Harley dealers turn to discounts

Milwaukee Journal Sentinel ^ | June 25, 2007 | RICK BARRETT

[BraveMan]

Harley-Davidson motorcycle dealers who have charged premium prices for bikes are easing back on the throttle as sales slow and customers wait for Harley's 2008 product lineup that's being announced in July.

American consumers are spending less in certain areas, including motorcycles, boats and all-terrain vehicles, Craig Kennison, a Robert W. Baird & Co. analyst, said Monday.

To assess current trends, Kennison recently surveyed 40 Harley dealers in the U.S. and Canada.

What he found was retail demand was weaker than expected. More bikes were selling below the manufacturer's suggested retail price, and dealers were discounting 2007 models to clear them out before the 2008 models arrive.

Among the surveyed dealers, sales were soft in April but improved in May and June. Nearly half of the dealers said new bike sales were flat (11%) or down (38%) April through June.

Some dealers are worried that the supply of Harleys is outpacing the demand, creating unhealthy competition among dealers, Kennison wrote in a report issued Monday.

"There is plenty of business for everyone. Unfortunately, many dealers have started discounting," one survey respondent wrote in Kennison's report.

For years, many motorcycle dealerships charged more than the manufacturer's suggested retail price for popular Harley models such as Softails and Road Kings. Some bikes were in such short supply that if one customer walked away, another would pay a premium to avoid waiting months for a new motorcycle.

But those days may largely be gone as many potential Harley riders refuse to pay over the manufacturer's suggested retail price for a motorcycle. In one survey, by Harley-Davidson, more than 80% of the people interested in owning a Harley said that having to pay more than the MSRP was a reason they would not buy a bike.

A buyer's market

Some Harley shoppers no longer have the patience for waiting lists, either. That's especially true for first-time buyers, who make up about 50% of the company's customers.

Higher dealer inventories give buyers more pricing leverage.

It's normal for Harley dealers to discount year-end motorcycles. Fifty-three percent of the dealers Kennison surveyed said new bikes were selling below the manufacturer's suggested retail price, up from 27% in March.

Dealers have stepped up promotions that include discounts, rebates and 2.99%-interest financing.

A supply glut could force Harley to reduce motorcycle production, a move that would hurt the company's earnings.

Kennison said a production cut could reduce Harley's 2008 earnings-per-share from his current expectation of $4.64 to between $4.20 and $4.40.

But high inventory levels, coupled with higher interest rates, could be bad chemistry for the dealers.

"Almost anything that's financed now has been suffering from rising interest rates. I personally wonder to what extent the subprime credit issues are affecting some Harley buyers," Kennison said.

Speculation about what bikes Harley will introduce for 2008, or model makeovers, is already in full swing.

Some possibilities include a V-Rod touring bike, a chopper-style motorcycle, a sport bike or three-wheeler, according to the dealers in Kennison's survey.

Harley recently filed for a patent for a three-wheeled motorcycle similar to the Bombardier Spyder.

The Bombardier trike has two wheels in the front and one in the back.

Some industry watchers have speculated that Harley might be interested in acquiring Ducati, an Italian motorcycle manufacturer.

Twenty-nine percent of the dealers in Kennison's survey said they would support such a move.

The average age of a Ducati buyer is 35, which is slightly more than 10 years younger than the average Harley buyer.

Last Friday, rumors surfaced on various Web sites that Honda Motor Co. was interested in acquiring Harley, boosting shares of the Milwaukee company but hardly having any impact on Honda's share price.

Monday, a Honda spokesman said the rumors were unfounded and that Honda was not negotiating to buy Harley.

A merger between Harley and Honda would be highly unlikely for regulatory reasons, since combined the two companies would capture 65% of the heavyweight motorcycle market.

In addition, a merger might spur a backlash by U.S. buyers upset about Harley being owned by a Japanese company, said Edward Aaron, analyst with RBC Capital Markets, in Boston.

Harley shares fell 3% Monday to close at $60.64.

[BraveMan]

A couple of points:

1. The V-Rod based touring bike is a no-brainer. Several dealers in the Wisconsin area are already rolling their own versions, some of which look pretty enticing.

2. HD aquiring Ducati would be a win-win for both firms, IMHO. Ducati would benefit from a strong dealership support structure in the United States (something they've historically lacked) and HD would benefit from an influx of race-bred sporting technology augmenting Buell's current contributions.

[BraveMan]

Could you please alert the Hooligans?

[napscoordinator]

Harley shares fell 3% Monday to close at $60.64.

Actually that is not too bad. I began buying my Harley stock back in 1995 or so and I believe it was around 33 dollars. I use the DRIP program and just send 50 bucks a month towards it. I guess now I am getting less than a share a month. lol.

[pikachu]

Ducati would be ruined by the Motor Company. Springer font ends on the new Supermotard and leather fringed saddle bags on the 1098 would probably be dictated by the boys in Milwaukee.

The new touring bike from Victory will probably kick the crap out of the Ultra line if HD is not careful.

[doorgunner69]

Some dealers are worried that the supply of Harleys is outpacing the demand, creating unhealthy competition among dealers,

Can't have competition now, can we?

And maybe demand is slowing as all the poseurs buying in to the "lifestyle" have become bored and moved on to the latest fad? This may be a blessing, forcing HD to move into the 21st century of design, which the V-Rod was a start, instead of wallowing in bogus imagery.

[Clam Digger]

Discounts on their main product line, clothing and bandana’s, or the secondary stuff like motorcycles?

[Hydroshock]

Oh well that is what you get when you make a technologically inferior donorcycle. Hopefully people are turning off of them to by better bikes.

[SFC Chromey]

1- I agree with the V-Rod. They need to start doing more with that machine.

2- Being a Duc owner, I have heard these rumors floating year in and year out for over 10 years. It isn’t going to happen. Also, what races have Buell won? Buell is a marketing gimic, even though I like their bikes- for the street- thay are definitely NOT racing machines. The last Buells I saw race AMA, broke their motors.

Leave it to Harley to be behind the curve. Fuel costs are making import bikes of all brands sell like hot-cakes. Harley’s are seen more as status symbols or trophies than practical transportation.

This situation is reminiscient of the 70’s when US auto makers didn’t change to meet the buying public car needs. To keep their sales up, Harley needs to look at making some changes.

[doorgunner69]

This situation is reminiscient of the 70’s when US auto makers didn’t change to meet the buying public car needs.

Or when the Brit bike makers did not respond in the 60's to the Japanese new bikes.

[SFC Chromey]

ezzzzzzactly!

[SFC Chromey]

One course may be a leveraged buyout, like what Texas Pacific Group did with Ducati a few years back. They listed Ducati ADR’s on the NYSE, and raised some solid amounts of cash. TPG recently sold their controlling interest back to key management and it is de-listing the ADR’s. It would be cleaner than the AMF-Harley days, in my view, because Harley’s names would stay front and center.

[Tallguy]

The V-Rod based touring bike is a no-brainer. Several dealers in the Wisconsin area are already rolling their own versions, some of which look pretty enticing.

I always thought the basic design of the V-Rod power plant was going to end-up on all, or most of the heavyweight bikes Harley produces. It's probably the only way to meet various emissions requirements that are ratcheting up the pressure on the 'Evolution Engine'.

[martin_fierro]

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[BraveMan]

To keep their sales up, Harley needs to look at making some changes.

To some, making some changes means becoming more like the Japanese. That would be a mistake, IMHO.

To the casual (read 'disinterested') observer, nothing much has changed at The Motor Company for the last decade, which is simply not true. They've steadily increased displacement (to 92 cu.in on the Big Twins) to keep up with the general rising displacement trend among the other manufacturers, gone to EFI across their entire product line, added (shudder) counterbalancers to the rigid mounted motor lineup (Softails, etc.) added integrated Bluetooth & GPS capabilities to their radio equipped touring lineups, reduced driveline maintenance requirements to near zero, etc. etc.

Why is it that Ducati can build essentially the same style motor for over thirty years and everybody hails it as a positive thing, yet when HD sticks with the V-Twin they're considered by the detractors as 'stone-age'? Is it simply their success on the racetrack in their own specialized class?

Yea, the Buells broke. Hey, they were doggone fast for a little while . . . ;0)

[BraveMan]

Actually, the Twin Cam air cooled V-Twin already easily meets the stringent 2008 California emmissions standards without any additional modifications (or add-ons like evaporative canisters, catalytic converters, etc.). It’s the Japanese and the smaller manufacturers that are having the difficulty meeting the standards . . .

[tacticalogic]

I think anyone could have seen it coming just by paying attention to the classified ads in the newpaper. Not long ago, a used Evo for sale was rare, and the buyer was always asking top dollar.

[Tallguy]

Thanks for the correction on the V-Twin emissions. I was just passing along a comment that I had heard when the V-Rod watercooled engine hit the market. Probably somebody figuring that watercooled had to be superior in terms of tighter running clearances, etc. Made sense to me.

[MarkL]

Why is it that Ducati can build essentially the same style motor for over thirty years and everybody hails it as a positive thing, yet when HD sticks with the V-Twin they're considered by the detractors as 'stone-age'? Is it simply their success on the racetrack in their own specialized class?

Because with tweaks, the Ducati works really, REALLY well, more than 30 years later. While Ducati has pulled out of AMA racing, they practically own World Superbike, even with the rule change that allows the 1000cc 4 cylinders (used to be limited to 750cc).

Can't really say that about Harleys. The new designs are better than the old ones, but they've required major redesigns.

Mark

[BraveMan]

Ya gotta love analysts and consultants. Putting a price on common sense . . .

[pt17]

...instead of wallowing in bogus imagery

LOL, I get confused as to who's wallowing in bogus imagery, HD, the poseurs or both. Regardless, they all look the same around here with their HD duds, beanie helmets, scowl on face, overly-loud mufflers and riding like they have hemorrhoids and/or half a brain. The newbies seem to go for trying to make some fashion statement with the leather chaps, jackets and vests, even in 80 degree weather. If follows that these folks might eventually tire of playing dress up.