Discussion in 'The Garage' started by MaxPete, May 17, 2020.
Now that’s funny!
Pete, you hit the nail on the head: a company's failure to invest in product development is like deferred maintenance on a building or vehicle. There comes a point at which the expense to renovate outweighs the repaired value of the item, and it's time for salvage and demolition. But if I remember rightly, Studebaker went under not because they failed to invest in product development, but because they invested too much in developing products which the market wasn't ready to buy or willing to pay for.
Well if HD fails, maybe Polaris would buy the brand name like they did Indian. At least Polaris has been a bit more progressive with engine design but I think they are in the same boat by marketing to a demographic that is aging. Victory was closed when Polaris bought Indian. We saw the writing on the wall when that happened. Polaris cut way back on pushing the Victory brand while they were developing the Indian.
On another forum, one chap suggested that all Harley had to do was sell 100 bikes/year for $100,000 each and all would be well. Let's have a look at that....
Selling a hundred bikes / year at $100,000 is only $10 million/year. Frankly, that is chicken feed in the manufacturing world and not nearly enough to sustain a company that builds complex products. To put that in context: I live in Windsor, ON where Fiat Chrysler builds the Dodge Grand Caravan and Chrysler Pacifica minivan / people & stuff haulers. Let's assume these vehicles sell for say....$30,000 each retail (likely low). The Windsor Assembly Plant builds about 1500 vehicles / day - six days / week for about 46 of the 52 weeks per year (in a "normal" year). That works out to:
1,500 vans x 6 days = 9,000 vans / week
9,000 vans x $30,000 / van = $270,000,000 ($270 million dollars/week)
$270 M/week x about 46 weeks/year = $12,420,000,000 / year (about $12.4 billion / year or well over $1 billion/month)
So....$12.4 billion dollars in annual retail sales (NOT profits - just sales) from one factory that builds two models for one medium sized OEM. Remember it is profits, not sales that allows a company to develop new products to sustain themselves to survive another day.
Basically, Fiat Chrysler retail sales of $10M from Windsor Assembly Plant would be achieved in about....5.3 hours or less than one shift of daily production.
What would you do with all those workers and all of the physical assets the rest of the time?
Selling a few of something for a lot of money each is a very tough business model to actually carry off. Just ask Rolls Royce (now owned by BMW) and Bentley and Bugatti (both now owned by Volkswagen), Ferrari (now owned by Fiat Chrysler) and even Volvo (now owned by Chinese company Geely) and Saab (now owned by....oh yeah, they died).
HD fell into that Corporate trap when they let all the people go that knew what motorcycles were and hired MBA types to run the company, like hiring the former CEO of Johnson Controls to be the Chairman.
They basically produced two models and through variations of naming, Street, Fat, Bob, Glide etc. ad nauseum, tried to sell them as different bikes.
Then when they finally came out with some new original designs, V-Rod and the new small twins, failed to market them to anyone other than the hanky heads that have been their core and fading market.
I own a 2004 V-Rod and love it, I also know so many that have commented that if HD had put that engine in a Sport Touring chassis they'd own one. Of course it wouldn't have tassels, high bars and loud pipes so the MBA types didn't know how to market them.
Then Polaris buys and redesigns Indian and steals a huge percentage of the classic touring market which they were unable to do with their Victory offerings.
And to add insult to injury they built purpose built flat track bikes which have ruled the past 3 seasons where the new XGR HD's can't seem to get a grip and even some of the old XR's still kick their asses.
Road King: Everything you need in a motorcycle and nothing you don't! Since I've moved to the flatlands, I've been entertaining that idea. Right now, an Evo powered carbureted Road King can be had for cheap. They bring as many smiles per mile as any other bike. I like riding a Sportster, too! Big fun. I just won't ever wear the H-D underwear.
I hope they find a way to keep it going. Trying to play in Honda's sandbox isn't something I see working.
Thank you for this story. I don't feel so alone now. Lately I have not had good experiences with the local Harley click. Yesterday guy was getting threatening because I wouldn't change his sons Harley tires. I repeatedly told him "I do not run a shop here. This is my hobby. Don't tell people I sell motorcycles or work on them." He just don't get it. Really, makes me nervous working on that expensive stuff. Watch them spend hours polishing, washing, waxing....not for me. It's getting to the point where I might have to get physical if I'm not left alone.
You're more than welcome, JRay. Here's a tip: while it may be tempting to administer an old time country asswhuppin, you can use pepper spray as knothead repellant without risking your health by breaching social distance. Don't leave the house without it!
Me too Marty. Motorcycling would not be the same without Harley Davidson.
HD will be around for a very long time. Yes, sales have declined considerably and they face serious headwinds as already discussed. All that aside, HD is making money, they are turning a profit, and they do have positive cashflow, and the balance sheet is not over-laden with debt and they have a reasonable level of cash on-hand to fund operations. While they did cut their dividend, they are still paying one. Those metrics don't sound like a company that'll be going under anytime soon. The P/E ratio on the stock is reasonable and they even have some analysts recommending their stock as a "buy". Management will continue to manage such that cost cutting will ensure returns to shareholders. Dealerships will shut down, they'll reduce the number of bikes distributed to existing dealers (which they've already announced), and they'll focus only on the segments of the market where they are strong. It would take many years of negative cashflow before they are at risk, and they simply won't manage the company that way. Wall Street won't let em.
Most rational thing I've heard on the subject,
got any other stock picks?
How do you DO that Pete?
I can’t remember the year, maybe after the 2008/ 2009 housing market collapse, but I remember motorcycle sales being so abysmal that there was one year that Suzuki released no new model year bikes at all - ZIP! They spent a whole year focused on selling off existing inventory.
In a lotta ways I see selling young people on a Harley, or selling Harley faithful on something new is about like trying to sell a Yankees cap to a Red Sox fan. But i have no clue who thought a $30000 electric motorcycle with limited range was an answer to getting in with young or new riders. Their social media is pretty much littered with greybeards roasting it and making sure to remind Harley not to neglect making the REAL BIKES!. As if Harley hasn't catered exclusively to that exact demographic since the 80s.
They definitely at least need to revamp their marketing department and general direction and poach from brands that have been successful. Old Spice, Coke, Starbucks, Nike, tons of others. Ducati did a really great job with the Scrambler, even though the ads seemed annoying and hipsterish they obviously worked. They even gracefully went to the MotoGP V4 engine and took over the superbike market with it despite the L-twin being such a signature aspect of their brand, they kinda decoupled themselves from that. You hardly even see Desmo or L-Twin in their ads, they push their racing pedigree and brand swagger.
This reminded me of a Farside cartoon I saw a long time ago... And thanks to Google I found it...
Huh - do what?
MaxPete said: ↑
Me too Marty. Motorcycling would be the same without Harley Davidson.
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