I am writing this piece the day after the Fed announced another quarter percent lowering of United States interest rates, a week before Christmas 2024. That is a good thing of course and would usually be greeted positively by Wall Street.
Instead, the US stock markets had one of its now alarmingly regular spasms of fear. In around five hours of trading zillions of dollars were wiped off the value of US businesses, including Harley-Davidson and Polaris.
Harley shares hit a new 12-month low of $30.17 on December 19 (the day after the Fed announcement), well south of its March 2024 12-month high of $43.94. Polaris Industries' shares did not fare well through 2024 either, dropping as low as $56.93 in response.
Throughout 2024 its share price had been on the slide just as dramatically as Harley's was, having nearly halved from a March 2024 12-month high of around $100.00 and waving goodbye to its April 2021 5-year high of $144.51 a long time ago. Those who invest in the NYSE are simply no longer convinced by the investment opportunity offered by powersports markets.
This most recent stock market spasms came about in response to the US Federal Bank Chairman's remarks that this latest quarter point cut in interest rates will likely be the last for a while. From expecting four further rate cuts in 2025, it now only foresees two more, at best, in each of 2025 and 2026.
While it is claimed that there is nothing specific spooking them, the interest rate setters clearly are spooked.
Having lasted through to February 2022, it would appear that the era of unrealistically ultra-low interest rates is now finally over. Major shocks notwithstanding, we are at the start of a new normal. A more realistic average for interest rates of between 3% and 4% will likely be the new baseline target range.
"smaller displacement models and lower price-points"
Fed Chairman Jerome Powell's post announcement remarks can be summed up along the lines of saying that we don't know what trouble may be ahead, but we can't rule out that there might be some. Well, frankly, no sh*t Sherlock - isn't it always thus?
It is now clear that there is zero confidence that the 2024 stock market rally, and the theoretically robust economic direction of travel on which it was (equally theoretically) based, was not as robust as had been thought.
Out in the real world, out in real world business sectors like ours, the daily challenge of selling motorcycles, parts and accessories is getting no easier. It feels like we have been staring down the twin barrels of market uncertainty and instability for months, years even.
For the parts and accessories aftermarket, at best 2024 was mostly okay-ish. It has become accepted that the ongoing atrophy in conventional mainstream P&A channel sales has simply become a part of what we live with. Regardless of what the experience of any one single vendor might be, or of what the action in any specific sector might suggest, overall, there has not been any kind of uptick in business at all in the past three years.
With every year that passes there is no question that, overall, ever more shops are consuming, installing and selling ever fewer parts and accessories - if for no other reason than that demographics are seeing to that. But then there are also the economic realities of the real-world struggle.
Levels of disposable income have been and still are shrinking. Labor pay rates are increasing (that's a double-edged sword) but they have not been keeping pace and vacancies may now be declining. The interest rate shock hit homeowners hardest and US consumers are now carrying record levels of debt - especially credit card debt - so the interest rate story matters more than ever.
Meanwhile, back at the day job, Chinese manufacturers are eating our lunch. In affordability terms the trend to smaller displacement models and lower price-points tells its own story. Harley urgently needs to start selling its Qianjiang/Benelli built X350/500 cc Harleys in North America and in Europe (or the Indian built Hero X440 Harley).
Harley would be able to absorb any tariff fees and still offer a product that sits in the crosshairs of demand at a cost that is way lower than manufacturing in the United States. The unions are just going to have to get over themselves. The "pre-owned is the new entry level" strategy simply has not worked.
The days of Japanese motorcycle dominance are now over too. It would be no surprise if, within a decade, the Japanese motorcycle 'Big Four' is effectively reduced to three. Meanwhile it remains unclear what shape KTM will be in when (and if) it emerges from its present bankruptcy filing. At the time of writing, it remains unclear if it will survive at all and what will likely happen to Husqvarna, GasGas and MV Agusta.
CEO Stefan Pierer has been trying to put a gloss on it, but don't be fooled, the KTM situation is bad. The glory days for Europe's largest motorcycle manufacturer are done, gone and over.
Which brings us back to Harley-Davidson and Polaris/Indian. As I write we are just five weeks away from seeing their 2024 full year fiscals and the only thing we know for sure is that they are not going to be pretty. What's worse, nobody really appears to even care what news their new model year announcements will hold anymore. Hardwire has failed.
The plan had been designed to help the company grow profitably, strengthen its brand, and expand into new markets. Well, fair enough it has been making good money but to no great result, as Harley has been throwing its profits at investors rather than its engineers and dealers. The company has failed to grow. Indeed, the market cap is likely to drop below the $4bn mark when the FY2024 financials are unveiled.
As for turning Harley-Davidson into a case study of brand excellence? Nah. Hasn't happened. The brand is now a byword for missed opportunities.
As Harley enters the fifth year of a plan that was as ill-conceived in its own different ways as its Levatich era "More Roads" predecessor, the road has pretty much run out for the Zeitz era now too.
Oh, and while 'rewiring' the 'rewire' - LiveWire? Sell it, close it, burn it, give it to Kymco, just do whatever it takes to get its losses off the H-D balance sheet just as quickly as possible before Harley goes the same way as KTM. LiveWire is not an opportunity - it is a liability.
