Harley Offers Rare Incentives

By Matthew Radman,   
Money and Investing Writer

In a rare move, motorcycle manufacturing giant Harley-Davidson Inc. (NYSE: HOG) is offering rebates on its 2016 bikes. The move is meant to incentivize United States dealers to shift a backlog issue that has restricted sales of its later models.

The deal is expected to run until the end of April 2017. The promotion will cut into Davidson’s margins for the year, although it is a short term fix to a much more complex issue. As baby boomers age, the group that makes up most of the company’s current target market, demand for the vehicles is decreasing. The industry has become competitive due to foreign manufacturers like Honda (TSE: 7267.T) and Polaris (NYSE: PII.N). The foreign brands have taken a different, more modern approach to building bikes and are better at capturing the younger demographics.

The company’s quarterly profits fell about 25 percent with a net income drop from $250.5 million to $186.4 million.

CEO Matt Levatich said in a statement that the numbers were broadly “in line with our projections,” and reiterated guidance for the rest of this year. While Harley’s U.S. sales were down, Levatich mentioned that “overall U.S. industry” sales were likewise “down for the same period.”

Davidson’s financial troubles have forced them to lay off 118 workers at its York, Pennsylvania factory and shift employment to Kansas City, Missouri.

The rebate promotion is strange for Davidson as they rarely discount bikes to keep up with their premium image. Currently, the Milwaukee-based firm is the established king of the “big bike” market; vehicles with more than a 601 cc engine.

CFO John Olin mentioned in a January post-earnings conference call that Davidson will dedicate the first quarter of 2017 to selling the remainder of their 2016 bikes. Because of this, they will limit 2017 bike shipments including bikes with their new “Milwaukee-Eight” engine. They already predict fewer bikes this quarter than last year.

The bike rebates have been reported up to $1000 dollars. This total is significant considering their product line starts at around $8,500 for entry level and about $18,700 for the highest end touring models.

Even long-time dealers find the rebate a bizarre move for Davidson. One dealer said in a statement to Reuters (NYSE: TRI), “It’s not normal… usually; any incentives are customer-facing.”

Analysts have had mixed responses to the earnings. Wedbush cut its price target to $53 and Deutsche Bank (NYSE: DB) cut theirs to $50. However, Stifle Nicolaus (NYSE: SF) cut its target, but still projects $61 per share.

Overall, a significant drop in earnings puts pressure on one of the most iconic American brands in the world. Mixed skepticism about dropping demands means that Harley-Davidson must look to new markets as the baby-boomers age.

The company is discovering that their name does not have as much resonance with the younger generation of motorcycle enthusiasts.

The bizarre move to offer rebates shows that they are beginning to think outside the box and are trying to ensure that they do not run into another backlog situation as they did in 2016.

They must cater to what the younger generations wants if they are going to remain an American staple.

A version of this article appeared in the Tuesday, April 25th, 2017 print edition.

Contact Matthew at
matthew.radman@student.shu.edu

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