New Engine Helped Sales But Harley To Streamline Operations

The latest financial results from Harley-Davidson paints a puzzling picture of the current motorcycle market. Whether struggling sales for larger motorcycles are a worrying trend or just a passing storm, Harley is right in the middle of it.

Today, Harley-Davidson reported its U.S. sales were down 7.1 percent compared to the year-ago quarter, noting an overall drop for U.S. industry for the same period. The American motorcycle manufacturer held its 52.3 percent market share of the 601cc-plus segment when compared to the same period last year but was left with sputtering sales. This leaves the most obvious question, is the heavy cruiser dead?

“We continue to effectively navigate a fiercely competitive environment and an ongoing weak U.S. industry,” said Matt Levatich, president and chief executive officer, Harley-Davidson, Inc. “We are pleased with the positive results and the enthusiasm we’ve seen for our Model Year 2017 motorcycles, featuring the new Milwaukee-Eight engine. We are confident that the entire line-up will drive retail sales growth for the remainder of 2016 and position us well heading into the spring riding season next year.”

The Milwaukee-Eight engine promises innovative technologies that deliver improved horsepower, torque, and comfort and enhanced sound. It was introduced on Touring motorcycles in August as part of the Model Year 2017 product launch and according to Harley-Davidson, response to the new model year motorcycles drove increased retail sales in September when compared to the same numbers from 2015.

A closer look at the numbers shows the new Milwaukee-Eight motorcycles drove 3.2 percentage of Harley's sales in September.

Source Harley-Davidson

Long considered as a fallback for weak domestic sales, worldwide performance for Harley also appeared to have challenges. International retail sales only increased by 1.0 percent over the prior year quarter with the Europe, Middle East, Africa (EMEA) Region being the best showing for Harley increasing 1.9 percent in the third quarter and up 6.6 percent for the first nine months due. The increased sales were attributed to ‘the popularity of Model Year 2016 cruiser motorcycles and our focus on driving demand through test rides’ Harley-Davidson explains.

Asia Pacific retail sales were up 1.7 percent in the quarter and up 2.9 percent for the first nine months compared to 2015 behind strong growth in Australia and Japan. Although Canada continues to show increased sales, those are mostly from Harley-Davidson taking control of the distribution of its motorcycles in that country.

A part of the world in the midst of a lot of political and economic turmoil, Latin American sales fell 7.6 percent. Adding up the worldwide sales to include the U.S. market and Harley-Davidson’s were down 4.5 percent when compared to the same period as last year and year to date, sales are down 1.9 percent, all against 2015.

What about the t-shirts?

As we’ve written before, Harley-Davidson is fortunate to have several ways in which to make money. Aside from selling motorcycles it offers a wide range of apparel, products, parts and unlike many manufacturers, its own division to help would-be buyers finance the purchase of those new-model bikes.

As with international sales, these other streams of revenue have helped bolster Harley’s bottom line in past years when motorcycle sales weren’t what they should be. This wasn’t the case in the recently released financial information with Parts and Accessories falling 8.3 percent in the third quarter and 2.8 percent year to date, both when compared to the same periods in 2015. General Merchandise, the items riders don’t attach to their motorcycles, fell 5.4 percent and 0.6 percent respectively.

Apparently, fewer riders were buying Harley hoodies or trying to make a motorcycle ‘their own’.

While the revenue of its financing division increased by 3.4 percent in the third quarter of 2016 when compared to the year before, the Operating Income decreased 4.6 percent. This comes from Harley-Davidson increasing it provision for loan loss. In everyday speak, this mean they expect a higher number of riders not paying back their motorcycle loans as they promised to do.

What’s next?

All the above percentages and comparisons leave Harley-Davidson with net income of $645.0 million on consolidated revenue of $4.89 billion in 2016. When compared to nine-month 2015 net income of $710.0 million on consolidated revenue of $4.81 billion it’s not good. There are fewer dollars on the bottom line from slightly more revenues when compared to the same period last year.

With even the most hardened fans of Harley knowing 2015 wasn’t a stellar year for the company, the comparisons could be considered as being made on a sliding scale. As if acknowledging this thought, Harley-Davidson wants to find the hidden road back to success. Included in the release of the financial information, Harley announced they will streamline its operations in the fourth quarter of 2016. This will cost the company approximately $20 million to $25 million in the fourth quarter, ‘primarily for employee separation and reorganization costs’ Harley states.

Last year, Harley-Davidson released a larger line of powerful motorcycles hoping to improve sales. Although they managed to maintain their market share, sales still fell leading to the question of the exact appetite for powerful cruisers in the modern motorcycle market. It’s not only Harley-Davidson trying to figure today's rider out, the confusion can be seen from other motorcycle manufacturers who are releasing different styles of models in what appears to be a test of what ‘sticks’ and what doesn’t.

Harley-Davidson said it will rely on what it does best, promoting the new and improved powerhouse in its Milwaukee-Eight engine and continue building the bikes that made the company famous.

“Our value as a company and as a brand is the sum of 113 years of commitment to our riders and the freedom seekers we will inspire to ride in the future,” said Levatich. “We remain intensely focused on growing the sport and delivering strong business results.”

Leaving the most interesting note from the financial presentation until last, Harley-Davidson stated it would ‘Further broaden appeal’ as one of four points for its focus to grow the company’s sales. Whether this implies more marketing to capture a new group of riders or could be applied to what type of motorcycles it builds should make for interesting conversations and reading.

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