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Harley: Small Street, big hit?

2014-04-09 07:30

SMALL HARLEY, BIG CHALLENGE: The Harley-Davidson Street 750 will arrive in South Africa in 2015. Image: Harley-Davidson

KANSAS CITY, Missouri -  To catch a glimpse of Harley-Davidson history, fans can visit its Milwaukee headquarters, housed in the 111-year-old bikemaker’s first factory.

You could also tour its York, Pennsylvania factory that has cranked out motorcycles since the 1970s and builds some of its biggest cruising bikes, including the Road King and Electra Glide.


For a look at the company's future, you should take peek inside its vehicle and power-train factory in Kansas City. Opened in 1998, the factory produces several of Harley's popular bikes, including the Sportsterand V-Rod.

Earlier in 2014, Wheels24 reported that the first Harley-Davidson motorcycle to be assembled outside the US, The Street, was launched at the 2014 Delhi auto show. Harley SA also confirmed that the new Street 750 would arrive locally in 2015.

The Street 750 will cost the equivalent of R72 600 in India and this the least-expensive Harley yet will be assembled in the city of Bawana in northern India for local and export markets. According to the bikemaker, the Street is “an unapologetic effort to bring young riders around the world into the company's two-wheeled fraternity".

Jaime Katz, an analyst at Morningstar, said:  "This basically targets a whole new market of people who want to try a Harley-Davidson but don't have the money to try one of the bigger bikes with all the bells and whistles."

The Street is a stripped-down bike built for the city - a major departure for Harley, known for heavy touring bikes built for the open highway. It’s also proof, according to CEO Keith Wandell, that a company whose products have been dismissed as "geezer glides" has no plans to shamble off into the sunset along with the baby boomers who built the brand.


Wandell said: "The Street is really symbolic. It's the first new product we've brought to market under the Harley-Davidson badge that is intended to bring new riders and even younger riders into the Harley-Davidson family."

It also illustrates Wandell's commitment to transform the company into a leaner, more nimble, manufacturer. The last time Harley introduced a new bike, in 2002, it spent huge amounts of dollars building a new line in Kansas City dedicated to the motorcycle. This time, Harley did it on the cheap, incorporating its new bike into an existing line.

The Street's introduction is not without risks. It puts Harley in direct competition with Japanese bikemakers, which have strong brands of their own. The yen's current weakness against the dollar will also help the Japanese defend their small-displacement, sport bike turf.

Meanwhile, Harley faces a unique problem: convincing its core customers that the new bike does not undermine the brawny, muscular quality of the Harley brand. Company executives insist they aren't worried.

Harley's marketing executive, Mark-Hans Richer, said: "It's a Harley that just happens to be a little smaller."

The Street's exhaust, he noted, was specifically tweaked to generate the distinctive Harley "potato-potato-potato" rumble.

The debut will also make it more difficult for investors to understand where profit margins on motorcycles will settle after years of restructuring under Wandell. Harley has acknowledged that the Street may pull buyers away from higher-margin entry-level heavyweight motorcycles in its line, like the Sportster.

Morningstar's Katz said: "As that mix shifts, it could hurt gross margins - at least temporarily."

Harley saves considerable costs by building the Street on the same line, and often at the same time, as its larger V-Rod.

Changeover from V-Rod to Street production can take place on the fly, several times in a 24-hour period. The process could easily devolve into chaos, said Steve Wiggins, manager of the Kansas City plant, but factory workers quietly choreograph the changeover, swapping components and tools in and out and just in time.

Wiggins said workers on the line, who are briefed during a pre-shift huddle on the day's production schedule, "don't see anything happen (during the changeover) except they look up, see we've switched to Streets, and the parts and tools they need are there.

"So we do not lose any build time. There's not a single skipped carrier or anything."


The last US-made, Harley-badged small bike, the 1966 BTH Bobcat, was an underpowered flop, discontinued after a year. More efforts to break into the market with the Buell and MV Agusta brands also ended badly.

The Street's stripped-down design and low price - it costs just a bit more than some Vespa scooters - reflect the need to find a new generation of buyers. The Street is the simplest motorcycle Harley has offered since it discontinued the Buell Blast, a bike ridiculed by Harley stalwarts as the "Be-Last."

Neil Howe, a demographer who helps companies market to younger consumers, said Harley needs to show twenty- and thirty-somethings that the Street meets their transportation needs.

That age group has a "brutal pragmatism," he said.

Howe said: "It's one of their most impressive characteristics, the urge to simplify.”

7000 - 10000 MODELS

Harley expects to ship 7000 - 10 000 Streets in 2014 and has confined the rollout to half a dozen countries, including the United States, Italy, Spain and Portugal. Still, executives see the debut as a pivotal event.

Richer said: "We don't come out with a new platform every day."

Doing nothing is not an option. Harley faces a growing number of challenges, including shrinking demand in the United States, its No.1 market, for the big, expensive bikes it has made for years.

Even as that market shrinks, new competitors, including the relaunched Indian brand from Polaris Industries Inc, are moving into the space.

Harley has problems overseas as well. Europe hasn't provided the boost the company needs to offset the slowdown at home. And sales in China have been disappointing since they began in 2006.

If the Street takes off, it could reestablish Harley-Davidson as a growth stock by increasing sales to members of the "millennial" generation worldwide.


The Street will be Harley's first global bike, with models built in Kansas City for North America and at a plant in Bawal, India, for the rest of the world.

It's also not clear that Europeans, who have until now been supplied by US factories, will accept an Indian-made Harley though company executives downplay those concerns.

Wandell said: "The 'made in America' cachet is certainly more real in the United States maybe than anywhere else in the world."

It may be some time before investors will know whether the Street is a hit. Most of the bikes produced in 2014 won't be sold to consumers straightaway but will instead be used as training bikes in dealer-run motorcycle riding classes.

Even if the Street's launch is a success, Katz said she doesn't see Harley's global shipments returning to their 2006 highs until 2019, in part because so many boomers are aging out of their motorcycle riding years.

Katz said: "You're going to have that massive user base that takes off their helmets and stops riding. So they are hoping that this smaller, lighter, less expensive bike caters to a much wider audience and moves volume through the channel. They're just crossing their fingers that Street buyers trade up as they get older and convert to heavy bike riders."

Read more on:    harley-davidson  |  bikes  |  motorcycle

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