Harley’s big trouble in little China

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http://www.chinacartimes.com/2011/09/19/harleys-big-trouble-in-little-china/
Harley’s big trouble in little China

Industry News | CCT | September 19, 2011 at 4:54 pm --------------------------------------------------------------------------------
Harleys are becoming a common site on Chinese roads at the weekends, but it appears there are a few barriers in the way of Harley’s China expansion plans, namely the lack of love for motorbikes (as Chinese see them as low cost transportation tools) and the lack of places to ride in the cities due to pollution and noise ordnance from the late 1990′s that saw blanket bans on motorcycles in many different cities.
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China’s population is almost 2,300 times greater than that of Milwaukee, where Harley-Davidson Inc. (HOG) is based. The motorcycle maker still has more customers in its hometown.
About 100 cities in China, including Beijing and Shanghai, have restrictions that include banning two-wheel vehicles from elevated highways and major thoroughfares to curb noise and thefts, according to the state-affiliated Society of Automotive Engineers of China. That has stymied Harley’s growth in the world’s most populous nation.
“Regulations are a pain,” said Shanghai businessman Calvin Chen, who owns a $50,000 Harley V-Rod Muscle. “There are many roads you can’t ride on, and the rules differ from place to place.”
Harley is lobbying the Chinese and American governments to ease those laws in an effort to increase sales by as much as 40 percent a year through 2016, said Sean Jiang, its managing director for China. The biggest U.S. motorcycle manufacturer is quadrupling its number of dealerships and supporting riding clubs to capitalize on a luxury-car market that J.D. Power & Associates said will grow by about 35 percent this year.
“Any investment in China without addressing the regulatory requirements will be a castle built on sand,” said Jiang, who is based in Shanghai. “We need to be proactive in engaging with the government.” BMW, Audi
The laws treat motorcycles the same as scooters and motorized bicycles, even though some Harleys have bigger engines than cars and may cost more because of import duties that can add 30 percent to the sticker price before consumption and value-added taxes. They also have to be scrapped after 11 years, Jiang said.
The Touring Ultra Classic Electra Glide starts at 340,000 yuan ($53,000), according to the company’s website. By comparison, Bayerische Motoren Werke AG’s BMW 320i sedan starts at 273,600 yuan in Beijing and the Audi A4L sedan at 247,800 yuan, according to data compiled by Sina.com.
Shanghai bans motorcycles from elevated highways, the historic Bund and the financial district. Beijing hasn’t allowed new registrations since 1985. Guangzhou banned motorcycles in 2007 after a surge in drive-by purse snatchings.
“Because of the import structure and high pricing, our customers here have a much higher disposable income,” Jiang said. “I don’t think they will use vehicles as a crime tool.”
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The Ministry of Commerce, the lead agency for trade issues, didn’t respond to a faxed request for comment.
Harley sold 268 motorcycles in China last year — its best- sellers are the Touring and Sportster lines — and aims to double that this year.
The House of Harley-Davidson dealership in Milwaukee sold “more than 500” bikes last year, sales manager Goran Zadrima said by telephone. Milwaukee’s population is about 595,000, according to the U.S. Census Bureau.
Honda Motor Co., which sells scooters and smaller 125cc bikes in China, delivered 1.29 million units in the country last year.
Harley is coming off a quarter in which it boosted U.S. sales for the first time in almost five years. Retail sales in the Asia-Pacific region increased 6.7 percent, driven primarily by emerging markets, Chief Financial Officer John Olin said during a July 19 conference call.
Another challenge for Harley is overcoming the perception that two-wheeled vehicles are strictly utilitarian, Chief Executive Officer Keith Wandell said in a Sept. 12 interview in Milwaukee.
“The Chinese consumer is unfamiliar with leisure riding,” Wandell said. “They’ve always looked at two-wheelers as a form of transportation and getting to work. How do we get people to understand what leisure riding is all about?”
One way is by supporting riding clubs to promote the brand, said Wandell, who rode in a rally from Beijing to the Great Wall in April. There are chapters — called Harley Owners Group or H.O.G. — in Beijing, Shanghai, Qingdao and Hong Kong.
Every weekend, the Shanghai H.O.G. gathers at a Sinopec gas station wedged between an antique shop and golfing academy on the city fringes before heading into the countryside.
Bikers have to go around the nearby city of Hangzhou because it bans motorcycles, said James Rice, 45, who runs a bakery-supplies company and leads the rides on his red Ultra Classic Electra Glide.