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Tuesday 6 February 2024

Comment by Editor-in-Chief, Robin Bradley

Where Have All The Flowers Gone?

As this edition went to press (January 11, 2024), Harley-Davidson had not released the 'meat and potatoes' of its MY2024 plans - merely a January 3rd dated statement that the continuing 2023 models were already in dealerships. Nether had it yet confirmed when it would publish 2023 Q4 and full year financials. 

There was no new model information in the release at all, yet confusingly they promised that "more new model information" would be released in a video on January 24 - one promising the "dawn of a new era."

Personally, and in common with investors and analysts, and I dare say most of the Harley dealers too, let us hope that it does turn out to be something substantial and truly interesting. Something that really will create brand excitement and, in particular, bring 'Fresh Feet' into the showrooms. Because Harley desperately needs that. Harley dealers desperately need that. It is time for all stakeholders to be able to "see the beef" of the Zeitz era. To have their faith in the Rewire/Hardwire renewed.

My recent return to deep dive scepticism about Harley's direction of travel isn't to denigrate the hard work that the many hundreds of talented people and thousands of hard working souls put into their work. 

Quite the reverse. As much as anything else, it is born out of frustration on their behalf that all their efforts must at times feel like that never ending tunnel where the daylight just never seems to get any closer. The past five years in particular have shown that even after the boom and bust of the post 1980s stock float era, Harley has had, and has still got, some remarkable engineers. Professionals who can mix it with the best if they are given the space and backing.

For all its idiosyncrasies, the M-8 is a way better platform than the Twin Cam. In turn, that was a quantum leap on the Evo, the 60-degree V-twin Revolution Max and the Pan America models (especially) and Sportster it powers, has been another major step forward - 'potato-potato' has had its day. Sorry 'n all, but as the late, great Alan Sputhe kept telling those who would listen, Harley could never compete effectively in the wider international motorcycle market while it cleaved to 100-year-old concepts like 45-degree layout cylinders.

So, maybe 60 degrees throughout is the new era that will dawn? But no, not likely. The adoption of Variable Valve Timing in last summer's CVOs was another major leap forward. As with entry into the ADV sector, one that takes Harley further down the path of admission to the 'Big Boys Club' of the mid-21st century.

The scuttlebutt that I've been picking up is that this is closer to the mark - the start of VVT migration into the Touring range. But even so, while welcome, essential even, it still smacks of the kind of conservative incrementalism that has so often held Harley back. Is it really the dawn of a brave new era? For me it is kind of like dipping one foot in the water, one toe at a time.

While its share price is up from the October $26 low, it is still continuing to stagnate way off the current 12-month high of $51.71 (February 2023) and triggering a dangerously low level of market capitalization (below $5bn) that I for one never expected to see again after the worst of the 2008 financial crisis. Remember when Matt Levatich derided Polaris' $5bn market cap? From the lofty near $10bn perch it was sat on some 12 years or so ago? Hubris never has been an attractive look.

Without the injection of some serious horsepower into its financial performance, by the time you are likely to be reading this, the January 24 announcement will have dawned, and we will either be doffing our caps at the inscrutable, poker-faced wisdom of a very smart play, or waiting on the compound effect that a disappointing product range announcement and disappointing 2023 numbers will have on the share price.

Regardless of the positive talking points that may be able to be mined from the data, the headline figures will not be the kind that investors and their analysts, or dealers and Harley employees need as the Zeitz era starts to edge ever closer to the final year of its 5-year strategic objectives.

One more road to nowhere?

In February 2021, Hardwire was touted as a plan for "profitable growth and brand desirability," targeting "increased profitability and low double-digit EPS growth through 2025." Well, we are now past top-dead-center of the Hardwire five-year cycle and still awaiting and hoping for "the dawn of a new era."

When the activist 2019 investor triggered the boardroom coup that eventually saw Zeitz replace Levatich, I was an enthusiastic supporter of the change. Right up to a year or so ago I remained convinced that a plan that appeared to put brand desirability and shareholder returns ahead of unit numbers deserved an open mind. 

I never subscribed to the implicit perspective in the new plan that appeared to lay at least a portion of the blame for Harley's then malaise at the door of its dealers. However, there certainly were bigger-picture strategic issues to resolve before a sounder financial foundation could be built. One that would allow the company build a truly competitive and future-proof model range position for itself in the fast-changing global motorcycle industry, which it needed to face-up to.

Sadly, in the past 12 months I have found my faith wavering. I have found myself less convinced about the execution of what had appeared to be a robust plan. Less able to sustain the optimism I'd originally had about that plan. It has been starting to look shallow and short-term.

Long-term readers will remember me spending several years concerned that Harley was vulnerable to a hostile takeover, and that delisting might be the smartest play. 

Having already aired that concern once already in passing in the past year, for the first time since that 2019 changing of the guard, I do now find myself genuinely concerned that without the kind of impactful MY announcement and convincing set of fiscals that are required, we may well be headed back into that uncertainty.