Harley-Davidson: No longer for rich white men

The company has begun targeting young, urban buyers instead of open-road enthusiasts. But it's also choosing volume over profit, which could be a concern.

By Motley Fool Nov 18, 2013 1:40PM

Credit: © Andy Mahr/Harley-Davidson Motor Company/AP

Caption: Harley-Davidson’s new Street 750 modelBy Rich Smith


"For most of its 110-year history, Harley sold motorcycles as fast as it could to customers it knew well: wealthy, middle-aged American white men." -- Bloomberg


Want to buy a motorcycle? Don't have a lot of cash to pay for it? Then has Harley-Davidson (HOG) got a deal for you!

As Bloomberg points out, Harley-Davidson has historically been a big bike company. My Foolish colleague Rich Duprey writes: "[W]hen you think of a Harley, a big 1,440cc engine is what comes to mind."


But to great fanfare, highway-hog Harley recently unveiled a pair of new street-bikes that could seriously change the company's image as a builder of bikes for "wealthy, middle-aged American white men."


The new Street 750 (pictured) and Street 500 bikes both depend on a new motorcycle platform that the company developed to target prospective buyers globally, and young, urban buyers in particular. Both bikes hew to the company's new Dark Custom line, and are geared to an urban -- rather than an open-road -- riding environment.

Variously described as "nimble" and "lightweight," the Street bikes feature smaller, liquid-cooled engines (749cc for the 750, 494cc for the 500) dubbed "Revolution X." They're also lower to the ground (25.4 inches) than usual for Harley-Davidson bikes, and lighter to boot (just 480 pounds). A standard Softail Classic, in contrast, would be nearly 2 inches taller, and close to 300 pounds heavier.


Even more important than their size, though, these new Harleys come with a price tag that won't strain consumers' wallets -- only $7,500 for the Street 750, and a mere $6,700 for the Street 500.

Priced to move
The low price points on these bikes are significant for a couple of reasons. First and foremost, they indicate that Harley-Davidson is moving out of its comfort zone, and gunning for volume -- both at home and abroad. As with the new ultra-cheap "Grom" bikes that Honda Motor (HMC) recently began marketing, the introduction of an entry-level Harley may attract more buyers to the brand here in the U.S. -- buyers whom Harley may be able to upsell to its bigger bikes over time.

More importantly, Harley-Davidson has clearly placed a bull's-eye on the international market with these new bikes. The company took a lot of time figuring out how to target foreign markets, surveying more than 3,000 prospective buyers in 10 countries, and focusing on urban markets not just in locales such as Chicago, but also in Mumbai, Sao Paulo, and Tokyo abroad.

The reason: As recently as 2003, Harley-Davidson was getting only 17% of its revenue from abroad. The company has grown that by more than half over the past decade but still only does about 29% of its business outside the United States. With the Street line to work with, Harley hopes to diversify even more internationally, growing foreign-sourced revenue to perhaps 40%.

Price for profit?
It may well succeed. At prices as low as $6,700 a pop, buying a bike from a respected brand name like Harley-Davidson should be an easy decision for foreign buyers to make. The question for prospective investors, though, may be a bit harder.

It stands to reason that Harley-Davidson can sell a lot more bikes for $6,700 apiece that it could at $17,699 or $18,349 -- the starting prices for the Fat Boy and Softail, respectively. But even sales success could pose a risk to Harley. Honda's cheaper bikes, after all, only earn that company an operating profit margin of about 8.2%.

Granted, even Harley-Davidson has a couple of models selling for below $10,000 -- the Superlow and Iron 883 sportsters, both of which cost $8,000 and change. But the new Street bikes will be selling for almost 20% below that. With Harley-Davidson now aiming to sell more and more smaller, cheaper bikes -- enough to rev up international revenues from 29% to 40% of its total -- there's a risk that profit margins will suffer.


Will a $6,700 price tag be cheap enough to attract enough buyers for Harley-Davidson to "make it up on volume"? Or in capturing market share at the low end, will Harley succeed only in shredding its current market-leading 19.5% profit margin and moving closer to Honda-levels of profitability?

Stay tuned.

Tags: HOG
103Comments
Nov 18, 2013 3:00PM
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Funny how msn can profile  "rich white men " but then condemns profiling of any other race as racist .
Nov 18, 2013 2:45PM
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Racist article......ohh never mind.  You can't be racist towards white men.
Nov 18, 2013 2:13PM
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It may work out for them in the future only if they put out a good quality product. If a younger rider gets started on the cheaper bike and has a good experience with the company then they will be more likely to upgrade when they get older.

 

If these bikes end up being crap then they lost any future customer.

Nov 18, 2013 2:32PM
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Harley-Davidson has forgotten who got them through the lean years. They now cater to "yuppie" biker wannabes. Hopefully, this won't be a repeat of the AMF era and winds up being a good bike. I miss the small dark Harley shops of days gone by.
Nov 18, 2013 4:42PM
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So msn , is it ok then to say most  lowriders with 8 TV's mounted in various places are driven by black or Hispanic  men ?
Nov 18, 2013 5:45PM
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My motorcycle budget is now my health insurance budget
Nov 18, 2013 2:48PM
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Now that Indian is back, Harley sees they NEED to change. The days of over pricing has to come to an end. Harley knows they are not the only "American" made bike anymore, Victory and Indian are taking a big bite out of their bank account now. You can get a full dressed Indian Chieftin with more on it at the base price than the street glide.

 

NO, I don't work for Indian, I just ride one.

Nov 18, 2013 5:59PM
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The Harley as a "rich white guy" bike is funny ... Clearly they have never been to a BMW club meeting.
Nov 18, 2013 3:30PM
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Parts made in India and Vietnam, yes they are. Just because they are assembling them in Kansas City doesn't mean they are "made in the USA". I used to be an engineer in that plant there. They were setting up a plant in central America back in the late 90's and courting the Asian countries for manufacturing back then. They are now fully committed to manufacturing there.
Nov 18, 2013 3:23PM
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This looks like a redefined Sportster. Not that there is anything wrong with a Sportster but a lot of people start out with a Sportster and then find in a couple of weeks or months they want and need a bigger bike. The market is flooded with sportster and i bet they find this happening to the 750 as well. This is a mistake from a marketing standpoint, but just my opinion being a Harley rider for almost 40 years.
Nov 18, 2013 4:30PM
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I always get a kick out of the bike/car chases in Sons of Anarchy  - the bikes can barely get away from an average sedan or SUV or volkswagon

Nov 18, 2013 4:00PM
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Harley is a publicly traded company and they must do what it takes to return the best profit for the owners.  If this sells then it is a good idea, if not, they must try something else or they will not survive the change of generations of bike riders.  EZ Rider (which I like and grew up with), is gone or at least disappearing.  New riders are demanding different bikes.  Our cars have evolved and we have more size choice, why not in a Harley.  Remember, Harley use to make small racing bikes and were a top choice for many racers decades ago but they failed to keep up with the competition and were forced our of racing.  Better to evolve and accept change than to continue manufacturing an outdated bike that does not sell.  If Harley made a quality scooter or a small motorcycle with an automatic transmission they would sell even more to urban and young people of both genders.  Not all riders need or want a half ton mega CC bike to ride.
Nov 18, 2013 5:54PM
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I've been riding Harleys for 23 years. They're a great bike, not because of high performance, or because they're problem free, but because they look, sound, and feel like a real motorcycle should. They're built solid, steel and chrome, they're a rugged bike.

 

 If Harley can make a smaller machine with those same qualities they'll have a winner. If they make a bike that's cheaply built, with more plastic than metal, and an engine that's basically disposable, then throw a Harley sticker on the tank, it won't sell. They tried that in the sixties with Aeromachi (an Italian small bike maker) and it was a flop.

 

Looking at the photographs of the new bikes isn't promising. The first thing I see is an ugly plastic shield covering the entire area of the front frame down tubes, who would want that? The second strike is that the new "Harleys" will be made off-shore for the foreign market. If the appeal is supposed to be the famous American bike's name, but it's m****duced outside America, how many people are really going to feel like they are buying a real Harley?

 

No, I think this is a disaster in the making for Harley, and shot in the arm for the new Indian.

I guess we'll have to wait and see.

 

As for the "racist" rich white men comment, I see "rich" black, and Hispanic men riding Harleys too. What's with that? 

Nov 18, 2013 4:58PM
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Harley rider 4 about 40 years. SHOP OWNER FOR THE PAST 20. That SAID To HELL WITH THE "COMPANY" AND 80 present of HD owners today a bunch of Crybaby at best. O and the new bikes are not a Sporty Type its a Baby V-ROD!      ITS ALL ABOUT DOLLARS
Nov 18, 2013 5:42PM
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I have to agree with Arizona Rider that Victory and Indian are taking a huge bite out of Harley's bank account now, Harley HAS to wake up and invent a cheap way of capturing another crowd of people to sell to,.. just like the automotive industry did many years ago making and selling smaller vehicles that didn't last and or hold up.  

80% of Harley's parts are made in China, Singapore, India and Vietnam or some other Asian country. Look on the parts packaging the next time you buy a part from Harley. I own and ride a Honda Valkyrie which is made and built here in the USA in Ohio. The only part not made here is the crank shift. So I would have to agree with jack nj and his comment about the Valkyrie being comfortable, powerful, and reliable and eating Harley's for breakfast......tooth pick please!!!!!!!!.

Nov 18, 2013 4:59PM
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I think just  to have a "Harley" will attract the younger crowd.
Nov 18, 2013 4:33PM
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the writing is on the wall, change with the times or be left behind. everybody is trying to stay strong in this economy and out sourcing products is now the norm, the bottom has fallen out for older H-D's now and you can buy a new bike easier than a used one. the bank will loan on a new one but not a used one. H-D is right in there thinking, put them on a Harley with there friends and they well buy another  bike when they get older, but you have to get them on "A" bike to began with before you can sell them on that next one. yes every... EVERYBODY knows someone that once rode a H-D in the past, and everybody that has every looked at owning a H-D in the past has always wanted to say they had one at one time or another so why not now...a chopper, no.... an old man's bagger... not to start out on.... but to say "me and my friends rode out to the lake over the week end.. yea, on our harley's".... on Monday morning at work.. you bet. Sturgis and Daytona are for the weekend rider the holy grail of biker life.. and most of them are hard working white guys living the life. 
Nov 18, 2013 6:08PM
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HD hopefully has completed their analysis with some reality in mind. It is possible that the new bikes will open new markets and segments that will not cannibalize their traditional market. If these new HD owners step up to the bigger bikes as they great older or wealthier than HD will do well.
Nov 18, 2013 8:42PM
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I didnt know I had to be wealthy to buy a harley.

Nov 18, 2013 8:38PM
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I have been a rider for 50 years with various bikes.   Now with my first Harley, i understand that it is not a bike, it is a club.    I owned a beautiful 1200 Yamaha with almost too many custom features to mention, and nobody noticed.   With my stock Road King, I get complimentary comments everywhere I go.   A stock Harley is better than any custome bike, or any metric bike (which are admitedly much faster and much more reliable).   Harley is just the clasic, like an old corvette.
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