Before the ADVRider Brain Trust™️ watched the Harley-Davidson’s Hardwire Plan reveal, I asked Senior Writers Zac Kurylyk and Mike Botan to record their thoughts and reactions and not discuss them with each other so that we could publish two independent adventure-focused reactions to the plan. Without any further ado, we will start with Zac …
Zac Kurylyk, Senior Writer ADVrider
What I liked about the Hardwire reveal
Shuffling through the Hardwire reboot PowerPoint presentation, and listening to the presentation from Harley-Davidson’s new big boss, I picked up on some seriously mixed messages. But, there were a lot of positive things to take away, starting with the financials. To nobody’s surprise, 2020 made Harley-Davidson’s money problems worst, with a $96 million loss in Q4. But, they weren’t as bad as the company expected. That helps a lot, as the company heads into the new Hardwire plan.
Moving into the plan itself: First off, Harley-Davidson is wise to keep its focus on its high-margin bikes. I don’t understand the naysayers who want Harley-Davidson to abandon the bagger/tourer/Big Twin formula. People still want these bikes, and Harley-Davidson knows how to build and market them. The money’s on the table, and Harley-Davidson would be foolish to turn it down.
Still, there’s lots of room for Harley-Davidson to grow, and it’s good to see management finally realizing that as well. I do think it will be very difficult for Harley-Davidson to make an impact on the adventure bike market with the Pan America, but I also think this sort of growth is imperative for the company. I’m glad to see Harley-Davidson is still sticking with the plan here. Will it be a painful process? Maybe, but if Harley-Davidson quits, it’s going to become the butt of a whole generation’s worth of mockery. Harley-Davidson has built a decent ADV tourer in the past (the Buell Ulysses), and if it does so again, the company will win respect, even if it doesn’t convert hardcore GSphiles.
One of Harley-Davidson’s biggest issues the past few years has been its lack of lower-priced models, and I think Harley-Davidson has come up with a clever workaround. Zeitz announced the company plans to start focusing on a re-selling program for used motorcycles. This allows Harley-Davidson dealers to offer budget-friendly bikes to new riders, and there’s a big supply of those machines on the market. This will bring the profit on those used bikes into the company’s coffers (especially if bought through Harley’s own finance division!), keep dealership mechanics and staff busy, and avoid having to develop new models. It’s a very smart move.
It’s also good to see H-D sticking with the electric motorcycle program, and compartmentalizing it into its own division, and run with the speed and agility of a tech startup. Quick-moving action, instead of frustratingly extended development times, will benefit Harley and give the company an earned reputation for forward-thinking progress. While Harley-Davidson needs Big Twins to make money right now, it needs to be working on appealing to forward-thinking customers for the future. Canceling the electric motorcycle plan would have sent the message that Harley-Davidson was filled with fuddy-duddy quitters, grimly clinging to outdated technology.
But most of all, I think it’s significant that Zeitz acknowledged Harley-Davidson’s greatest shortcoming in the past fifty years: The company has often over-promised and under-delivered. The reality is, current Harley-Davidsons don’t have the performance of their competitors. It’s time for the company to build machines that deserve their premium pricing; Zeitz seems to realize that, and if he brings that change in, the company’s reputation will improve. If management does invest $190-250 million annually into H-D over the next five years, as promised, that’s key to the formula.
What I didn’t like about the Hardwire reveal
The Hardwire presentation raised several questions like: If you’re limiting production, how will Harley-Davidson achieve growth? If you’re planning to innovate, how come all we’ve seen recently is an electric bike that’s eclipsed by competitors, and the Revolution Max V-twin (hardly new territory for Harley-Davidson)? Why are there no photos of middle-aged or older riders in the marketing material, when that’s still Harley’s target market?
However, I think the part that puzzled me the most was CEO Zeitz’s mini-speech about changing the company’s culture. Towards the end of the main portion of his presentation, Zeitz started talking about inclusivity, environmental friendliness, a culture of safety, and so on.
Look. I don’t think Harley-Davidson has much of a future selling bikes to Sonny Barger types. But if it’s planning to turn its motorcycles into the vehicle of choice for fragile millennials, good luck (and I say that as an Xennial, not as a boomer hating on “the kids”). People like motorcycles because they’re fun and edgy, not because they make them feel safe. That’s true even if you’re selling those bikes out of hip boutique-style dealerships … which seems to be the plan, judging by Slide 38 in the presentation, and some other things I’ve observed going on in the company
It’s great that Zeitz is willing to move away from Harley-Davidson’s previous outlaw image. I don’t think anyone is clamoring for a return of the Confederate Edition. But, if Harley-Davidson expects social issues-centred buyers to prioritize expensive motorcycle purchases over other discretionary spending (and at current MoCo MSRPs, that’s necessary), I can’t see that happening. Harley-Davidson could very well end up like that Season 13 episode of the Simpsons, where Moe turns his bar into a hip watering hole—not embraced by their new clientele, and shunned by the old. If that happens any gains Zeitz makes will only be temporary.
Mike Botan, Senior Writer ADVrider
Harley-Davidson’s Hardwire 5-year business plan has been revealed. And, I’m sure I’m not the only one left wondering whether the plan will bring the MoCo back to its former glory. Like most people, I hope Harley-Davidson can continue as one of the world’s larger motorcycle manufacturers. But with the unveiling of the Hardwire, I’m afraid that my hopes have dimmed a bit.
Some good ideas, but are they enough?
That said, there are a few golden nuggets buried deep down in the Harley-Davidson mine. The question is whether those nuggets are within reach. And whether there are enough of them to keep the mine in operation.
There’s no doubt that Harley’s current CEO, Jochen Zietz, is a smart man. His resurrection of Puma is a testament to his capabilities. With the unveiling of the Hardwire, I think I now can see the path he has chosen. But I fear that this path is far too narrow and fraught with danger to lead him to the Emerald City before the Wizard catches the next hot air balloon out of town.
Harley’s Hardwire plan
Let’s examine what Zeitz and Harley have up their sleeves with the Hardwire. Below is a slide from the investor’s presentation. Let’s take a look at each of Harley’s Strategic Priorities and how they might help Harley.
As you scan over the priorities, you’ll recognize that none of them are really rocket science. But does the sum of the priority’s parts equal more than the whole? Apparently, Harley’s CEO believes so. Let’s try to figure out whether Harley has a formula for success.
Perception and lifestyle more important than motorcycles
If products are desirable, you can make them expensive. And expensive is often where the largest profit margins are. So how is Harley going to make their products more desirable? One part of their plan is to limit the supply of their motorcycles. From there, they intend to create the image that their bikes are the pinnacle of motorcycles.
Backing up their plans to increase profit will be Harley’s refusal to offer big promotional programs or discounts on its products. In other words, Harley-Davidson motorcycles are exclusive machines. And if you want to own one, you are going to have to “pay up.” And the payoff to Harley’s riders will be a perceived lifestyle that takes you on adventures and make you the envy of all your riding friends.
But what about those people who can’t afford the price tag of a new Harley? Zeitz believes he has developed a solution. For those that can’t afford a halo or any new Harley-Davidson model in a particular segment, he will offer used Harley-Davidsons.
Zeitz is making this move in a big way with the “Harley-Davidson Certified” program. Harley will maintain that the used bikes are still a premium product but are more reachable by a larger cross-section of its riders.
He will sell the used machines as having been inspected and backed by the MoCo. And if and when the motorcycles ultimately require service, back they come to Harley-Davidson dealerships for repair. This will help Harley’s revenue and profit streams and make the remaining Harley dealerships more profitable and happier.
Financing the future
And while Harley is selling both new and used Harley-Davidson motorcycles, they will sell buyers the financing to make the purchase. Finance can be a quite profitable revenue stream so long as your buyers can keep making payments. If the dealers and Harley-Davidson Financial Services make the process seamless and easy for purchasers, they have yet another revenue stream to help prop up its and its dealer’s financial positions.
Moving into new high-profit markets
So now that Harley has identified and is preparing to retain its core customers, what other revenue streams are out there that they can tap into? Their next move will be to get into markets that are currently profitable and can tolerate higher prices. And this is where Harley’s Pan America adventure touring machine comes in.
The Pan America won’t likely be a lightweight or high-performance off-road machine. But Harley will frame it as a custom, luxurious way to adventure tour your way around the planet. The bike will project a big, heavy, luxurious, and “premium” fit and finish while providing a perception of adventure. And potentially, for the Harley lifestyle crowd, the Pan America could become popular. But you likely won’t see a full lineup of Harley-Davidson adventure bikes.
Harley-Davidson electric motorcycles
So now that Harley is setting the stage as a desirable “premium” product for the affluent or those willing to pay premium prices, what about the future? Harley says they have that covered as well.
The MoCo is planning for the future by investing in electric motorcycles for the longer term. And Harley is doing this by creating a semi-autonomous division responsible for Harley’s electric mobility products.
Zeitz made it clear that the technology for electric touring motorcycles is not advanced enough to compete with internal combustion motorcycles in the short term. Instead, Harley plans to invest in urban mobility electric motorcycles where range and power are not key requirements.
That may be a good move as this market has yet to be saturated by “major” motorcycle companies with Harley’s kind of money and technology. If they invest now and move quickly, Harley could lead the way in North America as a legitimate maker of electric motorcycles to get the population to and from work. On the face of it, could this be a good strategy?
Parts, Garments, and Accessories (PG&A)
But now that Harley has outlined its motorcycle product plans are there any other ways to better its financial future? Yes, certainly. It’s time to tap other revenue streams to add to the profit and revenue piles.
The MoCo intends to expand its non-motorcycle product lines. They intend to emphasize and develop their Parts, Garments, and Accessories (PG&A) and work all of them into the perception of the Harley lifestyle.
With its Harley-Davidson Certified program, I can see them pushing parts for the used bikes they’ve sold or merely service their existing customer base. Emphasize buy from the OEM for best quality, etc.
Increasing sales of general merchandise like garments and other Harley paraphernalia can also add to the revenue and profit piles. And Harley intends to grow all of them through its premium, adventure lifestyle.
Creating a lifestyle image
All of the above is well and good, but you may still be asking yourself, “exactly how is Harley going to create the images it wants to promote?” Harley believes that it can be accomplished using tools other than their actual motorcycle products.
Harley plans to use digital content, experiences, and marketplace items (like general merchandise) to create the lifestyle image. And working with their dealer partners, they will make Harley dealerships a destination place for all Harley riders.
Revenue and profit growth
Harley believes that all of these things combined will make the company better than it is today. And frankly, I think there are some good thoughts in some of Harley’s plans. But do I think that Zeitz’s plan will grow the MoCo in the future? Unfortunately, I don’t think so.
While some of the elements above can help stabilize Harley-Davidson, I don’t think it will completely stop the bleeding. The one huge elephant in the room that Harley has not addressed is growth. If Zeitz intends to only keep Harley somewhere around its current levels, his plan could succeed. Perhaps he is thinking very long term when he can move the Harley-Davidson ship 180 degrees about with electric motorcycles. Until that time comes, I don’t see anything in Harley’s Hardwire plan that would lead most people to believe that the MoCo is on course for growth.
Not much time
And that’s a problem. It’s the same problem that Matt Levatich encountered when he tried his More Roads To Harley-Davidson program. It was a good plan, but it took far too long. And if Zeitz plans to grow on the back of electric motorcycles, he’d better not be willing to wait more than 5 years to get there. If he does, he’ll end up in the same position as Levatich did.
Perhaps growth is too big an ask for Harley-Davidson at the moment. Zeitz made it clear that he (and the company) are tired of over-promising and under-delivering. He’d rather be more realistic about what the company can do going forward. And that is refreshing.
But I have to wonder whether Wall Street will “put up with” just decent profit and stable revenue. They’re a voracious crowd when it comes to money. Keeping things about the same won’t feed them for long.
When all is said and done, I see Harley-Davidson slowly shrinking and becoming a somewhat boutique brand. It likely won’t die, but the Board of Directors will have had enough of the same numbers at some point in time. Investors will start looking for “other opportunities” that are not as cyclical or as tied to the economy as leisure motorcycle riding.
Unfortunately, I think we all saw a taste of this at the market’s close this day. Share prices fell more than 17% at the close of the market. I wish Harley well. But I think the MoCo’s time as the 800-pound gorilla is becoming shorter and shorter. So while I’m not sure that Harley has a bad route, I definitely don’t think I like the destination.
What are your thoughts? Let us know in the comments below …