Harley Fights Cheap Asian Bikes by Making Fewer Hogs
The motorcycle maker is still persuaded that less is more
By Kyle Stock - Jul 21, 2015, 9:50:16 AM
2014 Harley-Davidson Ultra Limited motorcycles at a dealership in Ottawa, Illinois.
Harley-Davidson, which typically clings to market share like damp leather on a middle-aged biker, said on Tuesday morning that it would continue to restrain motorcycle production while the dollar remains strong. This is an uncommon and prideful strategic turn, and it’s weighing on results.
Motorcycle revenue at the company dropped by 10 percent, to $1.7 billion, in the quarter ended June 28 on shipments of just 85,172 bikes, almost 8 percent fewer than in the year-earlier period. Profit slid 15 percent, to $300 million.
The frustrating thing for Matthew Levatich, Harley’s new chief executive officer, is that consumers are really into motorcycles these days. In the past six months, registrations of new "heavy bikes" in the U.S. surged by 7.6 percent while those in Europe jumped by almost 10 percent. In a recent interview, Levatich shrugged off rising competition from domestic brands such as Polaris’s resurgent Indian line. The problem, he says, is the strong dollar—specifically, Asian brands that are slashing prices in the U.S.
“We’re poised to perform as never before—and then, whack: currencies,” Levatich tells me.
Here’s where foreign competitors have an edge: A single U.S. dollar now buys 23 percent more yen than it did a year ago. Take a Kawasaki Ninja 300 that sells in the U.S. for around $5,299. A year ago, that would have translated to ¥537,319 yen; the same price today commands ¥659,037 yen. A company such as Kawasaki can pocket the difference or cut prices and make the same return. “They automatically have a 20 percent to 30 percent gift in their [profit-and-loss] statement,” Levatich says. “Some Japanese brands simply repriced entirely.”
Harley’s decision not to slash prices in turn, is a bit of swagger, a subtle way of saying: Our bikes are better. It also aligns the company with current Harley owners, as a dip in sticker prices would dent the resale value of used bikes.
Investors, meanwhile, seem sanguine about the plan. Harley beat expectations this morning and the stock is surging. Still, things may get worse for Harley before they get better. Levatich said that his currency hedges will slowly unwind over the next few months, leaving the company even more exposed to Ninjas.
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