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Wednesday 29 May 2019

Comment by Editor-in-Chief, Robin Bradley

Harley - Momentum or False Dawn?

You may not think so, to go by its Q1 fiscals, but Harley-Davidson got lucky in the first quarter.
While its sales were down, again, they were ahead of the market (resulting in a modest market share bounce), and for once Harley got its timing right.
The better weather towards the end of the first quarter coincided with promotions that were run a few weeks earlier than would normally be the case - promotions such as upgrade offers and low finance rates. At around 28,000 bikes, a -4.2% decline from its first quarter 2018 in a market that was actually down -4.7 percent, Harley's endeavors at hanging optimism on market share is displaced, but regardless, reading between the lines, there may, just may be some hope that at some point this year Harley may be rocking along the bottom of a very broad U-curve rather than continuing to plunge down vertiginous slopes.
The -4.2 percent compared to around -12 percent 12 months ago, and while 28,000 bikes is an even worse Q1 performance than was seen at the height of the financial crisis a decade ago, the quarter itself suggested there may have been some reasons for cheer.
Within that paltry 28,000, sales were down horribly in January - by double digits in percentage terms compared to January 2017. February was a little better, or rather a little less bad, with sales down by upper single digits, but the good news that can be scraped from the bottom of Harley's barrel is that confluence of promotions and better weather in some important parts of Harley's midwestern heartland saw March sales actually up on March of 2018.
Not by much, but mid-single digits growth year on year as the market heads to the peak of the selling cycle does represent some big magic 'Mo' - momentum. Maybe the work Harley has been doing with its dealers, to improve its customer inquiry responsiveness (even if much of that is due to changing ownerships), as evidenced by the recent Pied Piper Internet Lead Effectiveness study (ILE - see report elsewhere in this edition of AMD Magazine), is starting to pay off, adding to an evolving burst (if not exactly perfect storm) of positives.

"tariffs are wrong-headed"

It is the true impacts and implications of the worsening tariff spats that concern me. Trade wars are not, in fact, easy, and can take generations spent in reverse gear to unwind.
With international sales also now in decline, in the face of healthy market growth and giving dealers tariff protection in Europe, it may well be that Harley's dependency on the basics of its 'More Roads' strategies may start to be a millstone as much as an opportunity.
Dependency on a new generation of dealership owners and equity capital will result in the dog being on a way shorter leash where long-term commitment to the long-term unfolding of long-term plans is concerned.
The fast-changing nature of the domestic Indian motorcycle market, one of the primary international markets Harley's strategic aims are dependent on, may also be about to make its Indian sub-continent ambitions a lot more difficult than they appeared to be.
I have spoken long and often about the changing lightweight and middleweight landscape, and with the new generation of Royal Enfield Twins finally arriving in dealerships, U.S. riders of a certain age group are about to find that their expectations of what $6k can get you will be radically altered - and that genie won't fit back in the bottle any time soon when they do see that $6k could be the new $12k or more.
Similarly, with Harley still between 18 and 36 months away from having lightweights on sale in India, another Indian power player, Mahindra & Mahindra (which also owns the rights to the BSA brand name, as well as owning around 50 percent of Peugeot Scooters) has now just finally brought its new Jawas to market, but seen sales of the new 300/250 cc singles far outstrip supply in a market in which Jawa once sold in the hundreds of thousands.
Given that the Royal Enfield parent already owns over 80 percent of the world's largest motorcycle market, it leaves a veritable smorgasbord of brand choice to fight over the crumbs. While is hard to say what kind of brand damage the recent Street recall will have cost Harley in India, it can't have helped a brand that has big fat zero pedigree in a sector and market it hopes to be boosting its balance sheet with three years from now.
The less-worse results at Harley-Davidson are not a cause for celebration, however, as clouds remain on the horizon. The whole Tariffs thing has got way out of control. Worse, they are being used and implemented in ways that are 100 percent illogical and counterproductive. The things that are being said about and claimed for the effects of tariffs are just plain wrong. Economics 101 - tariffs are imposed on the importer, and ultimately the end consumer, not the exporter; they supress demand, not supply. Ask Walmart CFO Brett Biggs.
The punitive tariffs that the EU is proposing to implement on U.S. made motorcycle components are insane. They are designed to penalize U.S. companies as a retaliatory response to U.S. subsidies for Boeing. Dragging innocent sectors into a fight that is irrelevant to them will do nothing to help the international aerospace industry. Even players like Boeing itself, American Airlines and Delta are on record as saying the strategy is wrong-headed.
All that will happen is that positions will harden and make it ever more difficult to unwind the mess and get back to a level playing field on which free, fair and transparent market forces, the primary defining characteristic of capitalism, are allowed to continue to flourish to the benefit of all makers of wealth.
I am 100 percent with Polaris CEO Scott Wine on this one.