High on the Hogs
Harley-Davidson Inc. is cruising in the fast lane as it celebrates its 100th birthday, an easy rider in a bumpy economy filled with potholes.
Harley’s motorcycle sales and revenue rose to record levels in 2002, continuing a 17-year string of growth.
This year, demand for 2003 models decked out with 100th-anniversary trim is such that dealers can charge more than suggested retail price for the bikes.
Harley is an American success story in an industry dominated by Japanese brands.
The Milwaukee-based company, with help from timely tariffs, resurrected itself from the manufacturing junk pile 20 years ago and captured the hearts and dollars of baby boomers, a generation that rejected American-made automobiles in favor of imports.
If there is a bump in the road ahead, it is the question of whether Harley will have the same success after the current generation of owners runs out of gas.
The age of Harley’s median buyer is 46 in an industry in which it’s 38. The motorcycle of choice for outlaws and the young and restless has become a fashion statement for graying empty-nesters with money to burn.
The younger-than-30 crowd favors faster, less expensive Japanese sport and off-road bikes, so Harley will have to lure riders from Honda, Suzuki, Kawasaki and Yamaha.
Underscoring how Harley has aged and become mainstream, an article in the July-August issue of the AARP’s magazine shows a 64-year-old, leather-clad rider perched on an Electra Glide next to the headline “They were born to be wild -- over 50 years ago.”
However, Jeffrey L. Bleustein, Harley- Davidson’s chief executive and chairman, says the same things that lured baby boomers to the brand will draw new buyers in the future.
“The baby boomers got into this because they live a more frenetic lifestyle, and they’re looking for some pleasure and fun. A motorcycle fits in nicely with today’s lifestyle,” Bleustein said. “An overnight ride with friends can feel like a vacation. I don’t think that’s going to change much for the next generation.”
Harley’s trump card, Bleustein adds, is that the brand is as much about lifestyle as it is about the motorcycles.
Riders flock to company-sponsored rallies by the tens of thousands. Owners and wannabes buy Harley-labeled clothing and other official gear from an 800-page catalog of parts, accessories and merchandise. The most loyal demonstrate their allegiance by tattooing the brand name on their bodies.
Harley-Davidson’s motorcycle deliveries rose 12% last year, better than those of the industry as a whole, which rose 10% to 937,000, and in defiance of a sputtering economy that slowed sales of other discretionary purchases.
Most stock analysts give the company a thumbs up for its brisk sales and strong financial performance, but Tom Graves, an analyst for Standard & Poor’s, said the company benefited the last two years from the buildup to the 100th anniversary, which culminates in late August with a bash in Milwaukee.
Regarding the graying of the Harley owner body, Graves said: “There’s something to be said for that because the population as a whole is aging. They could be a beneficiary of that. However, it is one of their challenges to get new riders into the mix.”
Most of Harley’s models are heavy cruisers, bikes designed for relaxed highway driving with an upright seating position, which older riders favor over the hunkered-down “tuck” that sport bike riders adopt to get under the wind.
Bleustein thinks the powerful, high- revving Japanese bikes may be more than Generation Y riders will want to handle when they get older.
“People grow up, and their interests change. They begin to realize they have too much power, and they don’t want to have white knuckles all the time,” he said of the speedy Japanese sport bikes.
Bleustein was one of 13 Harley executives who in 1981 acquired the firm from AMF Corp. when the last major American motorcycle manufacturer was on the verge of extinction because of poor quality and an onslaught of Japanese motorcycles.
Instead of going head to head with the Japanese, Harley played to its strengths, promoting the classic look of its motorcycles and the throaty exhaust from its V-twin engines and nurturing its large body of owners, with their favored black leather jackets and blue jeans.
The company formed the Harley Owners Group in 1983, capitalizing on the “Hog” nickname attached to the brand since before 1920. Today, there are more than 700,000 HOG members globally.
In what may have been a lifesaving move, Harley received help in 1983 from the Reagan administration and the International Trade Commission, which approved tariffs up to 49% for five years on imported Japanese motorcycles with 700-cubic-centimeter and larger engines. The tariffs curbed sales of Japanese models in the United States and gave Harley time to upgrade its manufacturing operations and improve quality, and in 1987 the company said it no longer needed the tariff to be profitable.
Harley became fashionable in the late 1980s when Wall Street types such as Malcolm Forbes started riding and promoting its bikes.
Success has brought more competition from Japanese manufacturers, which now offer heavyweight cruisers such as the Suzuki LC 1500 and Honda VTX that imitate the look and sound of traditional Harley models and use the same V-twin engine configuration.
CEO Bleustein shrugs them off.
The Japanese “used to laugh at Harley-Davidson and the technology we used,” he said. “They’re getting pretty good at copying where we have been, but it doesn’t bother us all that much. We prefer that they follow us.”
While the Japanese have moved into Hog territory with cruisers, Harley does not offer off-road or dual-purpose bikes that can go on and off road. The Japanese rule in those segments, which account for 25% of industry sales and draw some of the youngest buyers.
More than half of Suzuki’s sales are sport bikes. Suzuki also is big into off-road and motocross models, the kind used in stadium supercross events that are popular with young enthusiasts, who jam the stands to watch riders bounce over hilly dirt courses.
Harley’s answers to the Japanese are new models such as the V-Rod, introduced in 2001 as more of a performance bike than a cruiser, and its Buell brand, a line of smaller, less-expensive sport bikes that are more agile than the typical Hog.
In 1993, Harley acquired an interest in Buell, a small company in East Troy, Wis., founded by motorcycle racer Erik Buell, to produce motorcycles aimed at younger buyers and new riders, segments dominated by the Japanese.
The entry-level Buell is the Blast, a single-cylinder, 500-cc bike that starts at $4,595. Most Buells are sold through Harley dealers, but the Harley-Davidson name does not appear on the bikes.
“If we put the Harley-Davidson name on it, our customers would say, ‘That’s not a Harley,’ ” Bleustein says. “One of the downsides of such a strong brand is that our customers have a very specific view of what that motorcycle should look like and what it should be.”
Philip Kotler, a marketing professor at Northwestern University’s Kellogg Graduate School of Management, said putting “Harley” on a different kind of motorcycle would dilute brand equity: “They must stay with their brand essence, be a little rebellious. To change to a new ethic would be a mistake.”
Buell is attracting younger buyers, with the median age near 39, but only 11,000 units were sold last year, versus 264,000 Harleys sold around the world.
“It’s small, but it used to be zero,” Bleustein staid. “Over time, we expect that to grow.”
