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Harley-Davidson has left a trail of broken hearts. Who will mend and enrapture them?

The cruiser market is ripe for the picking, but the winner may be someone who knows how to price it right 

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It took all of ten minutes to break the news to a bewildered bunch of people. From being dealers of the iconic Harley-Davidson, they were now out of business.

In his address to the 30-odd folks, Sajeev Rajasekharan, managing director (Asia Emerging Markets) of Harley-Davidson Motor Company, as one of the livid dealers recalls, was very matter of fact and to the point. “He just spoke of Harley changing its business model in India and the decision to shut down the manufacturing facility in Haryana,” says the dealer. That was on September 24 and it was made clear to all that no contracts would be renewed after December 31. None of the questions relating to investments made or unsold inventory were answered, recalls the dealer. 

Understandably, the way it has been done has not gone down well. For at least a month, the market and media were buzzing on the motorcycle manufacturer’s exit from India. It was only after repeated requests from the trade that the management agreed to talk. A good part of the dealers have been with the company from the time it entered India in 2010. Though nobody is willing to go on record, some of the dealers did admit to considering the option of going legal. “Our interests have not been protected and we will incur huge losses,” says one of them, speaking for many.

Harley’s management responded to Outlook Business’ queries saying that the company is changing its business model in India as part of “an overhaul of its operating model and market structure”. This exercise will continue through the end of 2020 and a new strategic plan will be unveiled for 2021-25.

Harley-Davidson India has always struggled. In fact, it has sold only 25,000 units since its entry, though at the time of its launch it was targeting 10,000 units every year. For all the talk of the music this beast strums on the road, it has had one disappointing journey. In August, it sold just 176 units.

Journey to India

The decision to enter India was part of Harley’s strategy to look at newer markets. Sales in the US had taken a hit after the 2008 financial crisis and under new CEO, Keith Wandell, the company was set to embark on its next journey. India and China would now be subsidiaries with the Asian headquarters in Singapore.

To be fair, Harley did well in its initial phase. In FY14, it sold 1,927 units, and then sales took off sharply to hit 4,641 units in FY15 and 4,708 units in FY16. The company sold only cruisers and banked on the brand’s strength to see it through. There was serious commitment via sustained marketing, trade shows and events – all of which was clearly paying off. Meanwhile, sales back home in the US was still tepid and to re-ignite its oomph, Harley-Davidson decided to aggressively invest in an electric vehicle (EV). It committed $500 million – among the biggest R&D investments the legendary motorcycle maker had ever made.

When Wandell’s successor, Matthew Levatich, took charge in mid-2015, he accelerated the R&D drive, put all his energies into growing the US market and stressed on profitability across regions.

At that point, India was still in investment mode and needed support from the parent. The Indian operations were close to breakeven, says a former company official, but this shift in strategy pulled the carpet from under the Indian business. “Suddenly, the brand was not as visible since we had very little to spend,” he says. Sales figures dropped over FY17 and FY18, by 22% and 7% respectively. The decision to focus on the US market also snuffed out plans to launch more India-specific products, with a lighter price tag. They already had the Street 750, which was selling well. Harley needed more in the same or lower price range to build on those numbers (See: Race wide open).

Brian Sheehan, an advertising veteran who worked across continents and now professor at Syracuse University, is surprised that Harley did not have the right offering when it came to price in India. “Harley seems to have got carried away by a population of over a billion. They just assumed that being a global brand was enough to succeed in the Indian market,” he says.

Again, the definition of ‘middle class’ across countries varies significantly. A person from that strata in the US can buy a top-end motorcycle with an annual income of approximately $70,000 (49% of the US population has a household income greater than this). That straightaway gets in a large userbase, which is not the case here. A lot of companies did not really get to the bottom of what the ‘middle class’ in India means and that has led to an overestimation of the potential.

The company also seems to have failed to take into account Indian road conditions. Roshun Povaiah, an avid biker and an automotive expert, says, “Most Harley-Davidson bikes could only handle good highway rides.” This meant more frequent trips to the workshop for expensive spare parts.

With the brand making heavy financial demands of the biker, Harley remained a niche player. Hormazd Sorabjee, editor, Autocar India, says that this niche-play trapped them in a vicious cycle – no scale and therefore no localisation, and no localisation therefore higher pricing (smaller segment). The vicious cycle then spiraled downwards.

Meanwhile, in the US market, Harley launched its EV brand LiveWire last September, which has not taken off as anticipated. A former company official thinks the steep pricing was a major reason for the muted response. “The average Harley motorcycle cost $20,000 and this came at $30,000. It was not easy to convince the consumer to spend that kind of money,” he says. The global pandemic has only made things worse. With LiveWire’s sputtering start, desperation set in and Harley marshaled all its resources to recover in the US market. In the process, India got short shrift.

Who will step up?

If the Hog indeed exits Indian highways, who will rule it? It is a tough question to answer, for the motivation to buy a Harley-Davidson is more to do with owning and riding it and not necessarily about owning any high-price bike. Harley is an item on the bucket list of affluent middle-aged men who are not necessarily bike enthusiasts. This is a category of aficionados who prefer Harley or nothing. Other bikes just don’t make the cut.

Then, there are the bike enthusiasts, who can afford high-price bikes. Sorabjee thinks Triumph can fill this shoe, and so does Povaiah. But, even Triumph is not easy on the pocket. In fact, it can burn a hole in it. Harley’s entry level models are more affordable – Street 750 costs Rs.500,000, Street Road Rs.600,000 and the Iron 883 Rs.750,000, while Triumph’s comparable models in the Bonneville range can set a biker back by anything upwards of Rs.745,000. Harley’s mid-to-higher-end models – Low Rider, Softail and Fat Boy—can cost anything upwards of Rs.1.3 million while Triumph’s comparable models in the Rocket range can cost anything upwards of Rs.1.8 million. The UK company, headquartered in Leicestershire County, sells only 450 cruisers annually in India compared to Harley’s 2,500.

From a positioning standpoint, Harley’s spot could be taken by Indian too. The Minnesota-based company has been Harley’s rival for long, from the time they started racing each other a century ago. (By the way, it’s from those racetracks that Harley got its moniker ‘hog’, from one of its team member’s pet piglet Johnny.) But here too the same niggling bit with price arises. Sorabjee says Indian is way too expensive to be a replacement for Harley — Indian’s entry-level variant costs Rs.1.2 million, compared to Harley’s Rs.500,000. Indian sells only 100 cruisers every year in India.

Enter Royal Enfield. Now, it has die-hard loyalists too. Few years ago, Bajaj had trolled Enfield with a series of ‘Haathi’ ads, in which Enfield was compared to a cumbersome, temperamental elephant. Enfield did not respond but its fans did with an amateur but impassioned video. So, while it does not match up with the Harley in terms of aspiration, the brand does inspire a sense of belonging.

To get a measure of Enfield’s chances, we need to understand how the brand changed the two-wheeler market, more specifically the 500-cc-plus market, in India. In 2014, only 2,000 units of 500-cc-plus bikes were sold in India. Most of this was Harley, though there were others such as Ducati, BMW and Benelli who sold barely a hundred units a year. Today, the same category of bikes sells 26,000 units a year. What changed? Enfield.