Categories: Features
June 22, 2020
| On 3 months ago

From “More Roads” to “Rewire” – Where Does Harley-Davidson Go From Here?

During its first quarter report in late April, Harley-Davidson announced it was changing course on its “More Roads” business plan, replacing it with the new “Rewire” strategy. While Harley-Davidson has only described the new plan in broad strokes, we’re already seeing some signs of Rewire falling into place. As the Rewire plan continues to develop, we figured we’d look back at the previous plan to help us figure out where Harley-Davidson goes from here. (UPDATED: July 9, 2020: Harley-Davidson says it will provide more details about Rewire with its Q2 results later this month. Harley-Davidson also says Rewire “set the foundation for a new 2021-2025 strategic plan which is expected to be shared in Q4.”)

100 New High-Impact Harley-Davidson Motorcycles

The “More Roads” plan was announced on July 30, 2018, but the first inklings of it first emerged back in early 2017. It started on Jan. 31, with the company’s 2016 fiscal year presentation, when then-President and Chief Executive Officer Matt Levatich stated that Harley-Davidson would launch 50 new motorcycles over the next five years. A month later in a presentation for investors, that bold statement was replaced by an even bolder objective of launching “100 new high-impact Harley-Davidson motorcycles” over 10 years.

The first of these models came shortly after, with the Street Rod, but we didn’t really see how serious Harley-Davidson was about its 100-model plan until later that summer with the revamped Softail line. Not only did this introduce a completely new cruiser, platform, it also consolidated the Softail and Dyna families into one. These eight Softails were joined by five restyled touring models.

For those keeping score, that’s 14 new models, giving Harley-Davidson’s 100-model promise a good start. Of course, all of these new models stayed well within Harley-Davidson’s wheelhouse. One could argue that phasing out Dyna line was bold, but sticking with cruisers and heavyweight tourers for the first of these 100 new models was a relatively conservative move.

Enter: More Roads

It was the More Roads plan where we first see Harley-Davidson trying to get out of its comfort zone. The new strategy outlined five long-term objectives:

  1. Build 2 million new Harley-Davidson riders in the U.S.
  2. Grow international business to 50% of annual volume
  3. Launch 100 new high-impact Harley-Davidson motorcycles
  4. Deliver superior return on invested capital for HDMC; and
  5. Grow our business without growing our environmental impact

Objective three was already in progress with that first batch of new models. They were also the types of bike that fueled Harley-Davidson’s sales in the U.S. market, so they also helped toward objective one as well. The second objective was where Harley-Davidson faced bigger challenges.

While Harley-Davidson continued to tout its market share in the U.S., it recognized that the domestic motorcycle market had stalled and begun to shrink since the recession in 2008.

In the 2017 fiscal year, Harley-Davidson sold 147,972 motorcycles in the U.S. and 94,816 motorcycles in outside markets, which means international business represented just 39.1% of its sales volume. Harley-Davidson would have needed to increase its international sales by about 60% to reach its objective.

Continuing with a slate of cruisers and tourers would not be enough to do that; if it was, the margin would have been much closer already. No, to reach its objectives, Harley-Davidson needed to expand its product offerings to appeal to customers in markets with different tastes and needs than American riders. In Europe, the adventure-touring segments continued to fuel record sales for the likes of BMW and KTM, while the markets in China, India and Southeast Asia continued to swallow up small-displacement (150-400cc) motorcycles in volume. Harley-Davidson had exactly zero models that fit into either of those categories.

Harley-Davidson finally acknowledged it needed to get out of its core segments in order to compete on a global scale.

With this in mind, Harley-Davidson announced its new middleweight platform that will cover three different product spaces and four displacements. The plan for the new platform included two ADV bikes in 975 and 1250cc displacements, nine streetfighter or naked standard motorcycles ranging from 500 to 1250cc, and five more traditionally Harley models from 500 to 1250cc.

Harley-Davidson unveiled three prototypes to represent the new platform: the Pan America 1250, the Streetfighter 975 (later renamed the Bronx) and a Custom 1250. The More Roads plan outlined a 2020 production launch for the Pan America 1250 with a smaller-displacement version to come in 2021. The Bronx was also supposed to launch in 2020, with the other eight naked bikes to come before 2022. The first Custom was supposed to come in 2021 with the other four planned to launch by 2022, likely as a successor to the Sportster line.

To address eastern markets, the More Roads strategy outlined plans to work with an Asian manufacuturer to produce a small-displacement model “within two years” in India before expanding to other Asian markets. A year later, Harley-Davidson announced a partnership with China’s Qianjiang Motorcycle Company to produce a 338cc model. Qianjiang owns the Benelli marque, and the initial drawings of the small-displacment Harley-Davidson appeared to be based on the existing Benelli TNT300.

The third prong of Harley-Davidson’s More Roads plan called for new electric models, led by the LiveWire. Harley-Davidson has been working on the LiveWire for quite some time, even having press review a prototype in 2014. The LiveWire was supposed to be Harley-Davidson’s premium high-power electric model, headlining a lineup that would include more affordable mid-power models and higher-volume lightweight urban electric motorcycles. The LiveWire launched in 2019 while the mid-power and lightweight models were planned for 2021-2022.

Altogether, the More Roads to Harley-Davidson marked an ambitious shift for the brand, one critics say was a long time coming. Perhaps too long.

What Went Wrong?

Developing new products takes a lot of time, effort and resource. This is especially true when the new products are much different from what a company had been producing for decades. Harley-Davidson was already late to market in the adventure-touring and streetfighter segments, and we had to wait over a year before the initial prototypes turned into concept models. Not production models, but concepts. They were further along in the development cycle, with Harley-Davidson confirming at EICMA last fall details of the new platform’s liquid-cooled Revolution Max engine. But they were still concepts.

To be fair, the plan from the start was for the Pan America and Bronx to launch in 2020, but for today’s consumers, two years from the initial announcement is a long time. This isn’t unique to Harley-Davidson, however. We saw a similar approach from Yamaha with its Ténéré 700. The Ténéré first showed up as the T7 Concept in 2016, followed by a prototype in 2017, and we finally saw a production model in 2018. The Ténéré 700 launched in Europe as a 2019 model, but here in North America, consumers had to wait until this month for it to finally arrive as a 2021 model.

The difference for Harley-Davidson was that the wait gave more time for the company’s problems to grow. Sales continued to worsen for Harley-Davidson, with the 242,788 motorcycles sold in 2017 dropping to 218,273 motorcycles in 2019. That’s a decrease of 10.1% in two years.

Annual unit sales were decreasing for a while now, but the problems were exacerbated by a tariff war between the U.S. and the European Union. The EU responded to the U.S. tariffs on aluminum and steel by increasing tariffs on American motorcycles from 6% to 31%. Harley-Davidson had to choose between passing the cost of the tariffs onto consumers and negatively impacting sales volume or absorbing the cost itself and lowering margins. Harley chose the latter.

Harley-Davidson also decided to move some production from the U.S. to factories in Brazil and India to avoid tariffs, a move that makes business sense but one that may have hurt a brand that has long trumpeted itself as being all-American.

With the financial picture looking glum, Harley-Davidson’s investors started getting antsy. Not long after the 2019 fiscal year report was released, Harley-Davidson announced its President and Chief Executive Officer Matt Levatich was stepping down. A few weeks later, Impala Asset Management, a Harley-Davidson shareholder, released a statement claiming responsibility for urging the board of directors to fire Levatich, and initiated a proxy war to add two of its nominees to the board. Impala also reportedly wanted Harley-Davidson to refocus on its core riders, a move that would run directly counter to the More Roads strategy.

The board eventually reached a settlement with Impala, agreeing to name an independent director. Jochen Zeitz, who took over for Levatich on an interim basis, was then installed as the new president and CEO.

Rewire: A Course Correction

Shortly before Zeitz’s position became permanent, he presented Harley-Davidson’s Q1 report and announced the new “Rewire” plan which will lead to a new five-year strategic plan. Finer details of the plan would be released in the near future, but on a macro level, the Rewire playbook involved five key points:

  • Enhance core strengths and better balance expansion into new spaces
  • Prioritize the markets that matter
  • Reset product launches and product line up for simplicity and maximum impact
  • Build the Parts & Accessories and General Merchandise businesses to full potential
  • Adjust and align the organizational structure, cost structure and operating model to reduce complexity and drive efficiency to set Harley-Davidson up for stability and success

The first three points are where we see Rewire alter the More Roads plan. Zeitz’ presentation made no mention of the “100 New High-Impact Harley-Davidson Motorcycles”. Instead, Harley-Davidson seems to be taking a more conservative approach.

Many interpreted this to mean Harley-Davidson is giving up on the LiveWire, Pan America or Bronx, but this does not seem to be the case. Harley-Davidson says it isn’t giving up on adventure touring, streetfighters or electric motorcycles, just finding a better balance between focusing on its core market and expanding into new ones.

We’re already seeing an adjustment to the Pan America and Bronx timelines. As recently as May 31, the Future Vehicles page on Harley-Davidson’s website listed the Pan America as “coming 2020” and the Bronx “planned for 2020”. In June, however, it was replaced by a new Future Vehicles section that lists the Pan America and the Bronx as “coming in 2021”. The new liquid-cooled Custom model remain listed as “planned for 2021” while the mid-power and lightweight electrics still do not have a timeline. While pushing these new models back, we expect Harley-Davidson to fill the void with more variations to its Softail and Touring platforms.

What’s less certain is the status of the small-displacement model for Asian markets. The 338cc model was expected to launch this year, but there has been no word about it recently from either Harley-Davidson or Qianjiang. Part of that may be a result of COVID-19 affecting timelines, but the Rewire plan makes no mention of the bike at all, leaving its future in doubt.

We expect to learn more about Rewire over the next few months. Harley-Davidson typically announces most of its model lineup in late August, but that may change now, as part of the Rewire plan includes timing launches for closer to the start of the riding season. More information about Rewire will be released before the end of July, while a new five-year plan to come after Rewire will be revealed by the end of the fiscal year.