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Harley is thrown by bumps in the road

Tight credit and costly gas are driving sales down for the big-bike maker. Hogs now share space with scooters.

September 23, 2008|Susan Carpenter | Times Staff Writer

Owning a chromed or custom Harley-Davidson is "not about transportation, it's about an experience," says the company's chief executive, James L. Ziemer.

That's clear to even the most average of non-motorcycling Joes, who, on any given day, are likely to see T-shirts, leathers, window decals, cigarette lighters, bandannas and other paraphernalia emblazoned with the company's trademark bar and shield.

But there's one Harley-Davidson Motor Co. item that hasn't been selling as well in the U.S. recently: the motorcycle itself.

Sales of the heavyweight bikes were down 10.2% in the first six months of this year, and the Milwaukee company is cutting back production as much as 40% to whittle its inventory.

"For 15 years, Harley-Davidson couldn't make enough motorcycles for middle-class guys," said leisure industry analyst Robert J. Simonson of William Blair & Co. "They couldn't make enough of what was making them a lot of money, so they didn't design product or market to other groups. Now they need to."

For The Record
Los Angeles Times Wednesday, September 24, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 64 words Type of Material: Correction
Harley sales: An article in Tuesday's Business section about falling sales of Harley-Davidson Motor Co. motorcycles said the company planned to ship 203,500 to 207,500 motorcycles this year, a drop of more than 40% from its record sales of 349,000 in 2006. However, Harley said Tuesday it would ship 303,500 to 307,500 bikes this year, a drop of as much as 13% from 2006.

Many dealers are also feeling the pain, as the economy weakens, credit tightens and the motorcycle market becomes increasingly transportation-oriented. Some are even starting to offer products that would have been sacrilege in better economic times: They're selling fuel-efficient, foreign-made -- even electric -- scooters on the same floor as Harley's flag-waving, thunderous internal-combustion cruisers, also known as Hogs.

It is, to be sure, a culture clash, but desperate times are calling for desperate measures at some dealerships, especially in California and Florida, the top two motorcycle markets, and other areas that have been more severely affected by the down economy.

At Glendale Harley-Davidson, sales are off about 20% this year, with high-priced touring models, "usually our lead products," particularly hard hit, said Emily Vindeni, controller of the shop.

Lately, Vindeni said, the bikes sold aren't so much for leisure but necessity. People "are not going to spend $15,000 to save gas. They're going to spend $10,000 or less."

What is selling at the Glendale shop is Harley's smallest, lowest-end bike, the Sportster, as well as its entry-level sport bike, the Buell Blast. In the spring, that short list may include Asian scooters.

"We're looking into that because you're seeing more and more of them on the road," Vindeni said. "There are quite a few Harley-Davidson dealerships that have already gotten into that business."

Even so, Chief Executive Ziemer frowns on the practice of selling inexpensive scooters. It's not only because the profit margin on a $28,000 motorcycle is much higher than it is for a $4,000 scooter, but also because it dilutes the character of the brand.

"I don't think that it serves them well," he said. "They're selling to a different customer base. If someone's looking for a very inexpensive product for transportation, that person was not going to buy a Harley-Davidson anyway."

In spite of the current trend toward smaller two-wheeled vehicles, Ziemer said Harley-Davidson would remain a recreational product.

The drop in domestic sales, which account for 75% of Harley's revenue, to $1.9 billion in the first half of the year continues a downward trend. Sales in last year's first six months were 5.7% lower than in the same period the prior year.

The company's net income slipped 4.5% last year to $993.8 million from $1.04 billion a year earlier and is on a slower pace this year, with $410.4 million earned in the first half.

The shares peaked at $75.50 in November 2006 and have been heading south since. They closed Monday at $41, down $1.80 a share. The stock's value has slid 12.2% so far this year and 46% from its peak two years ago.

Things could be worse, Ziemer said.

"Right now, I'd say our business is definitely doing better than most discretionary large-ticket items," he said, pointing to declines of as much as 30% in such other motor sport categories as all-terrain vehicles, boats and RVs.

Sales of motorcycles industrywide roared from 293,000 in 1993 to 1.2 million in 2006. Purchased predominantly for leisure use, motorcycles were ridden for the most part on weekends -- not for the weekday commute to work.

But as gas prices rose and consumers curtailed spending, the market started shifting. Sales of expensive, large-displacement cruisers, the prototypical Hog, have been especially hard hit in the U.S., while sales of fuel-efficient scooters are higher than they've been in two decades.

In 1998, cruisers made up 50% of on-highway motorcycle sales, and scooters were just 5%. Last year, cruisers accounted for 37% and scooters were 19%.

That trend doesn't faze Ziemer. "We're not going to chase mopeds for the sake of selling units," he said.

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