Endgame for Harley-Davidson
Outgunned, Outnumbered, Out of Time, and Out of Money.
To most North Americans and many people worldwide Harley-Davidson is an icon that enjoys a mythical status among fans and a reputation as a solid investment. But crushing debt, years of declining sales and a product mix at odds with changing consumer tastes mean its viability as an independent company is in question.
Since going public in 1986 Harley-Davidson stock has been a Wall Street performer. What makes the company valuable is not the qualities of its products but the power of the brand. One of the world’s most recognized names, the brand equity justifies extraordinary valuation and commands the fattest margins in the industry, around 35%. Harley is famous not for technology or performance but for the idea, ingrained by decades of pop culture and excellent marketing, of Harley-Davidson as the conduit of individual freedom.
The good times have been over since 2014 when both its stock price and deliveries peaked, thus beginning their long slide even as the global market for luxury heritage-style motorcycles grew. Now the company says it has a plan for future success. But it is realistic?
Foggy on all sides
Today’s Harley-Davidson is facing steep challenges on multiple fronts. The demographic shifts and erosion of baby boomer spending have been widely reported as the main contributor to the company’s softening demand. While true, Harley-Davidson’s brand and technological vision face the new reality of being out of touch with the zeitgeist.
Overall the bikes are presented as highly exclusive, with pricing far beyond the reach of most new motorcycle buyers. In an era when luxury brands are focused on hooking newcomers downstream, Harley’s attempts to make entry-level products have under performed against similar concepts from luxury motorcycle rivals Ducati and BMW.
Always deeply rooted in traditional design, Harley-Davidson motorcycles are technologically backward. The company’s V-twin engines, famous for their unique sound and feel, will not meet new stricter global emission control standards that come into effect in 2025.
Younger consumers are attracted to technological innovation and the perception of forward-looking brands. At a time when every competitor offers vehicles with a wide array of electronic rider aids and advanced safety technologies, such as electronic traction control and multiple power modes, Harley offers none.
Arrayed against Harley-Davidson are the much larger incumbents Honda Motor, Yamaha, BMW, as well as new competitors in the global luxury market such as KTM and Royal Enfield. All of these brands have experienced record growth during the same period that Harley suffered losses, come armed with products that enjoy better market fit, and are backed by vast amounts of proprietary technology.
Aware of these challenges, Harley-Davidson presented investors with a strategy that received a lot of positive media over the last year. But doubts persist. The aggressive plan depends heavily on R&D and business development in new areas where the company is weak or non-existent.
Shooting in all directions at once
According to the presentation, the company has mapped out a product plan that includes three new vehicle segments it has never competed in, including inexpensive small motorcycles for Asia, electric motorcycles, and electric bicycles.
Alongside these novelties they promise to completely overhaul their conventional luxury motorcycles with new offerings like the Pan America adventure tourer, the Bareknuckle streetfighter sports motorcycle, and a new platform for its traditional cruisers. These initiatives include at least two all-new combustion engine programs to cover a broad range of segments and price points.
As a motorcycle manufacturer Harley-Davidson has operated in its sheltered niche of cruisers and touring bikes, where design and engineering were less critical to success. As that corner of the market continues to shrink, attracting new customers will depend on entering other segments and going toe-to-toe against the giants of the industry.
Bringing a Pistol to a Mech War
Developing an all new lineup of vehicles and technologies that catch up to existing rivals will be capital intensive and pit them as neophytes against entrenched innovation leaders, all of whom have decades of in-market experience.
The idea that Harley-Davidson can compete directly, on merit, with mainstream motorcycle brands is pure fantasy.
Companies like Honda and Yamaha are orders of magnitude larger in terms of scale and benefit from technological advantages that cannot be overstated. Both already produce electric vehicles, possess self-balancing and autonomous riding technology, and file more patents than the rest of the industry combined.
Yamaha pioneered the e-bike in 1993 and is a powerhouse in that field with a 25-year head start. Motobot, an autonomous A.I. powered superbike, was presented in 2017. It can lap a race track within seconds of nine times world champion Valentino Rossi with no human intervention. The company has its own technology venture arm in California that has already invested into robotics, A.I. and electric mobility.
Honda is a global auto industry giant that also designs and manufactures jet aircraft, hydrogen fuel cell vehicles, formula one engines and is a leader in industrial robotics. Honda, along with other competitors BMW, Suzuki and Kawasaki, benefit from being motorcycle divisions of massive conglomerates which they can exploit for economies of scale and borrow technology from.
Against this, the proposed Harley-Davidson innovation center in Silicon Valley stands no chance. Catching up to the competition, much less leap frogging them, will take years and delivering actual marketable consumer products including them will take manufacturing expertise not found in the US.
Time for New Ownership
The storied American motorcycle manufacturer is facing an impossible task. It must simultaneously invent, deploy, and sell record-shattering volumes of new products against superior incumbents in markets it has never competed in.
Added to this the company weighed down by debt, much of it in long term loans to low credit consumers, and delinquency rates that are climbing past peak levels during the sub-prime mortgage crisis. A cashflow crunch of epic proportions is just on the horizon.
Harley-Davidson must navigate this deadly course without error, and hope that the global economy does not suffer a major crisis in the meantime.
Is it realistic to expect a company tied to tradition and with zero experience outside its protected market to manage a turnaround?
This illustrates the critical inflection point at which Harley-Davidson finds itself. These challenges present obstacles that, individually, would be formidable for even a strong organization to overcome. Combined and dealt to a weakened company they present a mountain too high to climb.
No American company has successfully been able to crack the entry-level vehicle market without external support. Just as Detroit had to leverage European and Asian partners to finally deliver competitive compact cars, Harley-Davidson will need foreign partners to deliver affordable and desirable motorcycles. There simply is no expertise or supply chain in North America to help develop the kind of lightweight, powered two-wheelers Harley is proposing to launch over the next few years.
As Harley-Davidson’s stock price continues to descend, the last resort may be to seek a buyer.
Even in its diminished state, Harley-Davidson presents an attractive acquisition target. In an industry filled with technological and sales over-achievers from Asia, brand allure and charisma are often lacking. As a division of a larger, more multinational organization Harley-Davidson could be the perfect companion. A luxury division that lends authenticity, cultural credibility and handsome profits to boost a mainstream product portfolio.
One thing is certain: Harley-Davidson cannot survive alone on its current trajectory. It is massively outgunned, outnumbered, and out of time. The good news is that the brand will survive regardless. The real question is, in what form? The next twelve months will decide.
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Michael Uhlarik is an international award-winning motorcycle designer with 20 years of experience creating bikes for Yamaha, Aprilia, Piaggio, Derbi and many others. A veteran motorcycle industry consultant and industrial design lecturer, he heads Motorcycle Global and co-founded electric motorcycle startup SURU.
He lives in Nova Scotia.
