Harley Davidson Executives, Investors Wear Generational Blinders 23 comments
-
Font Size:
-
Print
- TweetThis
Harley Davidson Inc. (HOG) yesterday reported an 84 percent plunge in third-quarter profits and announced the dissolution of its Buell line of specialty sport motorcycles and the sale of its MV Agusta division in order to focus its resources on its namesake brand. Harley Davidson CEO Keith Wandell said the return from the sale of an MV Agusta or Buell is far less than the return the company gets from a Harley Davidson, and that “we’re going to be able to grow the company more quickly ... by investing in the power of the Harley Davidson brand.” According to the Wall Street Journal, Wandell admitted that both Buell and MV Agusta have a strong following, but that those divisions were “diverting investment dollars away from the Harley brand to support those brands.”
The shares rose almost 5 percent on the news, and were up another 3 percent in this morning’s trading, but we wonder if investors have considered how the company plans to generate these greater returns when the Baby Boomer generation that makes up the vast bulk of its customer base is rapidly aging out of the market, and the generations following do not seem to share the same affinity for the iconic brand.
On a price to sales and price to book ratio one can see from the chart below that Harley Davidson is back to the levels of the late 1980s. With the average age of a Harley owner at 47 years, the difference now is that unlike the period 1990 to 2002, the company is no longer mining the demographic growth market of the large Baby Boomer generation. So, not only is the company’s potential market base growing smaller due to the smaller size of the oncoming Generation X, its growing smaller because the oncoming market base has displayed little inkling that it even likes the product.
Source: Ned Davis Research
In short, we feel that the company is making a big mistake in divesting itself of two brands that have far more appeal to younger generations than the Harley Hogs, and that company executives, as well as investors, have blinders on with regard to the multi-generational earnings power–or lack thereof–of the Harley Davidson brand.
How many people under 40 do you know who own or want to own a Harley Davidson Motorcycle? We know of none, and an informal poll of friends and family turned up none, which is not saying a whole lot because the aforesaid informal poll certainly lacks statistical significance. However, anyone giving any consideration to investing in HOG should conduct their own informal poll because those 40-and-under-year-olds are Harley Davidson’s fast approaching future market, and early indications suggest this future market doesn’t give a fig about Harley Davidson. However, ask an under-40-year-old motorcycle rider if they’d like to own a Buell or an MV Agusta, and the response will likely be quite positive and in some cases may even induce a Pavlovian response.
The stock price action would suggest that we do not know what we are talking about; however, demographic change does not happen overnight, as it’s a relatively slow progression, kind of like the Harley riders of today slipping into old age and out of their Hogs and into golf carts and wheel chairs. As this comes to pass, Harley Davidson is going to see significant sales declines if the incoming and younger generations don’t buy into the Harley Davidson brand.
And Harley Davidson’s earlier success was built on a brand, the branding of the outlaw biker. In the 1960s and ‘70s the Harley Davidson logo was signature wear for the “Hells Angels,” other biker gangs, and bad-boy wannabes–relatively rare and thus “cool.” Today the logo seems almost ubiquitous on middle-aged and elderly bikers, who wear far more black leather and sport shinier chrome on their Harleys than any Hells Angel ever did. The once cool, outlaw-style logo has been homogenized, and is about as outlaw and cool as the Walt Disney (DIS) logo.
Harley Davidson has been seeing significant sales declines since 2006, and the CEO reported that it will “bump along the bottom through 2010,” but suggested that the company’s “strategy,” cost-cutting efforts, and overseas opportunities position it for future growth.
We believe that a rebounding economy will help Harley Davidson for the short term, but feel that demographic headwinds will prove detrimental to the company’s long term future unless it accounts for the younger generations (please see our July 17 Seeking Alpha article). With the boot Harley is giving to Buell and MV Agusta it appears that executives aren’t giving full credence to younger generational tastes quite yet, but at least they still have a bit of hope with the V-Rod model.
Oh, and speaking of overseas opportunities, Harley Davidson executives believe that India and China represent great opportunities and plan to significantly boost the company’s presence in both countries. Let’s see, Harley Davidson primarily makes big, in many cases really big, production motorcycles. People in China, and even more so, India, on average are among the world’s shortest people. There’s just something not right about this picture.
Source: Wikinvest
Disclosure: No Positions.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 23 comments:
Are we allowed to talk about groups of people being smaller and less able to ride large motorcycles? Someone once picked a fight with me when I posted something similar.
Bad Move...
Why is HD cutting off it's nose to spite it's face?
Buell has grown over 25years and is still profitable!
Buell brings in the youth and people of all ages that want an American made Sport Bike!
Bad Move...
Why is HD cutting off it's nose to spite it's face?
Buell has grown over 25years and is still profitable!
Buell brings in the youth and people of all ages that want an American made Sport Bike!
Harley-Davidson Incorporated refuse to sell Buell Motorcycle Company for what seems very disingenuous reasons, claiming that the brand is too much a part of the Harley brand to allow them to separate it. That is pure baloney.
The newest line of liquid cooled Buell motorcycles, the 1125R and 1125CR, contain ZERO content from Harley-Davidson Motor Co., and the rest of the Buell line only uses a Harley-Davidson manufactured power-train.
HDI could very well mandate that Buell be entirely operationally separated from all other HDI concerns to proceed on as a stand alone entity. Erik Buell and Jon Flickenger and other key personnel at Buell would absolutely find a way to soldier on toward ever more success. In fact, doing so may well allow greater opportunity for growth as one of the factors hindering Buell sales is the poor attitude towards Buell motorcycles at many H-D dealerships.
Let Buell control their own distribution and dealership rights, let them control their own parts and accessories, and their own customer service. They will thrive!
HDI needs to get honest, do the hard work, and find a way to keep Buell alive.
Even more frustrating is that Buell is poised on the cusp of very likely doubling its market share in the next year or two. The 2011 Buell lineup reportedly was to include a ground-breaking new model that looked guaranteed to set the hard core high-end sport biking market on fire.
It is very disappointing to see such short-sighted reactionary behavior from HDI. It's more disappointing to see them intentionally murder what is one of the most innovative and promising motorcycle companies in the world today.
Shame on HDI. But they can turn this around if they can do the right thing, find honor and integrity and find a way to keep Buell alive!
If they don't they will be losing around 100,000 potential customers. The numerous Buell enthusiasts at the web's most popular Buell Forum, BadWeatherBikers.com, are speaking in unison on that count.
I am always amazed that the average age of the car owners and spectators is in the late fifties to mid sixties. I keep asking my friends what will happen to these cars when their owners die?
I would imagine that these guys are also the ones keeping the Harley name alive. However, many of them desire custom versions of older models which does not add to Harley's sales.
As the early boomers become sickly or die, I would imagine the mystique of the Harley name will fade away.
Think the Buell decision is a very shortsighted one, especially the suggestion that Harley won't sell the brand: there are a few options that could be explored with both XB and the new Helicon engined models that wouldn't impact Harley - in fact would potentially save much of the $115 million they're expecting to lose by discontinuation of the line. Harley have never fully understood the Buell psychology, and it has never been successfully marketed to its strengths - at least, not over here. A perfect opportunity for S&S to enter the production motorcycle market, or a companion brand to Indian, built up to a quality rather than down to a price.
MV: Hindsight is 20/20 vision: wrong decision at the wrong time in the economic cycle. MV has its own problems and Harley's current toxic debt crisis won't allow them to lose too much focus in saving an already crippled company, regardless of how much-loved it is. It's unlikely they'll find it any easier to find a buyer than MV did in finding Harley.
And Harley themselves: they need an injection of passion: a modern corporate needs the hard-nosed business people to keep the idealists in check, but it also needs the idealists to remind the business people that their output isn't some abstract marketing notion of 'a dream' or just 'product'. The passion exists in its core markets, but there's nothing centrally that is instilling that in a newer generation - except the offspring and spouses of those boomers, who are absorbing it from peers.
So that answers the age old question of whether or not generational blinders can fit comfortabaly over valuation blinders
Foward pe=21
PEG=6+
Also, the folks who are hard core V twin big bikers and have money usually go for the totally custom bikes, which have little if any HOG content. Also, very few people ride bikes for sole transportation anymore, it's just hobbyists. So the cruiser base is eroding.
Regarding Buell, apparently Harley is blind to the sport bike domination of the market. My much younger nephew bought a Buell, but I'm sure it was more for patriotic reasons. The bike has good high technology, but these street / cafe racers face big competition from just about everywhere. Ducati has more brand loyalty in this market than Harley has in cruisers. The Japanese have the price - performance niche with the Ninjas, GSXR's, etc between Kawasaki, Yamaha , Honda and Suzuki. It wouldn't surprise me at all if Harley tried to sell Buell, but couldn't find a buyer in this crowded market.
So when the generation which holds the Harley mystique gets too old to ride, those who want cruisers will go for the Gold Wings and other Asian product. The only good to come of this will be the demise of all the silly Asian HOG knock-offs.
I wonder if the Fed will socialize Harley, like they did for GM and Chrysler.
The Buell Blast was a flop. The small Harleys over time (Hummer /Aermacchi, etc.) were all short lived. The Sportster will fill the niche for the entry level, it always has. Bikers come to appreciate Harleys as the get older and more affluent...Like Jags and Lexus.
The key to HD will be international expansion. It is an iconic brand and a market like China could be huge for them. Also look for the V-Rod to fill the needs of those out there that need something unique.
Second, there is new leadership at Harley Davidson and they appear to be making a correction in the direction The Motor Company is going and that direction doesn’t involve sport bikes. The purchase of MV Agusta was a bit of a surprise, considering the timing. MV Agusta motorcycles have a “cool” factor to them, but are not entry-level machines based on price. While a young rider may drool over this motorcycle, most won’t be able to buy one until much later in life. Getting rid of MV Agusta now is better then later.
Shutting down Buell is a bit of a surprise and is further proof that the leaders of The Motor Company will concentrate strictly on the Harley Davidson brand. Now don’t get me wrong, I like Buell motorcycles and admire Erik Buell very much for his tenacity and drive. If the revenue from Buell sales were greater it would have been more difficult to make the decision to shut it down, even if the focus had shifted. The reality is the revenue from Buell motorcycles is less then 3% of the total company sales. In fact the revenue from Harley apparel is more then twice that. Buell riders are loyal and passionate, but they are few in number. Just remember it took Buell almost 25 years to sell 100,000 motorcycles. Could Buell stand alone as a company? Perhaps, but it would be difficult with out a distribution network.
Harley Davidson faces challenges, as do other motorcycle manufacturers, but so far the company making changes and not waiting and hoping things will change on their own. Will it work? Only time will tell.
PS: For those who are upset that Harley Davidson is “screwing” Buell, consider that if Harley Davidson didn’t step in many years ago to put money into the Buell dream, it probably would have died in the early 90’s.
What's up with the bias against American Auto companies?
We gave our son a Softail a couple of years ago and it too sits in a garage. His children have his attention. I feel the end is near for Harley and their ridiculous prices. It's sad but I think it's inevitable.
The stockholders absolutely deserve an honest accounting of the reasoning behind this drastic abandonment of an entire portion of the motorcycle market and strange refusal to allow the sale of the company to interested parties.
At a minimum Harley-Davidson Incorporated should have the honor and integrity to allow the sale of Buell Motorcycle Company. Intentionally killing BMC with the excuse that it is too risky to allow a sale and thus for competitors to enter into the dealer network or other lame excuses rings hollow to this business man's ears. This kind of glib apparently ego-driven behavior towards so many customers, Buell motorcycle enthusiasts, employees, dealerships, aftermarket vendors, and subcontractors is unprecedented not only in its cold-heartedness but also in its bewilderingly poor business sense. It's not like the corporation is losing money.
Buell has a truly honest shot at doubling its market share through the planned 2011 model release. Shame on the miserable ego-driven jerks at HDI/HDMC who have been working overtime to kill Buell Motorcycle Company; they are there and you know who they are. Shame on all the haters who have done nothing but criticize and denigrate Buell.
It's not too late.
Dear Mr. Keith Wandell, President and CEO of Harley-Davidson, Inc.,
Please get out of the boardroom, away from your corporate office, and take another serious look at this. You are making a HUGE mistake. Sport bikes are a major growth industry and Buell is poised to gain market share in leaps and bounds. The planned 2011 model is key to that; give it a chance through this economically difficult period! Please. You will not regret it. Get the naysayers the heck out of the place. They are miserable people who are more interested in being critics and in their own biased personal views. That is no way to run a business.
What would it take to turn this around? How many millions to give Buell a mere three more years to double their market share and gain impressive profitability? Instead of viewing Buell as some kind of bothersome hindrance, cut them loose!
Let them go on their own, absent any and all interference from and organizational structural dependence upon Harley-Davidson. Let Buell run their own parts system, their own customer service, and their own distribution system, and let them choose their own dealership criteria. Let those Harley-Dealerships who are enthused and eager to support the brand do so, and let Buell fill any gaps in the dealership network by allowing eager non-Harley-Davidson dealerships to pick up the brand. What are you afraid of???
Bold aggressive positive action is what is called for, not regressive negative reaction. The risk is so minimal to HDI as to be laughable. Please reconsider.
Stop the micro-managing and let Buell fly!
Erik and associates will not let you down!
Blake Rudy
Buell Forum - BadWeatherBikers.com