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Wednesday 28 April 2021

Comment by Editor-in-Chief, Robin Bradley

H-D Running at Max Production Capacity

The tariffs ruckus between the European Union (EU) and Harley has proven to be a most unwelcome distraction to the posting of what, in the context of recent years, is a milestone set of Quarterly Fiscals. 

Namely, results that show a return to unit growth, a return to revenue growth and, above all, a return to profits. Of course, it is hard to make 'level playing field comparisons' with 2020, or even with 2019 - in part because of the pandemic.
However, the possible eventual (June 19) escalation of these additional tariffs arise from a two-year old decision; they are not in effect a new decision.
The start-point for the brouhaha remains the spat between the United States and the EU over perceived Boeing and Airbus subsidies - an impasse that goes back nearly two decades and one that the Biden administration and relatively new EU presidency theoretically drew a line under with a four-month suspension of rival tariff impositions in early March.
Revocation of the Binding Order Information (BOI) exemptions (five of them) that allowed Harley to continue to supply EU markets at a 6% tariff mean that the original decision to impose an additional 25% tariff now comes into force. Worse, the 'Stage II' imposition of a further 25% contained in the original 2019 decision and slated for June 2021 could now also become enacted, which is how the headline figure adds to 56%.
However, as Jochen Zeitz confirmed on June 20, the company will be able to continue selling to Europe at 6% while the appeal makes its way through the bureaucracy in Europe.
On March 5th this year, the US administration described the moratorium as a "fresh start" to US-EU trade relations. European Commission Executive Vice-President and Trade Commissioner Valdis Dombrovskis called it a "reset" for a relationship which had soured under the previous administration. "Removing these tariffs is a win-win for both sides," he said. "This suspension will help restore confidence and trust, and therefore give us the space to come to a comprehensive and long-lasting negotiated solution."
So, it would appear that in the period between March 5th and April 19, a wheel has come off in Europe. That being the case, it is to be hoped that the efforts that Harley is pursuing in Europe (and Washington D.C.) will result in a speedy and comprehensive return to pre-2019 trade sanity.


extract head from ass


It would appear that someone, somewhere in Europe, needs to have their head extracted from their ass by bureaucrats with a rather more rational grasp of how 21st century Capitalism is supposed to work.
Meanwhile, back at the day job, congratulations to Harley-Davidson's new management and employees at all levels for getting their financial wheels back on and turning again.
In the webcast that followed the release of the Q1 results (April 20), Harley, in the shape of newly minted CFO Gina Goetter, put a number on the dealer network reduction that has been taking place - stating that it is down by around 160 stores worldwide, but with maybe another 30 - 60 still likely to be 'let go'; internationally the number is down by some 30%.
She also confirmed that worldwide inventory was down by -48% in Q1 versus the year-ago quarter, but was +60% compared to Q4 of 2020. Along with MSRP increases and better price-point realization, inventory management has been the primary driver of the managed decline in Harley's addressable market opportunity - reversing the More Roads 'push' principle of driving growth with unit volume. The 'push principle was simply a variation on the discredited 'Channel Stuffing' that left Italy with nowhere to hide when the financial crisis hit them in 2008.
Zeitz says that dealer profitability is "up significantly", saying that he has been hearing "nothing but positive dealer feedback." Asked if he felt the inventory draw-down had been over-done, Zeitz is unrepentant. "Demand has strengthened," he said. "We are running at maximum production capacity in Q2 and are looking at ways to increase further for the second half of the year; MY2022 production will start in Q4."
In truth, production capacity is itself way lower, of course. While total worldwide Q1 retail unit sales were up by +9%, international was down heavily, as Harley began pulling back from its less profitable markets. Asia Pacific was essentially flat (+1%) on 5,800 units, with Latin America off by -58% (just 700 units sold) and EMEA -36% on 4,900 units (down from 7,700 in Q1 2020), and as much to do with compliance issues as anything else.
In a rare remark about Harley's relationship with QJ in China, Zeitz said that the partnership is still going ahead and while he wasn't in the market to discuss details, the implication is that reports surrounding at least one additional model there for this year appear likely to be true.
In further new model terms, Zeitz confirmed that April 26th will see the first of what Harley is calling its new "Icons Collection" with the Electra Glide 'Revival'. Describing them as being "extraordinary adaptations of production motorcycles, which look to our storied past and bright future," they will be produced only once, with each model limited to a serialized production run of 1,500 bikes.
A new "Icons Collection" model will be released within each model year, with no more than two models being released in any given year. "Production will be enough to fill an allocation of approximately one per dealer globally, making each 'Icon' a rare and highly coveted model for our riders, while increasing the overall desirability of our brand and drive the legacy of Harley-Davidson in our core segments."
The 'Hardwire' program of focussed, "Selective Expansion" into profitable segments will continue in 2021 with further leveraging of the 'RevMax' platform that will "redefine the premium middleweight Cruiser segment. We intend to increase the profitability of our offerings overall in the small to mid-sized Cruiser segment and change the competitive landscape."
After years of unmitigated bad news where Harley's share price is concerned, it is a pleasure to be able to report a 16% bounce in the 48 hours following the release of these results and a near 30% bounce in total since the start of the year. Hurrah!

Robin Bradley