Harley-Davidson's Northwest Outlook for 2010

Dealers and industry vets share their thoughts

We were a bit taken aback when we were putting together our 2010 demographic study in November. Turns out the level of Harley-Davidson ownership among readers of Sound RIDER! increased from 17% percent in 2007 to 23% in 2009. With a reader base of 60,000, this equates to 13,800 pairs of H-D owner eyes reading SR! every month. Interesting.

What’s this telling us? Our pragmatic approach to motorcycling is embraced by Northwest Harley-Davidson owners who don’t subscribe to the bad boy, tavern-to-tavern lifestyle often associated with the brand. Instead we’re providing useful content to touring riders who are starved of it by the lifestyle publications.

With that in mind and all the activity within the motor company in the last year, we took time out to talk to some area dealers and veterans of the industry to get a look at where things are headed for the Harley-Davidson brand in the Northwest in 2010. Harley-Davidson is 107 years old. They’ve been through a lot of ups and down in more than a century and always come out the other side. But first, a quick recap of 2009 before we take a look into the future.

• The motor company has lost 10-15% of its dealer network in the last year. Right here at home we saw Shumate go bankrupt closing out all three of their locations – Spokane Valley, Lewiston and Kennewick.
• Buell production was ceased in October and the entity was closed out.
• The H-D owned MV Augusta brand was put up for sale.
• H-D stock rose 50% in 2009.

In addition, Harley-Davidson has been plagued of recent years with the fact that their demographic is getting older and older. Buell was an attempt to reach a younger audience, which they did, but at a very high price. The division never turned a profit for the company in its 27 year history.

Dealers and sage industry voices all agree that there are several key factors that must be focused on to make 2010 a good year within the Northwest H-D camp.

Financing comes out on top. Jim Boltz, owner of Seattle Harley-Davidson in Lynnwood, points out – "HDFS (Harley-Davidson Financial Services) is the most dynamic such organization in the industry. They constantly have programs geared to the current market and economic situations.” But it’s too soon to tell what those programs will be until they are announced in the first quarter.

Matt Harlowe, a Northwest motorcycle industry veteran who has worked at several H-D dealerships over the years, offers an outside-looking-in viewpoint. "HD will have to think out of the box to assist their dealers. Two items of paramount importance are going to be product value and the availability of financing product."

Ahh. Product value. Dealers have long made additional money in the sales departments selling all sorts of after-market accessories such as performance exhaust systems, air filters and every chrome farkel imaginable. But with less money for consumers to spend, dealers will have to come up with new ways to create an add-on worthwhile. Harlowe looks at it this way – "'Value added’ items can complete an already good product. But going forward it may make more sense to push ‘factory’ maintenance and service for a finite period dictated by mileage or time, than accessory add-ons.”

Local marketing is surely a consideration and the PSHDDA (Puget Sound Harley-Davidson Area Dealers Association) is working together to promote the brand, rather than marketing individually. Last fall the dealer group put together a radio campaign which ran in December, aimed at driving business at the store level with the costs of the campaign being shared by the group, rather than being shouldered by a single dealer. That’s smart money when you consider how tight ad budgets are. It’s likely we’ll see more of this banding-together style of marketing in 2010.

Before we go any further, it’s time to talk about H-D’s wild ride on the stock exchange. The stock opened on January 2, 2009, at $18.40. By early April, it dropped to $8 a share. With the economy slowing, the executive board had to respond to the stock drop and pull the right strings to make the stock price rise. And pull strings they did. In the summer, they announced they were shutting production down for much of the fall quarter. In October, they announced the closure of the Buell division entirely and the sale of MV Augusta. By year's end, they had dropped their inventory levels significantly and reduced their staff by 50%. And on December 31, 2009, the stock closed at $25.20 - 50% higher than it started in January.

But if profits are slow in 2010, H-D now has less cards than ever to play to impress inventors, which may send the stock tumbling one more time.

Probably the most concerning part of all this to a potential buyer in 2010 is the question "what will the new Harley I want cost?” Those who were around during the inventory shortage that occurred between 1999 and 2001 will remember the MSRP+++ price gouging that was going on. Terry Stallcop, GM for Downtown Harley-Davidson shares his take – "Harley’s new allocation system so far has kept some dealers from running low and others from being over-inventoried. It’s a turn and earn system. I think based on today’s sales rate that Harley will be able to keep dealers well inventoried to avoid a waiting list like we had a decade ago.”

Barry Mercer, who spent a number of years selling H-D's in the Northwest sees it this way – "The days of greater dealer profits may arise again, but not until the economy looks brighter. Will the lack of product create demand, no. Lack of product just forces people to other products. The only time they will stand in line is when economic forces are good enough to make waiting worth the wait for a particular product.”

Anyway you look at it, 2010 will be an interesting year to watch with regard to Harley-Davidson. The motor company has made some smart moves, area dealers are working together and the economy is looking on track for an uptick, however slow that may be.
Each of our interviewees had their own closing thoughts to share:

Jim Boltz: No matter the brand, these are tough times. Motorcycle ownership makes so much sense during times of limited finances – if not for saving money in commuting, then for the low cost of entertainment. I am happy to report that we have lost very few dealers this year – probably a testament to the fact most dealers in our state have been around for a long time, but even the new guys seem to be hanging in there. It will be a slow climb back up for our industry, but we are a resilient and committed group of small business owners – virtually all of whom have ‘all their eggs in one basket’ – their dealerships.

Barry Mercer: In this down turn in motorcycle sales, it would behoove all of the motorcycle manufactures and distributors to increase money spent on motorcycle safety and awareness. If there are real reasons to believe that motorcycling is getting safer, more will ride motorcycles as an alternative to other forms of transportation.

Matt Harlowe: Dealers must think outside the box. Look to other industries to nurture ideas. Totally different industries can be a very good venue. Do not be afraid to try a new concept. Work hard for new customers. Work harder to keep those "family” you have. Keep in mind that what worked in the past may not work today. If something does not work, change it. "Now” is always a good time.

Terry Stallcop: I think Harley is one of the best Powersports franchise to be associated with before, during and after a recession.

Sound RIDER!/Winter 2010

Dave Preston contributed much of the information used in putting this article together including pulling the interviews off. We’d also like to thank each of our interviewees for their insight and time spent replying to our interview questions.