Few companies can boast of being as resolute and strong as the iconic American heavyweight motorcycle maker Harley-Davidson (NYSE:HOG). The Milwaukee-based manufacturer was one of the two motorcycle makers to survive the Great Depression, and also recuperated well following the recession, when motorcycle shipments less than halved in 2010 from the peaks seen in 2006. Wholesale shipments have been rising ever since in the domestic market, which is still the main stay for Harley, contributing approximately two-thirds of the net shipments for the company.

Our current price estimate for Harley-Davidson stands at $64, which is above the current market price.

See our full analysis for Harley-Davidson

But despite this recovery, Harley is still far away from selling 275,000 units in the U.S.– a feat achieved in 2006. Last year, the company shipped 173,994 units. So does this mean that there is still scope to sell more motorcycles in the home market?

Maybe Not.

Harleys and heavyweight motorcycles were a rage among Caucasian middle-aged men, or specifically, the Baby Boomer generation, which is now aging. The millennial customers are typically more price-conscious, especially after the recession, and they might look to think twice or maybe even put off discretionary expenditures — which includes the heavier and premium motorcycles. Case in point — despite the recovery since 2011, the U.S. heavyweight motorcycle market (601+cc) has grown to only 350,000 or so motorcycles, much less than the 550,000+ units sold in 2006.

The problem for Harley, which accounts for almost half this market, is not just that the demand for heavyweight motorcycles might be declining, and the aging of its core customer base. It is the increasing competition, and also the unfavorable economic conditions. Let’s go through some of the headwinds that Harley is facing right now:

Stiff pricing competition has been an issue for Harley this year. In the past, some customers have had to even wait to get their hands on a Harley, as the demand for the iconic bike maker sometimes outweighed the supply. But with fiercer competition from foreign manufacturers, especially the European and Japanese companies, Harley has lost market share in the U.S. This year, the U.S. heavyweight motorcycle market grew 7.5% through June, but Harley’s retail sales in the country fell 0.7%. Harley has lost out due to the aggressive model discounts offered by its European, Japanese, and other foreign counterparts, on the back of a continually strong dollar. The manufacturer has looked to protect its premium brand image, so it might not look to give out significant discounts on its line of motorcycles anytime soon either.

With the threat of a shrinking core customer base, Harley has looked to diversify its base, and attract the outreach customers. Sales to the outreach customer base comprising young adults, women, African-Americans, and Hispanics have increased by more than that to the core customer base in the last couple of years, but their percentage composition still remains much lesser than that of the core customers. The hole made by the contraction of the large core customer base might just be too big to be filled by the addition of the outreach customers.

Polaris has intensified competition in the domestic market, with retail sales of Indian motorcycles more than doubling in the second quarter, while the North American industry midsize and heavyweight motorcycle retail sales remained flat year-on-year. This means that Polaris is grabbing more market share, and chances are, considering the increased successful discounting measures taken up by the foreign motorcycle makers, this share is being taken away from Harley-Davidson. Polaris resurrected the Indian motorcycles in 2013, launching three models. There are more models and dealerships now, and what Polaris has in common with Harley, and could possibly hurt the latter’s business in the U.S., is its classic American brand appeal and loyal fan following.

Another problem that the stronger U.S. dollar is posing is loss in revenues. One-third the net shipments for Harley are to markets outside the U.S., and with the dollar continually rising against certain crucial currencies such as the euro, the Japanese yen, the Russian ruble, and the Australian dollar, the top line has been depleting. To give some perspective — Europe forms ~16% of the retail sales for the company. With the euro still forecast to hit parity with the U.S. dollar this year, Harley is not only losing out due to the pricing issue owing to the stronger dollar, but revenues from the region will also suffer when converted to the home currency. Negative currency translations are expected to drag down full year motorcycle segment revenues by approximately 4.25 percentage points, and gross margins by 0.75%, taking into account the natural hedges in place for the motorcycle maker.

Wholesale motorcycle shipments are down 4.7% year-over-year for Harley through the first half of the year in the U.S., and by the same percentage in international markets as well. So taking aside the currency problems, Harley is struggling at a core level, too. The problem might not just be limited to the loss of price-competitiveness for Harley-Davidson due to the current economic headwinds. The company has for long rested on its strong brand perception and cult following. With more and more sales for Polaris and the Indian, the last thing that Harley needs is an ‘alternative’ to its iconic bikes in the eyes of the customer.

These are some of the issues that the new CEO Matt Levatich will have to tackle. Of course, there are certain positives for the company too, such as the Street 500 and 750 models, which are selling in bulk and bringing in customers new to the Harley brand, and the report that Harley’s U.S. retail sales witnessed a near double-digit growth in June, possibly gaining momentum. But then again, the company expects to ship 276,000-281,000 motorcycles to dealers and distributors this year, up 2-4% year-over-year, which means that shipments will have to be up 7-10% in the last two quarters. Will the negatives outweigh the positives to deny Harley its year-end targets?

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