St. Louis, MO
Posted - 03/04/2011 : 1:29 PM
In the early 1980s Harley was in a very similar position as they are today: The economy was in a recession, motorcycle sales had plummeted and Harley was in dire straits. In 1981 thirteen senior executives bought out Harley-Davidson's owner AMF and, like today, engaged in massive restructuring. But that wasn't enough to turn sales around.
That's because restructuring addresses the business of running the corporation but can't create consumer demand: money saved is not money earned. As in the 1980s, so in 2010-sales did not pick up and, in fact, plummeted.
Back in the 1980s, Harley got the federal government to institute a punishing tariff on foreign motorcycles. But that alone wasn't enough to up sales either. Tariffs can shift existing demand to the favored corporations, but only if the protected industry is not too inferior to the penalized foreign ones. And, at the time of the takeover, Harleys were perceived to be inferior by a great many motorcyclists because of its terrible reputation for mechanical problems.
So much so that the brand was the butt of jokes such as "Why are so many Harleys still on the road? Because the tow trucks haven't arrived yet." That reputation affected consumer demand beyond the effect of the recession.
Over the next several years, Harley embarked on a series of dramatic technological advancements-the 1340cc V2® Evolution engine and a superior powertrain as well as rubber-mounting among other innovations. They also fixed perennial problems like oil leaks-and sales increased so much so that Harley petitioned the feds to allow the tariff to lapse two years early. But without that tech fix, the tariff would've had little effect.
Iow, consumers didn't care how the company was run; they cared about how the motorcycle ran. And that's what separates yesterday from tomorrow when it comes to H-D's current troubles: the bike is reliable (enough) nor are there any cutting-edge technological advancements that the core is demanding. Iow, there's no ready way this time to improve the product to increase demand.
Style also works against Harley's resurgence now: In the mid-1980s, Harley also introduced a new model, the Softail, which was very much like earlier Harley models, and then the Heritage Softail. which recalled the famous Indian motorcycles-particularly the Chief.
That typifies Harley design since then: In the 1990s, the Motor Company took a cautious step toward modernizing design by producing the V-Rod.
When that failed to attract many riders, they slightly changed it to the Street Rod, which also failed to make a significant impact. Harley swiftly returned to their endless variations on past glories. Witness how Harley's website describes two of the three latest models:
the 2009 two-wheeler "the history-inspired Cross Bones, a bobbed factory custom," and the 2010 XL Forty-Eight that recalls "the raw, custom Sportsters of earlier days."
Iow, Harley's design is, in a good friend's words, "putting their boots on backwards to stumble forward into the past."
And that's just what Harley's base wants-more of the same with just enough little changes that one year can be distinguished from another-by the faithful and few others. Baby Boomers identified with Harley's iconic American corporate mythology, and the rugged individualist achieving the American Dream mythology the motorcycle symbolized.
Fear of alienating the base has prevented the Motor Company from reinventing the brand to appeal to a changing society. For example, many dealers refused to carry Buell motorcycles because even though Harley owned Buell, it was not a Harley. Harley fanatics have a strong, inflexible image of what the brand is-and isn't. And it isn't a bike that looks un-American since the "sport" look is associated with the bikes made in Japan or Europe.
In this way, the famous Harley brand image is both the best and worst thing that happened to Harley. It was responsible for the phenomenal success of the corporation but keeps it frozen in a time that's increasingly irrelevant to not only younger generations but older men and women (and minorities).
Consider it this way: Not everyone likes a cola. What if Coca-cola only could produce variations of Coke? By diversifying with Sprite, Barqs, Canada Dry, Crush, Dasani, Minute Maid, Nestea and Gold Peak iced teas and four hundred other varieties of beverage (including Barcardi mixers), there's something for everyone. And Coke fanatics don't mind, nor do stores that carry Coke. This provides multiple revenue streams, protection against market swings (like the growing aversion fad for carbonated soft drinks) and more.
But for some strange reason, Harley is not Coca-cola: In the 1960s when Honda Super Cub were selling like crazy, H-D's foray into selling scooters failed. That same year it founded Aermacchi Harley-Davidson to produce small single cylinder motorcycles in Europe. Fail. The three-wheel Servi-Car. Fail. H-D snowmobiles. Fail. Making engines for lawnmowers. Fail. The move into RVs with Holiday Rambler Corporation. Fail. Buell. Fail. MV Augusta. Fail.
For almost 50 years every single attempt to diversify[i] has been unsuccessful no matter who ran the corporation. Since Harley's major competitors, Honda, Suzuki, Kawasaki, Yamaha, Polaris and BMW, all have successfully diversified-and drawn their bases to their other products-this is a singular mystery. But it's one analysts should consider: What happens if Harley loses its base?
Or rather, when Harley loses its base. The average Harley rider is now closer to 50 than 40-and 40 is considered old by younger people. This has a double whammy for the Motor Company:
The visuals are negative-the more older riders seen on the roads on Harleys, the more Harley is seen as the Geezer Ride. That will not appeal to younger riders nor to those new motorcyclists over 40 who want to ride to feel younger-not older.
But it has another effect: Several years ago, BMW-who shares the well-off, white collar worker demographic with Harley-found out that riders buy their last new motorcycle in their early 60's.[ii] Iow, a great many of the Harley Faithful have bought their last bike or are about to-and worse still, every year more of them are passing that "last bike" milestone. Since the last Boomers turned forty in the late 1990s, it's a trend that will accelerate as the bulk of the Boomers hit 60-years old in a couple years. Iow, even if H-D miraculously attracts a great number of young people in the next few years shipments may only stay even with 2007 results and not grow. And that's something analysts should consider: very soon, it will take a phenomenal number of new customers to produce modest growth.
But to attract young people the Motor Company has to overcome the Geezer Factor and make its hallmark yesteryear styling relevant to a society that values speed, flexibility, daring and ability to adapt quickly-none of which are associated with their products. Buell-despite it having the "old-fashioned" Harley engine-did appeal to younger riders and those who wanted to be thought of as younger. But Harley treated Buell as if it was a sideline like the pathetic Topper scooter or lamentable snowmobile rather than the path to a vibrantly growing future.
Iow, the kind of turnaround the Motor Company experienced in the 1980s is highly unlikely in the second decade of the new millennium. Unless Harley finds a way to brilliantly reinvent their line, Harley-Davidson literally may be a dying brand.
[i] Except into making motorcycle loans and selling them to Wall Street investors.
[ii] BMW promptly began designing motorcycles that would (and have) appealed to younger riders. Harley, has failed not only with a younger design in their main product line but with the more youthful Buell style.