With motorcycle sales struggling, 2018 could be a tough but pivotal year for Harley-Davidson Inc. and other bike manufacturers.
Harley is scheduled to release its fourth-quarter 2017 financial results Jan. 30, closing out what was a difficult 12 months for the Milwaukee-based company.
Harley and other makers of cruiser and touring motorcycles have seen their sales remain flat or fall as the economy has slipped in some states and interest in motorcycling, overall, hasn’t been as strong.
The world’s largest manufacturer of heavyweight bikes saw a 40% drop in its third-quarter 2017 profit, to $ 68.2 million from $ 114.1 million in the same period a year earlier.
In the United States, Harley and other motorcycle manufacturers are caught between two customer demographic trends: millennials who aren’t widely embracing the motorcycling lifestyle, and baby boomers who are aging out of riding. They’ve also seen sales decline in some states, including Texas, where the economy took a tumble.
“The motorcycle market has been soft,” said analyst Craig Kennison with Milwaukee-based Robert W. Baird & Co. Inc.
Still, there are encouraging signs.
“Used motorcycles have been stronger. Our analysis shows used bike prices are rising, which is good news for riders looking to trade up. Harley has embraced the used market as part of its strategy to build ridership,” Kennison said.
In Wisconsin, Harley-Davidson dealerships say they remain optimistic even with sluggish national sales trends and the normal seasonal slowdown.
In December, they sold a lot of motorcycling clothing, parts and accessories as Christmas gifts.
Come January, more people are getting serious about buying a bike for the spring.
“We are starting to see activity for sure, especially on Saturdays,” said Todd Berlin, sales manager of Suburban Harley-Davidson in Thiensville.
“The big thing in January is when people start getting their tax refunds,” Berlin said.
Suburban, one of the largest Harley dealerships in the state, has nearly cleared out its remaining new 2017 models and is stocked with 2018 motorcycles.
“It’s definitely good to be back in the game again,” Berlin said, adding that he’s selling bikes now that many people won’t pick up until the spring.
“March and April are just booked up as far as bikes sold already,” he said.
Still, motorcycle industry analysts will be watching sales closely to see that manufacturers aren’t producing more bikes than the marketplace can handle.
“As long as the industry remains under pressure,” Harley will manage its production and inventory tightly, analyst Robin Farley with UBS Investment Research said in a recent note to clients.
“Harley has been working to significantly lower U.S. inventory,” Farley wrote.
There could be pressure on Harley President and Chief Executive Officer Matt Levatich, too, if the company’s financial performance doesn’t improve soon.
“The problem may not just be the soft industry in which (Harley) operates, but rather also the front office in Milwaukee,” said Rich Duprey, a writer for The Motley Fool, an online financial publication.
“When times were good in the motorcycle business, it was easy for CEO Matt Levatich and the board to appear to be geniuses, but now that the tide is running out on the motorcycle bull market, the CEO and his board are increasingly looking like they’re swimming naked,” Duprey wrote in a recent column.
Levatich has been with Harley-Davidson since 1994 and was in a variety of roles before he was named president and CEO in May 2015.
Regarding Duprey’s column, Harley spokesman Michael Pflughoeft said: “As far as I know, he’s the only one who has made any comments along those lines.”
However, Duprey isn’t alone in pointing out that Harley and the rest of the industry face many challenges, including the recruitment of millennial customers.
The Motorcycle Industry Council, for example, says the median age of motorcycle owners has increased from 32 to 47 since 1990.
“Retention of Boomers will continue to be a significant mission for the industry in the next decade, despite the fact that they are aging out,” a recently published report noted.
That report, from a group of motorcycle industry veterans called “Give a Shift,” says there’s never been a more compelling time to ride, with a wide variety of motorcycles across all brands, but the negative or flat trends have persisted since 2009.
Harley-Davidson said it isn’t part of the “Gift A Shift” group, started by a former Polaris Industries executive, but that it shares some of the group’s goals.
Harley’s 10-year strategy is to train 2 million new U.S. riders, grow international business to 50% of sales and launch 100 new “high-impact” motorcycles.
The company has challenged the motorcycle industry to build the next generation of riders for the good of everyone in the industry, Pflughoeft said.