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Harley-Davidson is a manufacturer of heavyweight (601cc+) cruiser and touring motorcycles. Harley-Davidson is an iconic brand that commands a ~50% share in heavyweight motorcycle sales in the U.S. After the U.S., the most significant markets are Europe and Japan. Harley-Davidson is known to engage its customers in motorcycling-related community activities. The company sponsored the Harley Owners Group (HOG), which is the largest riding club in the world, with over 1 million members. Such initiatives boost sales of motorcycle accessories and merchandise, which contribute a significant amount to the overall revenue. Like most automobile manufacturers, the company has a financial services division called Harley-Davidson Financial Services (HDFS) that provides retail loans to customers to buy new and used motorcycles, offers wholesale loans to dealers to help them finance their operations, and also acts as an agent to provide motorcycle related insurance to customers. In 2009, the company embarked on a significant restructuring plan to streamline its operations - this plan completed in 2013.
U.S. Heavyweight Motorcycle sales account for almost two-thirds of the company’s overall motorcycle sales, making it the largest single geographic market for Harley-Davidson. Over the past few years, overall heavyweight motorcycle sales have declined significantly in the U.S. while international sales have increased slightly. Revenues from international markets (excluding the U.S. and Europe) have consistently risen, while U.S. revenues still haven't reverted to pre-recession days. Despite already forming two-thirds of Harley's net shipments, U.S. motorcycle sales still haven't reached the highs seen in pre-recession times. We believe U.S. motorcycle sales will recover over the next few years, making this region a strong source of overall motorcycle sales growth.
Harley-Davidson has significant lending operations, financing 100% of its dealers in North America through its subsidiary HDFS. It also finances a significant portion of new motorcycle retail sales. Harley-Davidson has recently increased lending for used motorcycles via its dealer network. As of December 31, 2019, unused lines of credit extended to HDFS' wholesale finance customers totaled $1.14 billion. As HDFS continues to finance used motorcycles, its overall loan portfolio will grow at a faster pace than company sales. Furthermore, Harley-Davidson management has said it would like its dealers to increase their inventory. A large part of this inventory is financed via HDFS, thereby further expanding its loan portfolio.
As the economy recovers, Trefis believes the motorcycle market size will trend back towards its prior highs. The overall heavyweight motorcycle market (601+ cc) in Europe suffered a declining number of registrations between 2011-2013, down to 281,000 units in 2013 from 328,500 units in 2011. Sales were hurt by weak economic conditions and negative consumer sentiment, which also caused retail sales for Harley-Davidson to contract 1% in 2013 and 3% in 2012.
However, motorcycle sales rebounded in Europe in 2014,2015 and 2016, rising by 13.5%, 10%, and 11.4% respectively. Although sales volume was significantly lower in 2017, heavyweight motorcycle sales are yet expected to display growth in Europe, bolstered by the recovery of sales lost in the last few years. In FY 2019 the company reported a decrease of 1.4 percentage points in market share taking it to 8.9%. In 2020 the market share was 3.9%.
The core customer base for heavyweight motorcycles in the U.S. consists of middle-aged Caucasian males. But with an aging population of baby boomers in the domestic market, and the rising popularity of affordable lighter motorcycles among millennial customers, the heavyweight motorcycle market might see negligible growth in the coming years. Harley-Davidson hopes to meet the deficit created by its declining core customer base with sales to its outreach customers.
The company is focusing on building a new generation of Harley riders, as the core customer base ages. The long-term strategy through 2027 focuses on building 2 million new Harley-Davidson riders in the U.S.