Grant Case_

Is Harley-Davidson Losing Market Share On Purpose?

Mallarde,

The numbers are from the market numbers that HOG reports come from the Motorcycle Industry Council and are updated every quarter and only include the 650+ heavyweights and by this measure HOG hovers around 47.2% market share in this segment.

As for why market share is important. Each full year market share point (~5,000 bikes) is worth between 10 - 12 cents to EPS for HOG on the shipments side (my own calculation based on a formula I use to project HOG EPS from shipments).

Is Harley-Davidson Losing Market Share On Purpose?

Saj,

The fact that price cuts and generous financing by both HOG and the rest of the industry should be fairly indicative of where the consumer is at this point. Consumers are not affording HOG the premium to the market that it once enjoyed. My belief is that the consumer that bought HOG's 10 years ago (and where most of the aura of the stock comes from), is not the HOG buyer today.

In 1997, the median buyer age was ~43.6 years of age (I make a correction of 1 year for the change in surveyors in 1999) with an inflation adjusted 2007 average annual salary of ~101K. In 2007, the median buyer age has increased to 48 with an annual salary of 84.7K. Amazingly, 1st time Harley buyers have remained remarkably consistent averaging roughly 50% each year.

What this tells me is that HOG buyer is now older, with less disposable income (15% less), and is still targeting customers in the same generation. Where most products track an age (dirt bike rider median ages have been amazingly consistent over time), HOG tracks a generation. The birth year of the median HOG purchaser has only increased from ~1953 to 1959 in the last 20 years. The problem with all this is that HOG purcharsers are trending into ages where income begins to decline and customers become more price senstive. While many believe the current price sensitivity is due in large part to the economic enviroment I think has more to do with the customer base.

If I am correct and its the customer base and not the economic environment then HOG's long term prognosis is not good. Will HOG go bankrupt tomorrow, no. The company is incredibly consistent and has building motorcycles and running the company down to a science. But it will never be the highflyer it once was because it has never stemed the long-term change in customer demographics.

Is Harley-Davidson Losing Market Share On Purpose?

"It makes sense that the whole industry should shrink, considering the economy, but is there something else going on here? Why is Harley disproportionately affected?"

If you remove HOG from the industry data you get the rest of the industry,
Market - HOG = Rest of Industry

If you look at the rest of the industry YTD it is up .08% versus last year where HOG is -10%. If you do the same calculation for this quarter's sales only you get HOG down ~-9% versus the rest of the industry up ~8%.

Personally, I believe the difference this year versus last was HOG's big price cut / sales push last year in the 2nd quarter. Of course, HOG now believes they can stablize or raise prices and not be hurt on the sales end. The market share slide in heavyweights and difference in sales between HOG and rest of the industry begs to differ.