Friday, August 15, 2008

HOG Losing Share...On Purpose?!

We discussed here how Harley-Davidson (NYSE: HOG) has appeared to have overcome its issue of bloated dealer inventories, but what about their apparent drop in US market share? Here's a look at Harley's market share (based on bikes sold) for the last several years, along with the first six months of this year:

It makes sense that the whole industry should shrink, considering the economy, but is there something else going on here? Why is Harley getting disproportionately affected?

The answer lies in the company's conference call. Every quarter, each company on the NYSE holds a conference call where the public can ask management specific questions. Often, these calls can be long and drawn out, including items such as disclaimers on forward-looking statements, to management rehashing headline numbers that are already provided on the press release. Therefore, my preferred method of getting the info without wasting time is to grab the conference call transcript at Seeking Alpha. For example, a transcript of Harley Davidson's latest conference call can be found there.

On the conference call we get some colour on the market share situation. While we know from before that management has decided to cut production in order to maintain certain price levels for bikes, the competition has been aggressively trying to move product. They have cut prices and offered financing in order to clear their inventory. Rather than follow suit, management at Harley believes they are taking the better long term approach for their premium product, as evidenced by this quote during the call from CEO Jim Ziemer:

"Managing the business for the long term is part and parcel of maintaining a premium brand experience. We have strong fundamentals and are fortunate to be dealing with the current climate from a sound financial position. [The] economic downturn in the US will end and when it does Harley-Davidson intends to be well positioned to capture future growth opportunities."

Whether this was the right decision is open to debate, but clearly HOG is focused on maintaining its image as a premium product, and is willing to forego a few extra bucks to do so.

Disclosure: Author has a long position in HOG


Dividend Growth Investor said...


Actually HOG has lost only 4% market share so far for 2008 which is not that bad.
I actually think that the chart is a little bit confusing, because it compares full years to what the share is in a partial year. To gain a true comparison of HOG's market share, we should compare the 2008 9 month market share to the 2007 9 month market share. There is room for seasonal fluctuations that need to be accounted for.

Anonymous said...

I never understood why people would pay a premium, and even use borrowed money, to buy a Harley. They are intentionally engineered to be obnoxiously loud. Is that a durable advantage?

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