Optimism Gets a Caution
The mighty motorcycle industry remains strong even though sales have fallen off in recent years from unprecedented growth. An American success story, the $14.6 billion U.S. motorcycle industry experienced a growth that reached double digits in the cruiser segment during most of the 1990s, driven by baby boomers and their need to break free from midlife doldrums.
Motorcycling became more mainstream than ever, inspiring TV shows and spurring new manufacturers that specialized in high-dollar custom niches. In fact, biking became so popular that it hardly qualified a participant for rebel status anymore, despite closets of sinister black T-shirts.
Cruisers comprise the largest market segment in history, although sales fell off after 2005 and are flattening out. Yet this market still accounts for 45% of all new streetbike sales, according to industry analyst Don Brown. Experts caution, however, this is no time for manufacturers to back off building and promoting new models.
The Big Four Japanese makers—Honda, Yamaha, Kawasaki and Suzuki—are built to endure a slump in any one two-wheel segment. They have the diverse product lines and extensive international distribution to take a few hits and not flinch. Collectively, their cruiser numbers are huge.
According to an industry source we spoke to who prefers to remain anonymous, 2005 cruiser sales peaked at 340,000 units on the heels of 2004’s 10% growth. In 2006, sales crept down to about 335,000 and last year fell to 310,000. Cruiser sales for 2008 are expected to drop to just under 300,000 units. But the industry as a whole continues to make gains and is expected to top $21 billion by 2011.
Brown said the biggest obstacle to an industry resurgence is three-fold: economic recession and its concurrent worldwide inflation; rising bike prices; and a troubled housing industry, traditionally a prime rootstock of bike buyers. To combat lackluster sales, Brown said, “The OEMs should not be backing off and playing it safe, which is what they tend to do when sales slack off, but promoting and advertising their products more. They can turn this ship around.”
Consumer confidence has eroded in recent years, and even the Chinese, who seemed on the verge of an all-out trade invasion, have backed off a bit because, according to Brown, they’re concerned about the stability of the American market.
“What’s changed is the aging of the baby boomers,” said Brown. “When Harley got re-started around ’81 and ’82, the oldest boomer was about 37. It was a tremendous group demographic that came along and gave H-D the best market condition. It wasn’t anything brilliant they did, really, although a lot of people think so.” That group, however, is beginning to reach the end of its effective motorcycling purchasing power.
“The Japanese are wising up,” added Brown, “building cruiser models more in line with the U.S. market and introducing new products such as ATVs, which are taking off.
“The OEMs need to shift with the demographic,” Brown elaborated. “Harley has not been good at this for a long time, and they haven’t been able to adjust when the boomers started getting older. Harley has a problem in that they are beginning to look like they’re making old-man’s bikes.
“The one thing the Japanese do pretty well is adjusting strategies and products according to age groups,” Brown continued. “Men 18-34, for example, mainly purchase sportbikes, and so they design their models to go after that group. Harley is not doing it. Victory also is not adjusting very well to an aging boomer market, although their bikes are much ‘younger’ in design.” According to published reports, Victory sales are up this quarter, but repeated requests for comment by the factory were unanswered.
Skyrocketing gas prices may give the industry a boost. “It’s already affecting motorcycle sales positively,” said Brown, “and electric bikes are on the horizon. I believe they will be accepted and we’ll start seeing them within five years. But the main problem facing the cruiser segment is price; it’s getting out of control.” Brown also cited in his DJB Composite Index report that an inventory of some 2 million used Harleys going back some 15 model years are likely offsetting new-bike sales.
Yamaha, as with the other Big Four, is bolstered by a diverse lineup. Its cruisers range from 250cc to 1900cc, attracting Gen X to boomer customers. According to Kevin Foley, Yamaha’s media relations manager for streetbikes, Yamaha cruiser buyers are getting a bit older on average, but the company is attracting different ethnic groups (90% of sales are still presently Caucasian buyers) and more women (14%), which helps compensate for drop-offs in core cruiser buyer sales. Yamaha’s Star line accounts for 30% of its bike sales.
To compensate for market shifts, Yamaha introduces new products and programs, such as the chopper-esque Raider and holds market seminars for its dealers and demo programs for its customers. “Our brand strategy with Star Motorcycles is to offer products and services that are future focused,” said Foley. “Not necessarily focused on only young customers, rather providing a brand experience that is a little more wild, edgy and not following cruiser convention.”
The factory remains confident cruiser sales will rebound as the brand continues to launch new models. “The cruiser category will constantly evolve; from traditional classic designs to custom chopper and bobber styles,” said Foley. “We have some idea of where the market may go next, but we can't give out our secrets. Naturally, as cruiser riders age, they may be seeking a higher level of comfort or ‘bells and whistles.’”
Kawasaki cruiser sales represent the factory’s largest segment, but it has not slowed in launching new models, claiming to be the industry’s most active manufacturer, launching 30 new models in the last four years. Although its Ninja 250 is its best seller, sales of its midsize cruiser, the Vulcan 900, are brisk; its style and price ($7,400) appealing to the 40- to 49-year-old age bracket.
“The Vulcan 900 brought us a lot of new excitement,” said Greg Lasiewski, Kawasaki’s media relations coordinator. “That helps us, but we are not marketing toward any age group. Different categories of bikes fit different age groups. Basically, we see what’s missing in the market build it, carefully considering price point and engine size. We can’t discuss future products but we are going to do well, we have some good things coming.”
A spokesman for Suzuki said its cruiser lineup got a big boost with the launch of the M109 in 2006, just as cruiser sales were declining. “Cruiser ownership is the last stage of the evolution of motorcyclists,” said Glenn Hansen, American Suzuki’s communication’s manager. “A kid starts with a dirt bike; then a sportbike, then a cruiser. We saw the M109R as a younger guy’s bike, but it has done well in older age groups, as well.”
The hard-charging M109 is an example of how Suzuki injected power into its flagship cruiser and broadened the demographic to nearly expand a new genre, the “sport cruiser.” “But old cruiser guys want a more classic looking cruiser,” added the spokesman, “so I don’t think the product line is going to evolve that much because many want that classic look. Fortunately, we have a broad line of products to attract all kinds of buyers.”
While bike sales for the industry across the board are down, Suzuki reports its cruiser sales are up, crediting the M109’s popularity and new advertising campaigns. “The state of the cruiser market is still looking good, our cruiser sales are up and are encouraging. We have outstanding products coming, and our dealers are in good shape.”
Industry veteran and president of Custom Chrome, Frank Esposito, said the unprecedented, nonstop cruiser market expansion had to eventually slow down, which is no reason to press the panic button. “Yes, the market is flat to down, but from where? We’ve achieved all-time highs. If this was the 10th year of a decline I would be worried, but it is not. This is not the end of the world; it is still a healthy, lively business.
“We had an incredible growth rate for years,” continued Esposito, “and we need to apply some perspective on this. One thing we can do is get our heads right. We need to not have something like this create a mindset that this is a bad thing. We have to manage expectations better and support the industry.”
Esposito said that support can come not only from OEMs rolling out new bikes and other products into the market, which stirs up excitement, but from dealers and motorcycle groups. “Anything we all can do from a grassroots level will help invigorate the business, such as cruise dates and demo rides – anything that creates more riding. Another thing is to entice people who haven’t ridden to get on a bike, bring more people into motorcycling.
“There is, however, no one silver bullet,” added Esposito. “The auto guys have done a first-time buyers program that could work for motorcycling. If you’ve never bought a Chevy, for example, the program encourages customers to get to the dealer and get a discount. The OEMs could do a first-time cruiser program. Women are among the fastest growing segments in the industry, so do a campaign that focuses on them. And there are Gen Xers and Yers out there who have never had to use a clutch. Building a bike with an automatic transmission could attract more entry-level riders.
“The more people that come into this sport the better,” Esposito noted, “but to make the pie bigger you have to do something to attract people into the lifestyle who might not normally be attracted. Let’s focus more on people who don’t buy bikes and the media that don’t cover bikes, let’s get out of the box. Everybody in this business needs to maintain a good attitude. Double- digit growth over double-digit years should encourage us to believe there is a lot left in the tank. It is up to us to determine our future; if we stop advertising, stop putting on rides and promos, it will become a self-fulfilling prophecy. We can’t let that happen.”
Although sales for Harley-Davidson are down this quarter, the Motor Company still leads the market in cruiser sales. Paul James, H-D’s director of product communications, notes that about two-thirds of the U.S. (street) market is in the cruiser and touring categories. Since that represents 100% of Harley’s product (not including Buell), they remain well positioned, claiming a 48% share of the heavyweight (651cc+) market.
“This compares to Honda's 14.3%, Suzuki's 12.7%, Yamaha's 9.2% and Kawasaki's 7.5%,” said Harley’s rep. “All other brands combined (Ducati, Triumph, Moto-Guzzi, Aprilia, BMW, KTM, Victory, etc.) equaled 8.3%.” Yet, Harley, the market leader, will cut production and slash jobs on the heels of a 12.8% drop in sales in the first quarter of 2008.
“Although these retail results are disappointing, Harley-Davidson’s U.S. dealers outperformed the heavyweight motorcycle industry, which was down 14.0%,” said Jim Ziemer, Harley’s Chief Executive Officer. “In view of U.S. retail trends and uncertainty about the future of the economy, we now plan to ship 23,000 to 27,000 fewer Harley-Davidson motorcycles in 2008 than we shipped in 2007, resulting in total planned 2008 shipments between 303,500 and 307,500 units.”
Ziemer added that Harley with reduce shipments through temporary plant shutdowns and adjustments to daily production rates. This will result in a decrease of about 370 unionized employees over the next several months.
“The company will also be reducing the non-production workforce by about 360 jobs,” said Ziemer. “We believe these actions will better position the company for a business environment that we expect to continue to be challenging.”
Part of that challenge is attracting Gen Xers to the Harley fold. To this end, Harley has embraced its bad self and launched the Dark Customs; six models aimed directly at 20-somethings, with tie-ins to skateboarding and the Ultimate Fighting Championship, and a nod to snowboarding.
As for Honda, it has an optimistic view of the market. “Demographics show the motorcycle market to continue to be strong for future sales,” said Jon Seidel, Honda’s assistant manager of motorcycle press. “American Honda will continue to offer a wide range of cruiser choices to appeal to many types of riders.”
The market may already be turning around. According to NADAguides.com, motorcycle buying interest increased 48% in March 2008 compared to March 2007, even though motorcycle sales were down more than 7% at the end of 2007 with sluggish sales estimated so far this year.
The growth in interest, according a company spokesman, is an indication consumers are considering bikes as daily drivers to replace gas-guzzling luxury vehicles. NADAguides.com defines an increase in motorcycle buying interest as the number of new motorcycle prices provided to consumers at its website.
Whether an overreaction to a sagging economy or a saturated but over-priced market, industry consensus generally sees the motorcycle market still running on all cylinders, with the cruiser segment somewhat more vulnerable to shifting demographics. But as long as the OEMs can hold down production costs and don’t price themselves out of business, cruisers will be rolling from one generation to the next—as long as manufacturers have the prestidigitation skills to predict the style and performance that appeals to a mercurial market.