OFF THE WIRE
1- Change Of US Leadership Makes Predicting Anything Much More Complicated.
Americans can’t recall a time when a change of leadership in Washington
had the potential for such large and diverging effects on the U.S.
economy. If you believe that the economy is going to be stimulated
through new legislation and less regulation, for example by lowering
individual and corporate taxes, with a tax holiday offering incentive
for repatriation in the US of profits kept abroad by multinational
corporations, by the rebuilding of America’s infrastructure to create a
large number of construction jobs, etc… you can expect discretionary
purchases to increase, and consequently the motorcycle industry to get a
boost. American motorcycle manufacturers would benefit if the consumer
has extra cash and borrowing costs remain quite low. Of course, if the
US doesn’t get involved in a trade war which would create inflationary
pressure on the imported products we all consume.
One of the biggest winners since the election has been the U.S.
dollar rising sharply against all major foreign currencies. It means
that in the US, Harley-Davidson and Polaris may face a tougher price
competition from direct or indirect competitors like Triumph, Ducati,
BMW, Royal Enfield, etc taking advantage of their lower home currency to
offer much cheaper models. During the next 2 years the US motorcycle
market is expected to remain somewhat stagnant or increasing only in the
very low single digit. Harley-Davidson – much more than Polaris
Motorcycles Division – relies on exportation to grow its unit sales.
Would a slightly better demand in the US compensate for sales loss
abroad due to a higher dollar? The introduction of the H-D LiveWire
electric model susceptible to attract new motorcycle buyers being 2 or 3
years away, and in the absence of truly new affordable models,
it could be a very challenging next 2 years for Harley’s domestic and
global sales. Regarding the custom parts industry, the upcoming new
administration is floating the idea of a 5% tariff on all imported
goods. Most of custom motorcycle parts sold in the US being manufactured
abroad, even when conceived here locally, it could spell trouble for
many aftermarket part vendors and distributors, and this even if
corporate taxes are lowered from 35% to 20%.
2- The Disrupted US Motorcycle Industry.
Since 2013, when Polaris resurrected the Indian Motorcycle nameplate,
it has been a kind of David versus Goliath competitive environment.
Harley-Davidson is not a tarnished brand, is not in financial trouble
and is not going to be dethroned by Polaris 2 motorcycle brands in just a
few years. But at the end of 2012, Harley owned 57.2% of the
heavyweight motorcycle market over 601 cc and larger. By the end of 2015
that had shrunk to 50.2%, even as that segment of the market expanded
from 62% of the total U.S. motorcycle market – in terms of new units
registered – to 85%. Harley-Davidson unit sales have fallen for 8
straight quarters since Indian Motorcycle was relaunched. During that
time Polaris motorcycle sales were up 67%, a very significant market
gain almost essentially at the expense of its Milwaukee competitor.
While the motorcycle market isn’t getting much bigger, it’s just being
divided up differently. Indian started from scratch, so its growth will
naturally seem exponential while Harley, as the more mature motorcycle
maker, will appear to be growing much slower if any. It’s true that far
more bikers still buy from Harley, but although Polaris is very
secretive when it comes to publishing unit sales per brand and model, it
is certain that an increasing number of riders are choosing Indian or
Victory motorcycles. Polaris success is that in very short years it was
able to offer all across the bike size spectrum alternate very
competitive models in terms of performance and at great price points.
In addition, brands like Triumph, Ducati and Royal Enfield are
aggressively pushing their bikes in the US. Triumph got strong traction
with good sales of its “modern classics”, the Bonneville, the Thruxton
and now the Bonneville Bobber model. Ducati perceived here during a long
time as a Moto GP racer decked out in sponsor badges now offers city
streets models and is also quite successful with its very affordable 6
Scrambler products . And India-based Royal Enfield recently established
its North American headquarters in Milwaukee’s Third Ward and hired a
former Harley-Davidson executive as North American division president.
And let’s not forget that younger bikers (read below), as opposed to
Boomers, are more interested by product value than image. As it’s often
the case in such a disrupted market, being the leader manufacturer,
Harley has more to lose when the consumer choice is much wider with
quality products equal or sometime better for performance and offered at
competitive prices. There are not yet definitive winners or losers in
this brands battle, but for sure bikers will continue to benefit.
3- Cracking The Millennials Code With New Marketing And New Motorcycle Models. We
are in a graying/whitening market with a large number of Boomers riding
off into the sunset after each motorcycle rally. In the US, population
aged 50+ is currently north of 100 million, and will reach 173 million
by 2060. According to MIC (Motorcycle Industry Council) the median age
of the typical motorcycle owner in 1990 was 32, and was a married male
who had a high school diploma. Today, the typical owner got at least
some college education. But the median age has climbed significantly to
49 years old. Only 17% of riders today are under 30, compared to 41% 25
years ago. Regarding age, these numbers are certainly worse if you
address specifically the heavyweight motorcycle market in which Harley
and Polaris are competing. In 2020 Millennials are going to comprise
49% of the work force and will replace Boomers as the biggest spenders
and borrowers. The oldest Millennials (born in 1980) are 36 years old.
Although they have more education loan debts than Boomers, the oldest
already earn more than their parents did at the same age. Individual
earnings always peaking between the age of 34 and 52, they are the human
force that will decide the success of most corporations, in and out of
the motorcycle industry, for at least the next 20 years.
In a heavily disrupted market you don’t need to do something wrong to
be wrong. Just don’t change and for sure you will fail. Get with the
times, revisit your marketing, evolve your products, or get left in the
dust. So all manufacturers and many in the custom motorcycle segment are
reaching out (or pretending…) to attract this demographic. At the same
time Harley is trying to maintain its preeminent position by serving the
group of older bikers that created its success, the company is also
courting, with some success, new young riders with the Street, the
Sportster and all its Dark Customs lineup. Polaris had big success with
the Scout and Scout Sixty, 2 bikes selling disproportionally versus all
the other Indian and Victory models. But for both manufacturers, a
couple of new low priced models will probably not be enough to attract a
very large number of Millennials, fast enough to ensure their future.
The reason is the huge generational gap between them and the Boomers.
They are much more than a “facial hair and flannels lover group”.
Marketing and advertising of motorcycles need to be reinvented.
Millennials are wired differently, less in financial success and much
more into the right balance between home and work. They are more likely
to make a purchase based on the value they get. They don’t buy things
for status, image or brand loyalty, criteria on which Harley founded its
success. They hate the flashy and gaudy and feel strong affinity with
everything vintage if offering modern convenience. They appreciate
simplicity, quality, authenticity. Regarding motorcycles, transportation
is not their priority. the social aspect is. They love fun
entertainment, but in small groups, not in massive gatherings like
Daytona or Sturgis. Events like “Born Free”, the “Mama Tried Show”
sponsored by Harley-Davidson or the “Hooligan Races” sponsored by Indian
Motorcycle are in the line of events helping both brands change their
image, away from the stereotype of old overweight white guys riding
touring bikes. In 2017, expect motorcycle manufacturers and independent
show organizers to try brand new such events and parties all over the
country and marketing them online, the place where the Millennials watch
television, read the news, network, compare and shop products…and find
their entertainment. 15 years ago internet was already pivotal in the
way to talk to existing riders and has been the only way to address
Millennials via blogs and social media. A cultural game changer, many in
the ultra conservative motorcycle industry still don’t know how to use
it, even if they use it by ,just filling up digital space but without
adequate marketing. Millennials will not reward manufacturers and brands
only for their products, as stripped down and value priced their
motorcycles may be. They will respond to those making a strong
grassroots effort to create a “proximity” with them. Or for an authentic
and fun experience Millennials will continue to look somewhere else
than motorcycling.
4- Flat Track Becoming The Hottest Thing In Motorcycle Racing.
I have attended a few American Flat Track races during these last 2
years. I have witnessed a growing attendance of youngsters driving their
cars to the track and joining the traditional older v-twin crowd
arriving on their Baggers. The return of Indian Motorcycle to the flat
track circuit to challenge Harley-Davidson’s dominance is going to widen
the interest of all the biker’s community and attract new riding and
non-riding new spectators. Discovered by the youngest or re-discovered
by their parents, this sport is perceived again as the most authentic
and pure form of motorcycle racing, one with strong old school heritage
capturing the essence of what competing on 2 wheels is all about. Just
naked machines, dirt and the sliding skills of brave young racers. For
2017, AMA has modernized each event format with a simpler class
structure and rules easier to understand for new fans and has named
friend of the industry seven-time Grand National Champion Chris Carr as
Chief Competition Officer. All good. In addition, waiting for a race to
happen in your region, it is now possible to watch each event live on
internet on Fans Choice TV.
Just where Millennials look for new authentic experiences…I have no
doubt that Flat Track racing just entered the dawning of a very bright
new era. And for those going to Daytona Bike Week, make a note that the
2017 flat track racing season will begin on March 16 at the
International Speedway, with the race taking place inside the historic
arena, a first in the sport’s history.
Have all a healthy, happy and prosperous 2017 year. See you on the Tour, here and abroad.