That's clear even to most non-motorcycle fans, who, on any given day, are likely to see T-shirts, leathers, window decals, cigarette lighters, bandannas and other paraphernalia emblazoned with the company's trademark bar and shield.

But there's one Harley-Davidson Motor Co. item that hasn't been selling as well in the U.S. recently: the motorcycle itself.

Sales of the heavyweight bikes were down 10.2 percent in the first six months of this year, and the Milwaukee company is cutting back production as much as 40 percent to whittle its inventory.

"For 15 years, Harley-Davidson couldn't make enough motorcycles for middle-class guys," said leisure industry analyst Robert J. Simonson of William Blair & Co. "They couldn't make enough of what was making them a lot of money, so they didn't design product or market to other groups. Now they need to."

Many dealers are also feeling the pain, as the economy weakens, credit tightens and the motorcycle market becomes increasingly transportation-oriented. Some are even starting to offer products that would have been sacrilege in better economic times: They're selling fuel-efficient, foreign-made even electric scooters on the same floor as Harley's flag-waving, thunderous internal-combustion cruisers, affectionately known as Hogs.

It is, to be sure, a culture clash, but desperate times are calling for desperate measures at some dealerships, especially in California and Florida, the top two motorcycle markets, and other areas that have been more severely affected by the down economy.


At the Harley outlet in Glendale, Calif., sales are off about 20 percent this year, with high-priced touring models "usually our lead products" particularly hard hit, said Emily Vindeni, controller of the shop.

Lately, Vindeni said, the bikes sold aren't so much for leisure but necessity. People "are not going to spend $15,000 to save gas. They're going to spend $10,000 or less."

What is selling is Harley's smallest, lowest-end bike, the Sportster, as well as its entry-level sport bike, the Buell Blast. In the spring, that short list might include Asian scooters.

"We're looking into that because you're seeing more and more of them on the road," Vindeni said. "There are quite a few Harley-Davidson dealerships that have already gotten into that business."

Even so, CEO Ziemer frowns on the practice not only because the profit margin on a $28,000 motorcycle is much higher than it is for a $4,000 scooter but because it dilutes the character of the brand.

"I don't think that it serves them well," he said. "They're selling to a different customer base. If someone's looking for a very inexpensive product for transportation, that person was not going to buy a Harley-Davidson anyway."

In spite of the current trend toward smaller two-wheeled vehicles, Ziemer said Harley-Davidson would remain a recreational product.

The drop in domestic sales, which account for 75 percent of Harley's revenue, to $1.9 billion in the first half of the year continues a downward trend. Sales in the first six months of 2007 were 5.7 percent lower than in the same period the prior year .

"Right now, I'd say our business is definitely doing better than most discretionary large-ticket items," Ziemer said, pointing to declines of as much as 30 percent in such other motor sport categories as all-terrain vehicles, boats and RVs.


Sales of motorcycles industrywide roared from 293,000 in 1993 to 1.2 million in 2006. Purchased predominantly for leisure use, motorcycles were ridden for the most part on weekends not for the weekday commute to work.

But as gas prices rose and consumers curtailed spending, the market started shifting. Sales of expensive, large-displacement cruisers, the prototypical Hog, have been especially hard hit in the U.S., while sales of fuel-efficient scooters are higher than they've been in two decades.

In 1998, cruisers made up 50 percent of on-highway motorcycle sales, and scooters were just 5 percent. Last year, cruisers accounted for 37 percent and scooters were 19 percent.

That trend doesn't faze Ziemer. "We're not going to chase mopeds for the sake of selling units," he said.

Gasoline, he noted, is an insignificant cost of motorcycle ownership.

Ziemer also pointed out that motorcycles, even those with large 96-cubic-inch motors that Harley-Davidson makes, still get about 40 miles a gallon, which is far better than the average passenger car mileage of 27.5.

The primary cost of motorcycle ownership is, of course, the bike itself. And increasingly, potential buyers who want to ride high on a Hog are having a difficult time obtaining the credit to do so.

According to a recent survey, 63 percent of U.S. Harley dealers reported that their customers have found it more difficult to get financing. In February, only 28 percent of dealers reported feeling that way, according to the survey by financial research company Robert W. Baird & Co. About 75 percent of motorcycle sales are financed, the company says.

Long associated with the macho mien of the U.S. male, the brand has found only a small audience among women and minorities, who make up 12 percent and 7 percent of sales, respectively.

And as dentists, lawyers and other "rich urban bikers" adopted Harley as their motorcycle of choice, the median age of a customer has gone up. Twenty years ago, half of Harley riders were under the age of 35; today the median age is 48.

The company is responding with more lower-priced and lower-seated models that appeal to women and younger buyers. Many young riders are not buying cruisers but are buying sport bikes an area Harley-Davidson hasn't pursued vigorously. Its Buell Motorcycles unit sells only 5,000 bikes a year.

Last month, Harley-Davidson purchased premium Italian sport bike manufacturer MV Agusta. Harley would not discuss sales projections for the new unit, but Ziemer said the focus would be growing MV's European business first, then tackling the U.S. market.