“Form follows function, but both report to emotion.”
The famous quote from Willie G. is a guiding principle at Harley. And nothing is more emotional in the motorcycling equation than the engine. For Harley that means an air-cooled 45-degree V-Twin, with its distinctive potato-potato-potato sound signature. The trademark engine tones are such a valuable commodity that H-D famously attempted to patent them (unsuccessfully as it turns out).
H-D engineers continue to fine-tune the V-Twin’s tones in its Product Development Center – H-D’s secretive R&D facility, opened in 1997 and employing 300. We pay a call after the Steel Toe excursion, supposedly the first journos to ever visit the place.
After a general introduction from Paul Wiers, VP of Engineering, the short tour culminates in the anechoic chamber. The vast soundproof room makes talking a strenuous endeavor, with zero reverb to carry the voice. Elaborate sound tests are conducted there via stationary bike dyno, with a long string of microphones able to simulate drivebys by staging sequential measurements. The anechoic chamber operations are impressive to be sure.
But that’s about the extent of our look behind the curtain. The barren hallway corkboards, presumably sanitized of sensitive information for our visit, are tantalizing. We are half-tempted to run down the hallways of searching for the Skunkworks. Where is the V-Twin Superbike tucked away after the MV Agusta sell off? What about that dirt bike Erik Buell told us about? How about a cheap small-displacement Harley that will rear up entry-level riders – or be sold by the boatload in India?
Afraid there’s no such bombshell in this story – no off-the-record slips or glimpses of unobtanium prototypes. We do hem and haw our way through trying to ask where all the cool new stuff was hiding, as we are politely ushered out the door. To which Wiers stops and rephrases the question: “You mean where do we develop our innovative technology?”
You sense that the H-D folks themselves are fatigued by the familiar criticisms – that Harley is too stuck in tradition. Even the limited facilities we were allowed to see made it clear no Harley rolls off the line without a substantial amount of engineering manpower invested. It’s also evident that H-D can build, and presumably do build, whatever it wants behind the curtain… What H-D brings to market, however, is another story.
Hyped “new” models in recent years from H-D, and its fellow American V-Twin rival Victory, have not been groundbreaking. The 2013 lineup is a prime example. While H-D did add a new Softail model to its CVO range, the Breakout, the only redesign in the regular lineup was the Street Bob. The Bob is an important bike for its demographic implications (which can be examined further in our 2013 Street Bob First Ride), however, changing the location of the key mount is lackluster at best. The headlining spec on the Street Bob was its sub $13K MSRP. Again, pricing strategy is important, but is it inspiring? The requisite 110 Anniversary models have special branding and accessories, with a bronzed patina tank badge. They are high-quality and fit their role as anniversary adornments, but there is no bold new direction revealed in the 110 production year.
Harley-Davidson’s 110-year model line does not assuage critics who question the long-term viability of the current dynamic – selling expensive bikes to Boomers. But speculating about the future of Harley-Davidson is where things get interesting…
For now, let’s evaluate the present situation. H-D is back to turning a healthy profit despite the lower volumes. In 2012, it shipped more than 160,000 domestic units (247,000 total). H-D claims retail sales of 161,678 units in the US, up 6% from 2011. The MIC reports 452,386 total motorcycle sales for 2012, with Harley’s share of the domestic market remaining dominant and increasing from 2011 (151,683 reported US sales of the 440,899 MIC total). Narrowing the segment focus to what H-D considers its direct competitors, heavyweight (651cc+) on-road bikes, it claims more than 60% market share in the US.
One Harley rep laid out the company position quite plain: H-D doesn’t need to grow its share of the market, it needs to grow the market itself. That means fostering ridership in the U.S. (more on that later), but also expanding into foreign markets.
H-D forecasts more than 40% of sales will come from outside the US by 2014. The past year saw rapid growth in Latin America, up 39.2% according the Q4 financials, with the Asia Pacific region enjoying 14.3% growth. The long-term potential payoff in Asia is staggering, however, as increased wealth and prosperity spurs demand for luxury goods. Gaining even a sliver of the gargantuan market in high-volume China and India, where unit sales are measured in the millions, will be a bonanza. The Motor Company has already created an Indian subsidiary to assemble Sportster knock-down kits to circumvent restrictive tariffs.
Penster three-wheeler concepts from the Harley-Davidson archives (top). Many visitors to the H-D Musuem are not riders and one display allows them to rev a live engine (bottom).
On the domestic front, the elephant in the room for Harley, and the entire US motorcycle industry, is its rapidly aging rider demographic (the average American rider, not limited to H-D, just a hair below 50 last time we checked). Engaging younger riders to replace the Boomers is a critical directive for every manufacturer doing business in the States – and Harley is no different.
Again, H-D claims the problem is not its share of the youth market – but growing the youth market in general. Demographic sales stats from manufacturers are difficult to source, so we have to rely on the OEMs themselves. By its own accounts, H-D has only improved on its share of young riders during the economic downturn. While 2012 data is forthcoming, the company reckons its share of the 18-34 demo in the 651cc+ segment has grown from 35.5% to 48.4% between 2007 and 2011.
That figure is dominant, but below H-D’s 60% share in all demos for that segment. Notably, the 651cc cutoff shields H-D from popular youth segments like the 600cc supersports and the 250 sportbikes – where it has no bikes to offer. Sales from the former supersports have cratered during the downturn, but the latter small-displacement bikes have surged in recent years thanks to the CBR250R and Ninja 250. And the once moribund entry-level motorcycle class in the US has become downright robust in 2013 as the Japanese manufacturers aggressively court younger riders. Harley counters by pointing to the success of its Dark Custom line, as well as the new Hard Candy Custom initiative, which debuted in 2013 and is also targeted toward minority and “non-core” riders.
H-D’s strategy toward the youth segment will remain the subject of critique in the years to come, but its immediate path forward is clear enough. It must keep those aging Boomers in the saddle for as long as possible. Given the success of rides like the Can-Am Spyder, don’t be surprised if more three-wheeled models sprout from Milwaukee (hunting around in the H-D archives we saw the Penster concept, a reminder of one of the three-wheeled false starts at the company). At the very least, the Tri-Glide trike, which returns for the 2013 model year, won’t be going anywhere soon. For better or worse, the Boomer generation will continue to drive some consumer markets, including motorcycles, through most of this decade.
It’s a pragmatic strategy, but plenty of unanswered questions still remain: What will Boomer dad, now granddad, do with that H-D gathering dust in the garage after his riding days are done? Are tattooed hipsters really going to flock to expensive Hogs in middle age, just like their parents and grandparents? Will Harley continue to hold fast to traditional designs, and if so, will that prove to be its ultimate boon, or bane?
The halls of the H-D Museum lend perspective to the current demographic handwringing. The problems facing the motorcycle industry are sizable, to be sure, but it’s humbling to see what Harley-Davidson has already survived.
As far as economic challenges and social turmoil go, weather two World Wars and the Great Depression. Bad business decisions and teetering on the brink of financial ruin – anyone heard of American Machinery and Foundry… Worry over finding new demographics? That’s a timeless issue. One of the company’s earliest failures – the Sport Twin, was a middleweight Opposed Twin aimed at entry-level riders. Museum displays show the original marketing literature, specifically targeted to women. Sales fizzled and it fell out of production in the early ‘20s.
Yet, somehow H-D managed to hang on.
Digesting the H-D Museum exhibits, my biggest takeaway is Harley is not one stagnant company. Instead, it’s more like five companies stacked on top of the other – each generation & regeneration bringing its own challenges, triumphs and failures. Through it all the thumping cadence of Harley-Davidson motorcycles has marked time for 110 years of American history.