Harley Davidson’s Financial Future

Harley Davidson 2017 models
Harley has offered deep price cuts and incentives to reduce their 2016 inventory

**Updated 7/21/17

Harley Davidson Motorcycles

HOG stock (Harley Owners Group), has dropped substantially this quarter and the iconic motorcycle manufacturer predicts shipments may drop by as much as eight percent.

Also, it seems layoffs are unavoidable. Although, the numbers seem to be relatively low at 180 jobs, areas that are likely to be affected are Kansas City, Missouri, and Milwaukee, Wisconsin.

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Harley-Davidson motorcycles sales fell 9.3 percent in the U.S. and 6.7 percent globally from the same quarter last year. Motorcycle shipments for the second quarter fell 7.2 percent from last year’s second quarter. In addition, Harley forecasts that motorcycle shipments may drop as much as 20 percent in the third quarter when compared with the same period a year earlier.

Harley Motorcycle stock

Pundits keep blaming millennials, stating they are not riding as much as prior generations, however, Harley Davidson disagrees. They believe millennials are buying motorcycles, but just different brands, styles, and cheaper bikes. There also seems to be a new market for used motorcycles.

“Plenty of millennials ride motorcycles,” said President and CEO Matthew Levatich. “A lot of the data that is easy to get is new motorcycle sales, but if you look at that used market place, there are plenty of millennials that are riding, and it’s up to us to inspire even more them to ride and to engage with Harley-Davidson’s products and experiences and the strategy that we had laid out.”

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Harley has responded with making cheaper and lighter motorcycles, and currently has nine models available that retail for less than $12,000. Honda has also noticed the trend and is also making cheaper/lighter bikes, even skipping the chrome that is beloved by the older riders. Harley Davidson owners tend to be older, male, and politically conservative according to YouGov. But, if you know anything about Harley Davidson, you already know that to be true.

Because of these reasons, manufacturers are looking away from traditional motorcycle rallies like the Sturgis Rally, and instead looking for a younger, hipper crowd, made a presence in Coachella. If you have been to Sturgis and other motorcycle rallies, you will notice that the crowd definitely seems to be older.

In addition to different styles of motorcycles, Harley continues to believe the answer lies overseas and is building a factory in Thailand. Click here for a prior blog and video interview of Harley CEO Matt Levatich regarding import tariffs.

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Another problem for Harley is that general merchandise sales dropped 17 percent and in the first quarter, it had dropped 21%. That exceeded the decline in sales for parts and financing. However, it should be noted that merchandise is a small part of their revenue at 5%. Regardless, it may be indicative of a trend.

harley stock forecast, bloomberg harley davidson
Harley Davidson projections

So far this year, registrations of the larger motorcycles has also declined by almost 7 percent. Fact is, motorcycle sales dropped 41% during the Great Recession, and unlike the car manufacturing industry, it never picked up again.

Motorcycles are a luxury, requiring disposable income, and no matter what, I believe financially the U.S. is not doing well especially with changes ahead in manufacturing jobs.

One interesting statistic is the 30-day delinquency rate on $7.5 billion in motorcycle loans outstanding rose to 3.25% from 3.16% a year ago and from 2.7% in the second quarter of 2015.

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The millennials no doubt have affected the market, but that is no different than saying baby boomers also changed every market for decades. I have seen the effect of millennials with another hobby of mine; golf.

Golf courses continue to close at a record pace and millennials do not want to play four hours of golf. The way I see it, remember, this is a generation that grew up with a short attention span due to the internet and social media. It is hard for advertisers to capture their attention now more than ever. Think about it, you can skip cable, and never see a commercial and that of course presents challenges to any advertiser.

Driving ranges in some cities are designed more to “hang out” now. Large comfy sofas under a roof while hackers take a swing and try to land on markers for points and make a game out of it instead of trying to improve their skills on the course. Millennials love playing golf virtually, and that is where the shift is towards to now.

Harley Davidson has faced tough times and uncertainty before. They have always bounced back. Even now, there are rumors of Harley looking to buy Ducati.

Fact is, markets change all the time and with each new generation, comes a new trend.

MC Atty

Update-

Harley Davidson was fined by the EPA $15 million dollars in violation of the Clean Air Act. The lawsuit was based on the Screamin Eagle Super Tuner. However, since Harley announced the layoffs, the U.S. Department of Justice has dropped the penalty of $3 million.

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