- Harley-Davidson is the most well-known American motorcycle brand in the world, but that status may be preventing the company’s future growth.
- Its core customers helped the company reach new heights in 2006.
- But today, Harley is facing challenges reaching new customers.
- Without new riders, the company might slowly erode.
- Visit Business Insider’s homepage for more stories.
Following is a transcription of the video:
Irene Kim: You don’t have to be a biker to know about Harley-Davidson. Harleys are big, loud, fast, and inherently American.Commercial: Until you’ve been on a Harley-Davidson, you haven’t been on a motorcycle.Jake Holth: You get some of that instant respect just riding one alone.Kim: And for decades, that iconic American brand worked. In 2006, the company’s US sales peaked. It sold over 260,000 bikes in the United States and reported a profit of $US1 billion. But after the recession struck in 2007, Harley sales plummeted, dragging the stock price down with it, and the company still hasn’t completely recovered.
Matthew DeBord: In decades, they could wind up just disappearing. We’ll all still associate Harley-Davidson with being the greatest motorcycle brand in the world, but there won’t be any motorcycles. You won’t be able to buy one.
Kim: So, what happened? Harley-Davidson got its start in 1903 out of a shed in Wisconsin where William Harley and Arthur Davidson made their first motorcycle. But the company didn’t really take off until World War II. And, in a way, if it weren’t for the war, Harley-Davidson may not exist today. During World War II, Harley-Davidson produced about 60,000 bikes for the US military.
DeBord: This was when you really had people who’d never experienced serious machinery that can deliver. I mean, it’s a machine of war, but it’s also a h— of a lot of fun. Commercial: A terrific test for men and machines, they take the bumps in high gear. Now they’re real veterans of the saddle.
Kim: After experiencing the atrocities of war, soldiers returned home and saw America in a different light. And out of that, they created a counterculture that would become the building blocks for the Harley-Davidson lifestyle.
DeBord: America is a very conservative place at the time, and a lot of guys came back from that, and they said: “Uh-uh, I’m not interested in that. I’m gonna get me a Harley-Davidson motorcycle, and I’m gonna go live on the road. I’m gonna live my life on my terms with freedom, mobility, attitude.”
Kim: Between 1945 and 1970, the number of registered motorcycles in the US jumped from 198,000 to 2.8 million. But it was Hollywood that set Harley-Davidson motorcycles apart from the rest, with films like “The Wild One” and “Easy Rider” featuring Harleys.
Billy: All we represent to them, man, is somebody who needs a haircut.
George: Oh, no. What you represent to them is freedom.
Kim: By the end of the ’70s, Harley-Davidson wasn’t just selling motorcycles anymore; it was selling a lifestyle, with jackets, vests, and T-shirts. Harley-Davidson even had its own club, called the Harley Owners Group, for devout customers. In short, if you owned a Harley-Davidson, you were cool. And baby boomers took notice.
DeBord: The core baby boomers, they’re the ones who really built Harley up into the juggernaut that it became in the postwar period.
Kim: By the ’80s, baby boomers were prospering, and so was Harley-Davidson. The Harley Owners Group grew to more than 90,000 members. In 1984, the company made a profit of $US2.9 million. Just two years later, profits hit $US4.3 million. Harley-Davidson went public in 1986 and continued to rake in cash into the millennium. In 2006, as its core customer reached middle age, the company’s stock price peaked, and it reported over $US1 billion in profit. But then, in 2007, the recession hit. Like many companies during the Great Recession, Harley struggled with its sales. Its stock price plunged by 60 points from its peak in 2006 to 2009. The 86% drop marked a 13-year low. Before the recession, Harley had been trying to reach emerging markets, like women and young adults, with marketing events, beginner bikes, and smaller, more fuel-efficient models, but it had little success. And at the end of 2009, the company reported $US55 million in losses. So, to survive the recession, the company refocused on the kind of bike it knew its core customer wanted, which were big, loud models. And it worked. Profits rode back up to $US844 million in 2014, but not everything was as good as it appeared. Those profits just masked the brand’s long-term issues.
DeBord: If you looked at a chart, what you would see is not, you know, this kind of thing, where it goes [makes crash sound] like that, but more like, you’re looking at this kind of slow erosion.
Kim: The first issue is that Harley’s core customer is ageing. In 1985, a motorcycle owner’s median age was 27. By 2003, it was 41. And by 2018, it rose to 50, which means Harley-Davidson’s customer base is only getting older. And right now, no one’s taking its place. The second factor is the price. Harleys are expensive. According to The New York Times, the average cost of a Harley is about $US20,000. They’re also not practical vehicles for commuting and usually end up becoming pricey toys, which leads to the third and final problem: Harley-Davidson’s brand just hasn’t captivated millennials the same way it did baby boomers, and the baby boomers that helped the brand thrive also burdened the company with the reputation that Harleys are only for middle-aged white men, trapping the company between brand loyalists and future growth. But Harley-Davidson isn’t going down without a fight. The person tasked with solving these issues is Harley’s CEO, Matt Levatich.
DeBord: He has the most difficult job in the world. He has the choice of just sitting there and riding out this slow erosion, but he has decided that he’s gonna take this opportunity, I think wisely, to try to ensure a better future.
Kim: One way Levatich is doing this is with Harley-Davidson’s buyback program.
Holth: That is a program that Harley offers on their entry-level bike, known as the Sportster, where you can buy a newer Sportster and trade it in within a year and get every dollar you spent buying that bike on an upgrade. It’s a great way to kind of get your feet wet and then upgrade to something that’s better suited to you after you kind of figure it out.
Kim: Under Levatich, the company is focusing on reaching out to new riders. When Business Insider reached out to Harley-Davidson for comment, a representative sent over a release about the company’s current strategy, which focuses on expanding its global market and launching new products, like electric bikes and smaller models. But right now, there’s another obstacle standing in Harley’s way.
Donald Trump: We will have a 25% tariff on foreign steel and a 10% tariff on foreign aluminium when the product comes across our borders.
Kim: Which means it’s now more expensive to produce motorcycles in America. In response, the European Union introduced a retaliatory tariff on US goods, including bourbon and motorcycles, which The New York Times reported would have made the bikes about $US2,200 more expensive in Europe. To avoid the tariffs, Harley continued to shift manufacturing to other countries, which Trump and some of Harley’s core customers didn’t appreciate.
Trump: Harley-Davidson, please build those beautiful motorcycles in the USA, please, OK? Don’t get cute with us. Don’t get cute.
DeBord: In contemporary industrial economics, you don’t build the bikes in the US and put them on a boat and send them where you want to sell them. You manufacture them at the point of sale, and that way they can be properly aligned with the market.
Kim: With all these factors in play, can Harley-Davidson grow its business while protecting its brand?
DeBord: They are stuck, but they’re stuck with a not unappealing problem, which is that, even though they’re stuck, they can still make a lot of money on the stuckness. They still control a huge percentage of the market, and they’re able to use that market control and the products that they sell in it to generate very substantial profits and share those profits with their investors.
Kim: And Harley-Davidson can then use those profits to reinvest in the business and try new things.
DeBord: The brand equity that Harley has is infinitely valuable. It’s amazing.
Kim: But who knows if that will be enough?