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Riding into India
Harley-Davidson (HOG) manufactures heavyweight motorcycles out of Milwaukee, Wisconsin. The company prospered quite nicely from the mid 1990s until the recent economic downturn. The upswing likely stemmed from increased interest in the sport of motorcycle riding by the baby boomer generation, as well as a generally prosperous economy. That demographic benefitted over the past decade from having both the financial means and the free time to take advantage of this type of activity. However, HOG sales appear to have peaked in 2006, when sales began to register year-over-year declines. The company registered its first loss since 1986 in the fourth quarter of 2009.
As a result of these negative trends, management has been searching for potential catalysts to turn things around. They may have found a partial cure in revamped motorcycle designs and global expansion. The new Forty-Eight is a more raw, stripped down version of the popular Sportster line of bikes. The company describes it as an urban brawler that features a fat front tire, steel peanut tank, and a low-slung saddle. The design is reminiscent of somewhat older styled motorcycles, as well as custom bikes that have become popular of late. And, with a base price of approximately $10,500, the Forty-Eight is much more affordable than some of its custom competitors, which usually start at around $20,000 and have unlimited price tags depending on the maker and modifications.
With regard to a widening geographic footprint, Harley-Davidson recently announced an expansion into India. In April, the company plans to offer 12 different motorcycle models. The offerings will span HOG’s Sportster, Dyna, VRSC, Softail, and Touring family of bikes. At the moment, dealerships are planned for New Delhi, Mumbai, Bangalore, Hyberabad, and Chandigarh. After heavy import taxes, those motorcycles will cost roughly $15,000 to $75,000 each. Currently, Harley’s main competitors include Hero Honda, a subsidiary of Honda Motor Co. (HMC), and Bajaj Auto. Both of those companies are household names in India. But Hero Honda and Baja Auto focus on the smaller, lighter, and less expensive, 100cc scooter market, which has been big business for some time in many emerging countries. HOG will target an entirely different segment of the population.
With about 1.15 billion people, India is the second most populous country in the world, outpaced only by China. In fact, some demographers predict that India will take the lead in that race by 2030. However, at its present state, India’s median income is very low, and the distribution of wealth is quite wide. Consequently, only the upper reaches of India’s society will be in the market for these luxury bikes. This underlying economic roadblock makes it a little unclear as to how long it will take before the country will start to contribute meaningfully to Harley-Davidson’s top line. Still, a wider geographic footprint is usually a good thing.
Down the road, new models may help to increase brand acceptance with a younger generation, owing to the new, hipper designs in the domestic market. Meanwhile, the global push could provide the company with a solid footing in emerging markets. It may take some time for India’s median and disposable incomes to catch up to the levels of other BRIC nations (Brazil, Russia, India, China) but, if and when these trends take hold, top-line gains should follow. These efforts coupled with efficiency initiatives like plant consolidation may provide the necessary spark to turn things around at HOG and ultimately send profits higher.