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Tuesday, 19 May 2015

Comment by Editor-in-Chief, Robin Bradley

Can the Bar & Shield withstand the sound of silence?

WITH the Harley-Davidson share price still stalled and a second consecutive quarter of reduced domestic unit sales recorded, now is the time to start worrying about whether Harley's own perceived explanations for their 'dip' are valid.
Now that international unit sales are also down, do Harley's two consecutive quarters of "negative growth" constitute a recession for Harley-Davidson just as it would for a country?
Regardless of how you try to dress it up, Harley-Davidson and incoming CEO Matt Levatich have "issues". While they keep pimping the dividend they can contain the contagion, but most fund and investment managers really don't care about long-term strategies, brand values or pretty shiny metal. They only care about their own next bonus.

Therefore, regardless of the 'good-game' that Levatich and Harley may be able to talk, devise and play, if they continue to leave themselves vulnerable to the unwelcome attention of activist investors and leveraged buy-out equity funds, as they currently are, then as sure as night follows day what can go wrong will go wrong.

Harley still needs a new FXR

Not that the 'small-guy' investor or the 'big-guy' fund manager would loose from some kind of hostile takeover bid in the short-term. Profit is profit after all, so if someone wants to start hoovering up Harley shares at a premium, predicated on the assumption that an equally aggressive defence would be mounted, who cares, everyone with shares wins, right? Wrong.

Sure, if you get out at the right time (anywhere at around plus/minus10 percent or better of peak price) and you've got to be happy - and no longer have a reason to care what happens next.
But if Matt Levatich and his cohort want to get a share of the action that Keith Wandell benefitted from, or that Scott Wine is benefitting from in the 'hot-seat' at Polaris, then someone somewhere in Milwaukee needs to be looking very closely at how they are going to combat those competitive pressures; that means re-visiting the offer, re-shining the metal.
Historically it has always been a case of hoping that Harley could be competitive elsewhere in the motorcycle or wider powersports industry, and add strength to its balance sheet from groups of riders it didn't yet speak to.

There will always be as many who deride a brand like Harley for seeking new revenue streams as there are those who will welcome it, especially in the United States. Diversification for a brand such as Harley-Davidson isn't without its controversies. The righteous fraternity of purists hate it, and like any band of optimists they view the realism of those who think Harley should spread the burden as cynics, as pessimists, as traitors to the cause.

However, whether it is through the 'minorities' that Harley has already successfully courted, or through noisy new platforms, or silent e-bike new technology, ownership of new brands, selling through new dealer networks, whatever, Harley needs to add to its core customer footprint, and quickly - their dealers need to see them do so, investors for sure will increasingly demand that they do so.

There has always been a schism between those who do and don't think Harley can diversify and still speak to traditional heritage-value customers. Some think that the legacy brand will simply evaporate if stretched in new directions, and others think that that is not necessarily inevitable if handled right, nor even necessarily a bad thing.

Brand values can morph - it just needs to be done sensitively. The values currently ascribed to the Harley brand have suited recent and current generations, but it cannot be assumed that they would therefore automatically suit future generations, and they certainly aren't the same values as those that built the brand in the first place anyway.

A few weeks ago I said that Harley needs a new FXR or some other new initiative to give dealers the wherewithal with which to keep store traffic high and see off the new threat that Indian (especially) and other brands represent.

Well, here's another opportunity - recapturing original brand values that were built around racing and performance. Sure, some Harley-esque engines are still raced, and in the hands of the aftermarket they can be made to perform better than the compliance driven stock offer, but neither speed nor handling are the first motorcycle virtues that trip off the lips when non-loyalists are quizzed about Harley brand values. Yet they were in the 1920s and 1930s; or at least they made the list and were generally close to the top.

Whether it is one specific platform or a whole slew of different initiatives the fact is that Harley's dealers need regular injections of Rushmore-scale excitement to keep the doors swinging.

The biggest upside of recent platform tunings (do they really count as "initiatives" as such?) has been another flirt with liquid-cooling. That has been a "good thing", not because air-cooled v-twins can't survive in our brave new clean world, but simply because they are not every rider's preference.

The challenge facing Harley is to devise brand reach that exploits other riding styles, challenges and opportunities while preserving core values.