October 27, 2020
| On 1 month ago

Harley-Davidson Claims Best Third Quarter Since 2015 Despite Lower Sales

Harley-Davidson‘s much analyzed “Rewire” plan may be starting to see some positive results, as the company reported its strongest third quarter since 2015 despite decreasing sales volume. It will take a while longer to see if the plan and its eventual follow-up, the Hardwire plan, will pay off in the long run, but for the short term, the Rewire has succeeded in reducing costs.

According to Harley-Davidson’s third quarter report, revenues declined by 8% to $1.166 billion, but net income increased 39% to $120 million from the $87 million reported in the same period of 2019. By this metric, this was Harley-Davidson’s best third quarter since it saw a net income of $140 million in 2015.

Global Outlook

Worldwide retail sales declined by 8.1%, but that is a marked improvement over the first two quarters, as sales for the year to date are down 18.1%. The sales decline has slowed in most markets, with Harley-Davidson even seeing an increase in Europe, where retail sales rose by 6.7%.

Obviously, the COVID-19 pandemic had a large impact on sales, as did the Rewire’s efforts to reduce production and clear out existing inventory. Harley-Davidson says worldwide inventory is down 19,300 motorcycles (-30%) compared to the third quarter of 2019. The reduced supply and the elimination of discounting and sales promotions resulted in more motorcycles selling at full MSRP in the U.S. At the same time, the average resale price of Harley-Davidsons increased, narrowing the price gap between new and used motorcycles.

In previous years, Harley-Davidson would have announced its new model lineup by now. Starting with the 2021 model year, new models will be announced closer to the start of the spring riding season.

As part of the Rewire plan, Harley-Davidson shifted the introduction of new model announcements from August to early in the new year. As a result, Harley didn’t get the same boost in attention and dealership traffic from an injection of new models that it would typically get in the third quarter. Going forward, Harley-Davidson is hoping that will happen early in the first quarter and closer to the start of the riding season.

The Rewire plan also called for a shift in Harley-Davidson’s global structure. The Motor Company will exit 39 markets that saw low sales volume and profitability. Chief Executive Officer Jochen Zeitz says most of those markets only had one or two dealerships, and withdrawing from them won’t have a large impact on business.

In 17 other markets, Harley-Davidson will switch to a distributor model, working with a local company to provide sales and service. India is the first of these markets identified, with Harley-Davidson announcing a licensing agreement with Hero MotoCorp to handle its operations in that market. Hero will sell motorcycles, parts and accessories as well as merchandise and apparel through a network of brand-exclusive Harley-Davidson dealers, as well as through its own existing dealership network.

Harley-Davidson will maintain control in the strongest 36 markets, including in North America, Europe and parts of Asia, which represents the majority of its sales volume and growth potential. But even theses markets will see some challenges. Harley-Davidson says it has closed about 61 full-line dealerships, or about 4% of its dealer network. Of the dealers that remain, Harley-Davidson claims an overall improvement in dealer profits despite lower sales.

New Products

Looking ahead to future product offerings, Harley-Davidson is still on track to begin sales of the Pan America in the first quarter. As we previously reported, Harley-Davidson plans to reduce its product lineup by 30%, and will phase out its Sportster lineup in Europe, as it wasn’t feasible to update it for Euro 5 requirements. Harley has also applied the brakes to its Bronx streetfighter.

“We did not hesitate to delay or cancel projects like Streetfighter that do not provide the right timing or return profile, or advance others that were slated for later market introduction,” says Zeitz.

Those “others” likely refer to new “high performance custom model” which will share the Pan America’s liquid-cooled Revolution Max platform, as well as a future Sportster replacement.

Harley-Davidson also announced a change to its plans to produce electric bicycles. Rather than sell them under the Harley-Davidson brand, the company will instead splinter them off into a new sub-brand called the Serial 1 Cycle Company. The e-bicycle idea began as a skunkworks project in Harley-Davidson’s Product Development Center, and the new company will be led by a team of former Harley staff.

“When Harley-Davidson first put power to two wheels in 1903, it changed how the world moved, forever,” says Aaron Frank, Brand Director for Serial 1 Cycle Company. “Inspired by the entrepreneurial vision of Harley-Davidson’s founders, we hope to once again change how cyclists and the cycling-curious move around their world with a Serial 1 eBicycle.”

Named after Harley-Davidson’s first motorcycle, “Serial Number One,” the new company will introduce its first line of products in the spring. The prototype showcased in the video above is based on the earlier e-bicycle concepts Harley-Davidson has shown the last couple of years, but dressed to resemble the original 1903 motorcycle. Production models will have a more modern appearance, as teased on Serial 1’s new website. More information will be announced on Nov. 16, with sales expected to begin in the spring.

Hardwire

Harley-Davidson is still developing its five-year “Hardwire” plan but the company did provide a preview of what to expect. Harley says basis for the Hardwire plan is to make the company the “most desirable motorcycle brand in the world.” The plan will be organized around five key points:

  • Growth strategy for motorcycles, parts and accessories and general merchandise
  • Customer focus inclusive of distinct products, brand and purchase experiences
  • Operations that are high-performance, lean and efficient
  • Impact with emphasis on inclusive stakeholder management and delivering long-term value
  • Workplace that is diverse, inclusive and built around top talent rooted in a high-performance, winning culture.

More details about the Hardwire plan will be announced at Harley-Davidson’s fourth quarter report in three months time.


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