Here’s How Growth In the “Used Bikes” Segment Is Impacting Harley-Davidson
Harley-Davidson (NYSE:HOG) has had a very rough 2017. Softening industry environment and declining volumes led the company to reduce its shipment guidance for the year to 6% compared to 8% last year. While aging baby boomers who were the company’s biggest customers are no longer active customers, they are adding to the company’s woes. These customers are selling their old Harley-Davidson bikes leading to lower prices in the used bikes segment, impacting the sales of new motorcycles. In Q2 2017, the company witnessed a 9.3% (year on year) decline in U.S. motorcycle retail sales and one of the reasons for this decline was cheaper motorcycle prices in the used segment.
According to our estimates, U.S. Motorcycles is the most valuable segment for Harley-Davidson accounting for nearly 35% of its valuation. We expect the company’s market share in the U.S. market to remain steady at around 51% over our forecast period.
However, in Q2 2017, the company’s market share for new bike sales was 48.5%, down one percentage point compared to last year. A decline in market share can impact our price estimate for the company adversely.
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In May 2017, there was a healthy sales growth of used Harley-Davidson bikes. This growth rate is significant since the base of used bikes is nearly 2.5 times larger than the new Harley-Davidson bikes. This growth does not impact the company’s revenues positively, but is an indication of the strength of its brand. However, growing used bike sales are a cause for concern for Harley-Davidson. Several analysts expect Harley-Davidson’s bikes sales growth to be slow over the next few years as young buyers prefer cheaper used bikes or cheaper models of other companies.
Harley-Davidson is enhancing its riding academy to attract customers towards it bikes. However, the challenge of customers preferring cheaper used models over new bikes is likely to be a tough one to handle.
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