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Wednesday, 15 October 2014

AMD / Baird dealer report

Dealers say inventory balanced but traffic weak

The quarterly AMD/Baird dealer report conducted in July and August revealed that US new bike retail is tracking up three to five percent versus last year, but was expected to weaken in the fall.

Dealers report that traffic remains "challenged", but that inventory appears "balanced" with dealer sentiment on pricing suggesting that Harley made the right decision to cut production.

The dealer consensus outlook for 2015 new unit sales suggests that most are expecting to be up by low single digits.

The weaker than expected retail, attributable to slower traffic trends, appears to have been affected in July and August by a range of factors, including poorer than anticipated summer weather.

Despite retail trends tracking positively through July and August (+3 to +5 percent), comparisons for September and beyond get tougher as Harley laps the impact of the Rushmore launch last year, which saw a +20 percent spike in fall sales.

Baird are therefore saying that they are maintaining their Q3 US retail estimate of -3 percent.

Internationally Canadian dealers are reporting that new bike retail declined approximately 30 percent and are citing a weaker economy and unfavorable pricing during the third quarter; however, international markets outside North America appear to be seeing new bike retail increase by between one and three percent.

During the survey period one dealer is reported as stating that "traffic has been terrible since the second price increase"; another reported "very limited floor traffic - tons of calls and emails put out by sales, but still limited traffic overall", with another saying that "floor traffic is down considerably, but conversion rates are up."

The weather has clearly been a big factor, with one dealer saying that "it has rained almost every day at one time or other"; another that "the weather has been killing us. Rain and colder temperatures have been the norm lately - it looks more like spring than summer"; with yet another reporting that his store was "hoping for a warm fall and a late winter. We still have 14s to sell", and that in their opinion there was "no need to duplicate the FLHX and the FLTRX - just make the special model."

One dealer told AMD / Baird that "our local economy is terrible. Bike sales are down 20-24 percent over last year and still down 80 percent from 2006." That said, while one dealer has reported that the "used bike market fell", another said "used bike sales have increased over the last year and new bikes have held steady."

Dealers indicated that new bike inventory is "balanced" for this time of year, with 56 percent of dealers saying that inventory is "about right".

Dealer commentary suggests that inventory is heavy in Softail and Dyna categories, but that Rushmore and MY2015 inventory remain "appropriate - if not lean."

Additionally, dealers have reported tight used inventory, and Baird say that they've seen this reflected in healthy used bike values.

Some 76 percent of survey respondents indicated that inventory is "about right" or "too low" for the time of year, and Baird say that the sequential improvement in inventory comfort levels likely reflects Harley's decision to cut shipment guidance after weaker first half results - reflecting the company's commitment to protecting used bike values.

Based on Harley data and Baird's tracking, the average US dealer had 63 bikes at the end of Q2 - up from 60 last year.

One dealer is quoted as saying "2015 model year inventory is low and used bike inventory is lower than desired"; another stated that "even though we are down saleswise, both district and region, our new remaining 2014 and current 2015 inventory is just about right"; however, another dealer said that "new inventory should have been slashed in April when we all saw the slowdown and promotions should have been initiated sooner"; with another saying that "Harley has dealers with too many 2014 Softails and Dynas", with yet another stating that "new Softail, Dyna and Sportster inventory is way out of whack."

Referencing one of Harley's promotional campaigns, one dealer told the AMD / Baird survey "this .99% promo is crazy stupid. Hardly anyone qualifies, and if they do, then no one makes any money.”

In a sharp departure from recent conditions 82 percent of dealers are selling bikes below MSRP. After a slow start to the season Harley and its dealers became more promotional to clear out inventory in anticipation of the MY2015 launch, and in July management acted to help restore balance by cutting production.

"Carry-over 2014 models are causing creative pricing on left over Cruisers, but Touring family bikes are holding good margins" said one dealer; another stated that "not every dealer is discounting, and we don't, but it's amazing that some are already doing so on the 15s."

Another dealer told AMD / Baird that "dealers in this area seem to think that they have to drop their pants right away and give everything away. I say hold your ground, the customer will buy. We have the best game in town”, but another dealer told us that “looking at H-D sales ranking reports in this district over the last couple of years it’s real easy to see what's happening. A lot of good, honest dealers out there with negative Rushmore sales growth.”

Dealers are reporting that overall the consumer financing environment remains stable (88 percent of dealers say credit has remained stable or eased recently) and that HDFS is responding to inventory feedback by "buying deeper and offering some really good low rate promos for Cruiser models."

Baird recently established a Harley-Davidson Dealer Sentiment Index, capturing both current and longer-term (3-5 year) dealer perspectives.

Current dealer sentiment has tracked down on a year over year basis (67 versus 73), likely due to the excitement dealers felt after the highly successful Rushmore launch last year. However, Harley dealers still hold an optimistic 3-5 year outlook (70 versus 72 last year). Sentiment readings are calibrated from 0-100 with 50 providing a "neutral" outlook. Baird say that their Harley-Davidson Dealer Sentiment Index indicates a high level of dealer confidence, and that while dealers expect retails sales to be essentially flat in 2014, their outlook improves to low single digit increases in sales for 2015.

In terms of opinion on the new models, Baird say that while the highly successful Project Rushmore launch last year was a "home-run" and the MY2015 Road Glide received overwhelmingly positive dealer feedback this year, their research validates that the absence of the Road Glide was a retail headwind in late 2013 and early 2014, and Baird say that they expect retail to benefit over the next year from the substantial Road Glide upgrade.  

Robert W. Baird & Co. Inc. is an employee owned wealth management, capital markets, asset management and private equity firm that was founded in 1919 and is headquartered in Milwaukee, Wisconsin. The company says that it currently has $105 billion in client assets.

Any AMD readers who would like to see this or future AMD/Baird quarterly Harley-Davidson dealer surveys in full, or any authorized Harley-Davidson dealers who would like to participate in future surveys, can contact AMD’s Information Editor Sara Viney by email (