Harley Davidson Has Far Worse Problems Than President Trump or EU Tariffs

Harley Davidson Has Far Worse Problems Than President Trump or EU Tariffs

On Monday, Harley Davidson, America’s leading manufacturer of motorcycles, announced it was going to open a plant in Europe.

Ostensibly this is to counter tariffs the EU will be imposing on its products if imported from the USA. President Trump reacted vociferously on Tuesday, threatening much bigger taxes on Harley if it brings to the USA any parts or motorcycles from its offshore plants in Brazil, Australia, India or Thailand. He also intimated that Harley Davidson was likely to collapse.

Lots of heat, not much light. The issues for Harley Davidson are far worse than an EU tariff.

Harley Davidson has about 1/3 of the US motorcycle market. But in “heavy motorcycles,” those big bikes that are heavier and generally considered for longer riding, Harley has half the market. Which sounds great, until you realize that until the 1970s, Harley had 100% of that market. Ever since then, Harley has been losing share – to imports and to its domestic competitor Polaris.

It was 2006 when I first wrote about Harley Davidson’s big demographic problem. Basically, its customers were all aging. Younger people were buying other motorcycles, so the “core” Harley customer was getting older every year. From mid-30s in the 1980s, by the year 2000 the average buyer was well into their mid-40s. In 2007, I pointed out that Harley had made a stab at changing this dynamic by introducing a new motorcycle with an engine made by Porsche, and a far more modern design (the V-Rod.) But Harley wasn’t committed to building a new customer base, so when dealers complained that the V-Rod “wasn’t really a Harley” the company backed off the marketing and went back to all its old ways of doing business.

Simultaneously, Harley Davidson motorcycle prices were rising faster than inflation, while Japanese manufacturers were not. Thus, as I also pointed out in 2007, it was struggling to maintain market share. Slower sales caused a lay-off that year, and despite the brand driving huge sales of after-market products like jackets and T-shirts, which had grown as big as bike sales, it was unclear how Harley would slow the aging of its customer base and find new, younger buyers. Harley simply eschewed the trend toward selling smaller, lighter, cheaper bikes that had more appeal to more people – and in more markets.

Globally, the situation is far more bleak than the USA. America has one of the lowest motorcycle ridership percentages on the globe. Americans love cars. But in more congested countries like across Europe or Japan and China, and in much poorer countries like India, Korea, and across South America motorcycles are more popular than automobiles. And in those countries Harley has done poorly. Because Harley doesn’t even have the smaller 100cc,200cc, 400cc and 600cc bikes that dominate the market. For example, in 2006 (I know, old, but best data I could find) Harley Davidson sold 349,200 bikes globally. Honda sold 10.3 million. Yamaha sold 4.4 million. Even Suzuki sold 3.1 million – or 10 times Harley’s production.

But, being as fair as possible, let’s focus on Europe – where the new Harley plant is to be built. And let’s look exclusively at “heavy motorcycles” (thus excluding the huge market in which Harley has no products.) In 2006, Harley was 6th in market share. BMW 16%, Honda 15%, Yamaha 15%, Suzuki 15%, Kawasaki 11% and Harley Davidson 9%. Wow, that is simply terrible.

Clearly, Harley has already become marginalized globally. Outside the USA, Harley isn’t even relevant. The Japanese and Germans have been much more successful everywhere outside the USA, and every one of those other markets is bigger than the USA. Harley was simply relying on its core product (big bikes) in its core market (USA) and seriously failing everywhere else.

Oh, but even that story isn’t as good as it sounds. Because in the USA sales of Harley motorcycles has been declining for a decade! Experts estimate that every year which passes, Harley’s customer base ages by 6 months. The average rider age is now well into their 50s. Since Q3, 2014 Harley’s sales growth has been negative! In Q2 and Q3 2017 sales declines were almost 10%/quarter!

As its customer demographic keeps working against it, new customers for big bikes are buying BMWs from Germany – and Victory and Indian motorcycles made by Polaris, out of Minnesota (Polaris discontinued the Victory brand end of 2017.) BMW sales have increased for 7 straight quarters, and their European sales are growing stronger than ever – directly in opposition to Harley’s sales problems. Every quarter Indian is growing at 16-20%, taking all of its sales out of Harley Davidson USA share.

Going back to my 2016 column, when I predicted Harley was in for a hard time. Shares hit an all-time high in 2006 of $75. They have never regained that valuation. They plummeted during the Great Recession, but bailout funds from Berkshire Hathaway and the US government saved Harley from bankruptcy. Shares made it back to $70 by 2014, but fell back to $40 by 2016. Now they are trading around $40. Simply put, as much as people love to talk about the Harley brand, the company is rapidly becoming irrelevant. It is losing share in all markets, and struggling to find new customers for a product that is out-of-date, and sells almost exclusively in one market. Its move to manufacture in Europe is primarily a Hail-Mary pass to find new sales, paid for by corporate tax cuts in the USA and tariff tax avoidance in Europe.

But it won’t likely matter. Like I said in 2006, Harley Davidson is a no-growth story, and that’s not a story where anyone should invest.

Better get an outside opinion – Tribune Corporation, Barnes & Noble, Harley Davidson


Blame Piles Up in Tribune Cos. 2007 Buyout” is the Chicago Tribune headline.  After months of research the bankruptcy judge has released a court ordered report on the transaction that left Tribune Corporation insolvent.  Apparently, lots of people were aware that ad demand was falling like a stone.  And that there was little hope it would recover.  But selling executives shopped for a valuation company until they found one willing to say that management’s projections were plausible.  Of course, they weren’t.  The transition from print to digital was well along, and the projections were never going to happen. 

What’s more startling is the hubris of Sam Zell to close the deal.  Apparently he too had doubts about the forecasts, but he went ahead and borrowed all that money to close.  That he would ignore all the market signals, and plenty of opportunities to obtain outsider input on the likely continued demise of newspaper ads, shows he wanted to close.  He wanted to control Tribune Corporation.  Even if it would cost him $300m.

Success Formulas are very powerful.  And successful entrepreneurs often have them so locked-in that there’s no other consideration.  Success, and personal fortunes, causes them to ignore external data, and external opinions, when they fly in the face of their historical Success Formula.  They want to apply it to a new business, and they are ready to go!  So damn the torpedos!  Full speed ahead! 

It’s too bad that our hero worship of successful entrepreneurs too often leaves them insufficiently challenged.  Unfortunately, a lot of people got hurt in the calamity that is now the Tribune Corporation bankruptcy.  Employees have lost pay, benefits and jobs.  Chicagoans have seen the paper get even smaller, and the amount of local news coverage decline.  And the city’s reputation has certainly not benefited. 

As much as people despise consultants, it would seem that Mr. Zell would have been a lot smarter to ask some bright strategists what the future was for the newspaper before abetting the close of such an onerous, and destructive, transaction.  Outsiders, including consultants, are valuable at pointing out the range of potential outcomes – not just the one that fits your Success Formula.  That’s why successful organizations use outsiders to help develop scenarios and study competitors, as well as design Disruptions and establish White Space projects.  Outsiders can help overcome Lock-in to historical assumptions, biases, prejudice and viewpoints in order to reduce failures and improve success.

And this is some advice hopefully Leonard Riggio will heed.  “Barnes & Noble Considering Sale of Company; Possible Buyers Include Founder Leonard Riggio” is the Chicago Tribune headline.  Barnes & Noble as an acquisition looks a lot like Tribune did 3 years ago.  Product sales (printed books) are in a free-fall as people choose alternative products – especially digital books and journals.  Books themselves are struggling to avoid obsolescence as digital publishing makes shorter format more valuable in many instances.  Brick and mortar shops focused on printed material – from bookstores to magazine/news stands – have been failing for 10 years – and in fact overall brick and mortar retail across the board has declined the last 4 years as internet retailing has grown.  The leading competitor (Amazon) has led the transition to digital, and is competing with an enormously successful tech company (Apple) for the future of digital publishing.  Barnes & Noble may have a fledgling product, but it’s about as competitive as a junior leaguer compared to someone on the Yankees! 

The Success Formula of Barnes & Noble, as created by the original founder, is obsolete.  And B&N is not in the game for where the marketplace is headed.  Just because he knew the business once, years ago, gives the founder no leg-up on resurrecting the company.  Contrarily, his background is a decided negative as he’s likely to attempt a “throwback” strategy.  Since the world goes forward, never backward, those simply don’t work.  We could expect lots of store closings, layoffs and inventory reductions – but the future of publishing has radically changed and will continue doing so, and B&N has little input on that outcome.  Amazon, Apple and Google (the largest purveyor of digital words through its search engine) are the giants in this game and B&N will get crushed.

And the city of Milwaukee should consider hiring some consultants, as should Harley Davidson.  “In Quest for Lower Cost Harley-Davidson Considers Leaving Milwaukee after 107 years” reports Chicago Tribune.  Harley would like subsidies, from its workers (unions) as well as the city and state, to keep from moving its factories.  But Harley’s problems are far worse than hourly wages for plant workers, and everyone needs to be careful not to get sucked into a Tribune Corp. deal of trying to save a floundering ship.

Harley Davidson’s product has been largely unchanged for a very long time.  Despite all the hoopla about tattooed customers, for 30 years competitors Honda, Suzuki, Kawasaki and Yamaha have been innovating and running circles around Harley.  Their businesses have grown. Not only by dramatically expanding their motorcycle products, but adding ATVs, snowmobiles, boat engines, automobiles, electric generators, yard equipment and a raft of other products (Honda even makes a commercial airplane!)  They have brought in millions of new customers, while Harley’s customer base is eroding – largely dying off as the average age of buyers has risen to well over 50!!

While competitors have pushed forward with new technology and products, and developed new markets and customers, Harley has tried standing still.  So, its now an historical anachronism.  Interesting to look at, and with some intriguing niches, but not really important to the industry.  Should Harley disappear nobody in the motorcycle business will really notice, because almost every competitor now has a Harley-inspired v-twin motorcycle they can sell.  Few people realize that most dealers make more money selling jackets and other Harley-Licensed gear/apparel than motorcycles! Harley’s days have been numbered since they let the v-Rod, a motorcycle with a Porsche engine, languish in dealer showrooms – allowing their “customers” to keep them locked-in to aging technology at ever rising prices (they typical Harley prices for over 2x the price of a comparable Japanese produced motorcycle.) Harley should have paid more attention to competitors a long time ago (instead of deriding them as “rice burners”) and a lot less attention to those very loyal – but diminishing in numbers – dealers and end-use customers.

All 3 of these companies, Tribune, Barnes & Noble and Harley-Davidson have great pasts.  But the risk is thinking that means anything about the future.  Tribune was fatally harmed by adding debt to a company that needed to refocus on new internet markets, then continuing to try to keep the old Success Formula operating.  Barnes & Noble is the last prominent brick and mortar book retailer, but there is little reason to think there will be a need for them in just 5 years.  And Harley-Davidson every year appeals to a smaller group of buyers in a niche market with aged technology and a tiring brand.  In all cases, caveat emptor! (Let the buyer beware!)  Before accepting any management forecasts, it would be a good idea to get some external opinions!