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 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?
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.
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.
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
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?
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!!!!!!!!.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The headlines generally favored Tuesday being another good day for the stock market. Instead, it was just a mixed day with modest point changes on either side of the unchanged mark for the major indices.
For the most part, the stock market was a sideshow. The main trading events were seen in the commodity and Treasury markets, both of which saw some decent-sized losses within their respective complex.
Dollar strength was at the heart of the weakness in ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'