The quarterly AMD/Baird survey of authorized Harley-Davidson dealers in the United States and internationally has revealed "weak retail and traffic" in most areas of the US during January and February, with only 24 percent of those surveyed saying that consumer showroom traffic was "better than expected."
Some 47 percent of dealer surveys said that January and February retail sales were worse than expected (33 percent said sales were better than expected). Though with March generally accounting for around half of Q1 retail sales, Milwaukee based analyst Robert W. Baird & Co. Inc. was modeling an end-of-quarter improvement to leave its annual forecast for 2014 worldwide Harley new model sales "unchanged" at +6 percent for the year domestically, and +7 percent internationally.
'annual forecast "unchanged" at +6 percent'
Sales grew by 4.4 percent in the United States in 2013 (compared to 2012) and by 4.3 percent internationally.
This forecast is despite the fact that the adverse weather in much of the United States clearly hit not just showroom traffic but also deals written. The US dealers surveyed said that their retail unit sales for January and through mid-February were off by -11 percent compared with their Jan/Feb experience in 2013, with reported used unit sales down by some 9 percent.
Internationally, reported retail sales were off a massive 25 percent in Canada for the period concerned, but up by some 10 percent elsewhere in the world.
Commenting on the effects of the weather, one dealer said "Traffic overall is down considerably. The people who are purchasing have been in the process for a while"; another that "sub-freezing weather is causing fewer people to come into the dealership. Last year was warmer and more people were still riding in January and February"; a third that "door swings are down 40 percent YTD over 2013; sales are down 44 percent."
Another said that "Weather has killed us, but Harley hasn't helped either." But proving that the picture was mixed, another said that "Traffic and bike sales have both remained steady in spite of record breaking snowfall and cold temperatures", with another saying that "we expect traffic and sales to continue increasing this spring in response to strong consumer interest in Project Rushmore models and new products introduced by the The Motor Company."
"Weather has killed us, but Harley hasn't helped either"
Echoing the sentiment with regard to new product, one dealer commented that their dealership was seeing "Lots of new feet coming through the door"; and another that their dealership had "sold better in 2014 vs. 2013", and one even reported being "+150 percent over last year for the year so far".
Inventory levels and promotional activity are always subjects that polarize opinion among Harley's dealer community.
Most indicated that new bike inventories remained "lean", 86 percent of respondents reported it about right (57 percent) or too low for the time of year; but dealers were rather more scathing about promotional activity.
Dealers report that used bike inventory "continues to be elevated as poor retail coupled with weak demand for used bikes (due to continued consumer appetite for the Rushmore models) has elevated inventory levels in the off-season", according to survey report author Craig Kennison.
One dealer explained that "Our used bike inventory is very high due to increased trade-ins on Project Rushmore bikes in the Fall ... but our used bike sales were up significantly for the first six weeks of this year"; another that "We need the right new inventory, i.e. touring. Used inventory was fine and then we sold through it, so we are light now. There is limited promotional activity of the Harley programs other than in store POP.”
"Used bike inventory high due to increased trade-ins on Rushmore bikes"
One responding dealer in Australia provided some interesting insight into the situation there, and some of the issues the dealer said they had with Harley-Davidson Australia (HAD), saying that "this is putting more and more pressure on management to provide these reports and we are losing focus on the real issues like selling and promoting our brand. Whilst I understand that we do need some of this reporting, perhaps this can be refined."
Further indication that, as ever, Harley's dealers aren't a homogenous crew, one domestic US dealer told AMD/Baird that there are "no promotions to drive business in the slow months, all the weight is on the dealer, not on Harley. In addition Harley has too many stale models that are outdated, over-priced, or were poor designs”; with another stating that "We need more TV ads just like other brands", with yet another saying "What Harley promotions?"
Pricing conditions remain largely unchanged relative to prior survey results with over half of dealers selling bikes below MRSP (56 percent of respondents). This is no doubt reflective of the weather, the lag that the market still has from slow recovery to real-world trickle-down, and may also explain some of the dealer scepticism raised about promotional activity.
"What Harley promotions?"
One dealer said that "Rushmore bikes are ok, but Dyna, Softails, and Sportsters are way under MSRP. The reason is there are too many, and the Softail models compete with the Rushmore line in price”; another that there were "Too many car dealers coming in to the H-D business! They don't understand the H-D brand - they think volume-volume-volume”; a third that "Harley talks about building brand loyalty and providing customers with a consistent premium customer experience, however, it is all about moving inventory. Retailers who discount and sell more bikes, yet short change the customer on the Harley experience, get kudos as they are moving inventory.”
One Canadian dealer raised a specific issue that affects dealers there, saying that "Canada has a distributor, so our prices are too high. Even H-D credit charges are a higher rate in Canada. A lot of people shop for P&A & GM online with USA dealers. We cannot compete on price.”
In terms of credit, more dealers are reporting that consumer financing continues to get easier, but, interestingly, there appears to be an increasing reluctance among consumers to take on debt.
Baird recently established a Harley-Davidson Dealer Sentiment Index, capturing both current and longer term (3-5 year) dealer sentiment. We asked dealers about their outlook currently as well as their outlook at this time last year.
Harley dealers hold an optimistic outlook based on current conditions, as dealers reported sentiment levels of 78 vs. 81 last year. The 3-5 year outlook remains remarkably positive as well, as dealer sentiment is 81, both this year and last year.
For context, sentiment readings can range from 0-100, with 50 providing a “neutral” outlook. Net, Baird’s Harley-Davidson Dealer Sentiment Index indicates a high level of dealer confidence.
'over half of dealers selling bikes below MRSP'
On average, dealers expect retail sales to improve approximately 5% in 2014.
Harley-Davidson retail sales grew 4.4% in the U.S. and 4.3% internationally in 2013, based on company data. We expect U.S. retail sales to grow 6% in 2014, and international retail to grow 7% for the year.
In what maybe the first research initiative into starting to gauge perceived impact of the
re-launch of Indian Motorcycles on Harley dealers, now that they have had a chance to see the new bikes, Baird asked for views.
Relative to expectations for the impact on business last year, 94% of Harley dealers now believe that Indian will impact their businesses “less than” or “about as much” as they had expected – a net positive for Harley.
One dealer commented: "Not a very interesting bike and too expensive. Great power train, but availability still scarce in our area”; another that the "introduction of the Indian brand has had zero impact on our dealership's traffic and sales, and based on feedback, we don't expect that to change.”
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 (sara@dealer-world.com).