There’s a few great lines in the iconic movie ‘Easy Rider’ that are as true now as they were when the film was first made back nearly 50 years ago.
In one scene, the brilliant Jack Nicholson character turns to the irredeemably hippy Denis Hopper and says (about the USA): “This used to be a helluva good country; I can’t understand what’s gone wrong with it.” To which Hopper explains: “Man, everybody’s chicken. They’re scared, man.”
Today, many may think of Trump’s America and won’t remember that ‘Easy Rider’ was a commentary on the US at the time of the Vietnam War. However, pretty much everyone still carries a picture of the movie’s real stars – the bikes that Hopper and his co-star Peter Fonda rode in their epic journey across the US south-west, the classy Harley Davidson.
It is hard to imagine a better promotion of the extraordinary motorbike and the fact that the Harley Owners’ club now boasts over a million members must owe at least something to the movie. Harley Davidson, with headquarters in Milwaukee for over 114 years, currently employs 6,000 people and has manufacturing plants in the US, Brazil and Australia.
Over the years the company has survived many owners, poor management, bad investments and intense competition, in addition to market volatility. Yet it survived and over 30 years ago was floated on the New York Exchange.
Today, Harley has a market value of just over $8.4bn (€7.1bn).
The company was also lucky. Harley experienced a military spin-off in several wars and its motor cycles were a feature of many battles around the world. In the early 1970s, it was acquired by the American engineering concern, AMF Group. To meet the intense competition from Japanese motorbike concerns like Yamaha and Honda, AMF set about cutting costs. It slashed the workforce, lowered quality and hiked prices. This strategy was a disaster, bringing Harley to the brink of bankruptcy. By the early 1980s, AMF exited and the company was taken over by an investment group, who persuaded Ronald Reagan to impose US tariffs on Japanese imports.
Today, Harley has two related divisions; motorbikes (including accessories) and financial services. The motorbike division employs 5,400 people and designs and makes the legendary motorbikes, selling them through a network of independent retailers.
Motorbikes generated revenue of $4bn last year and, surprisingly, an extra $1bn for related parts, apparel and accessories. The division accounts for 80pc of group sales, but operating income was down $100m compared to the previous year. The US market is critical to the Milwaukee concern. Last year it sold a total of 260,000 motorbikes, around two-thirds in the US.
Worldwide competition in the industry today is based on a number of factors like styling, pricing and reliability. But Harley is of the opinion that its global dealer network is a critical element to its success. It has a network of 1,400 exclusive dealers worldwide, half in the US, and plans to add 150 new international dealers by 2020. The company provides its dealers not only management training but financial assistance and insurance, mainly in the US. Its financial services had operating income of $275m, a decrease of $5m from the previous year.
Harley’s 2016 revenues were static at $6bn. Global retail sales were down, the US falling almost 4pc but partly offset by international growth. Net income last year was $692m compared to $750m in the previous year.
The company’s 75,000 shareholders have seen the share price drop from a yearly high of $63 to today’s $48. With the impending arrival of the electric car, where does this leave Harley and its gas guzzlers? Challenging times ahead.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.