Focus: Harley borrows Detroit's used-car playbook to pursue younger riders

YAMAHA

08/03/2021 12:00

By Rajesh Kumar Singh
    CHICAGO, March 8 (Reuters) - Harley-Davidson Inc  HOG.N  has
decided the best way to get younger customers to buy a new
motorcycle is to sell them a used one first.
    The Milwaukee-based company plans to roll out a certified
pre-owned bike program, known as H-D Certified, adapting a
strategy carmakers have been following for years to position
well-tended used vehicles as a substitute for low-margin,
"entry-level" new models.
    Harley's embrace of used bikes is part of a new five-year
turnaround strategy under Chief Executive Jochen Zeitz, and is
the latest effort to expand the brand's appeal beyond
middle-aged and affluent riders.  urn:newsml:reuters.com:*:nL4N2K82YA
    The 118-year-old American brand has been steadily losing
U.S. market share amid declining retail sales for six years.
(For a graphic on Harley's U.S. market share, click https://graphics.reuters.com/HARLEYDAVIDSON-USEDBIKES/dgkvlzonjvb/
 )
    But the demand for used Harleys, which are less expensive,
has remained strong. Some dealers told Reuters that pre-owned
bikes last year outsold new ones by three-to-one. 
    Melissa Walters, owner of a Harley dealership in Fresno,
California, says the coronavirus pandemic has led to an
increased demand for outdoor recreational activity, but dealers
are hard-pressed to find bikes to sell to customers.
    "People are tired of staying home," she said. "They want to
go out and do something."
    That sentiment was echoed by over a dozen dealers in six
states.
    Data from industry consultant J.D. Power shows Harley was
the most sought-after brand in the used big bikes market last
year, boosting bets the certified program will draw in new
customers. 
    For Harley, it offers a way to build brand loyalty and
attract new customers without engineering and manufacturing new
lower-cost bikes, which tend to have lower profit margins.
    "We believe this program will drive Harley-Davidson
desirability, increase sales and margins, and enhance the
overall customer experience while supporting growth," Zeitz told
Reuters.
    Under the pre-owned bike program, which was revealed last
month, Harley will certify motorcycles up to five years old with
up to 25,000 miles (40,234 km). Certified bikes will be
inspected and backed by a 12-month limited warranty, and can be
financed by Harley's financial arm, distinguishing them from
other used Harleys.
    While the heavyweight motorcycle maker has a similar program
in the United Kingdom, this is the first time it is entering the
used marketplace in the United States - its biggest market.
    The program will be launched in late April and over 300
dealers have expressed interest in participating so far, Harley
told Reuters.
    "It's going to draw new riders ... and will give them entry
into the Harley-Davidson world," said Brad Conn, marketing
coordinator at an Indiana-based dealership that plans to sign up
for the program. 
    
    A POTENTIAL REVENUE STREAM
    In the auto industry, according to J.D. Power, similar
programs offer higher profit to dealers with faster inventory
turnover. J.D. Power's data also shows the programs are more
effective in cultivating brand loyalty and tend to generate more
business for the financial arms of automakers, which fund the
vehicle purchases.  
    James Hardiman, an analyst at Wedbush Securities, said the
secondary motorcycle market has become a big business over the
last decade and could be a "significant" revenue stream for
Harley.
    In 2017, online retailer for pre-owned vehicles RumbleOn Inc
 RMBL.O  pegged the value of the used motorcycle market in the
United States at $7.5 billion a year, with Harley bikes
accounting for more than half of sales. The study also showed
customers aged 18-34 were buying three used Hogs for every new
one.
    
    NEW VERSUS OLD 
    A booming demand for pre-owned Harleys until now has been a
drag on the company's U.S. retail sales, which have declined by
nearly 40% since 2014. 
    As its motorcycles do not wear out or go out of fashion
quickly, used Harleys tend to be more in demand vis-à-vis pricey
new models.
    Zeitz has tried to address the problem in the past year by
tightening the supplies of new bikes. Leaner new inventory
together with the increased demand for outdoor sports have
driven up the prices of pre-owned bikes.
    Still, the company estimates there are 3 million unsold used
Harleys in the United States, far more than the approximately
80,000 new bikes it shipped last year. 
    "The biggest competition for a new Harley-Davidson bike is
not an Indian bike or a Honda, or a Suzuki bike, but is a used
Harley-Davidson bike," said Hardiman.
    Faced with a similar situation in the 1990s, automakers
launched certified programs to resell thousands of returned
leased vehicles to first-time and budget-minded buyers. 
    The programs allowed them to scrap less-expensive
entry-level models, which had razor-thin profit margins, freeing
up resources for more profitable products.
    Harley is pursuing similar goals. It has done away with some
of the cheaper entry-level models and will ramp up investment in
touring, large cruiser and trike bike segments that drive
company profit.
    It is also looking to increase sales of ancillary products
such as accessories, general merchandise and financial services
by leveraging the certified bike program.
    Michael Uhlarik, founder and lead consultant at Motorcycle
Global, reckons the certified program is aimed at replacing lost
motorcycle revenue from falling shipments.
    Harley's bike shipments to dealers in the United States have
 dropped more than 60% from the 206,000 units in 2008.   
    "It will never be a 200,000 vehicle-a-year company," said
Uhlarik. "They have to replace that lost revenue somewhere."

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Graphic on Harley's U.S. market share    https://graphics.reuters.com/HARLEYDAVIDSON-USEDBIKES/dgkvlzonjvb/
Harley unveils turnaround plan as shares nosedive on
disappointing results      urn:newsml:reuters.com:*:nL4N2K82YA
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 (Reporting by Rajesh Kumar Singh in Chicago
Editing by Joe White, Caroline Stauffer and Matthew Lewis)
 ((rajeshkumar.singh@thomsonreuters.com; +1-312-408-8537;
Reuters Messaging:
rajeshkumar.singh.thomsonreuters.com@reuters.net))