Sept. 22, 2008 – Addressing Harley’s state of affairs

By Neil Pascale
Editor
MILWAUKEE — Moments after being part of a parade that featured thousands of Harley-Davidson riders, company CEO Jim Ziemer sat down with Powersports Business to discuss the manufacturer’s state of affairs.
Ziemer discussed the current challenges of the U.S. market, the growth of the company’s international sales as well as other industry topics, including Harley-Davidson’s relatively new dealer distribution system and the increasingly important preowned market.
He also looked ahead, discussing where he sees growth in Harley’s business.
“Several years from now, instead of 25 percent of our business being international, it will probably be 35 percent,” he said. “It’s a good thing. Every bike sold helps us fund more research, spend more on marketing and support the brand with activities like this, because this is a global activity.”
Ziemer was referring to Harley-Davidson’s 105th anniversary event, but he could have just as easily been discussing the company itself. The manufacturer has such a following that registration for the event not only included riders from all 50 states, but enthusiasts from at least 40 countries.

Powersports Business: The significant increase in gas prices has been a mixed blessing for the industry, with some segments doing extremely well while others are suffering. Where does Harley-Davidson fit into that?

Ziemer: No.1, we’re a high-ticket discretionary purchase. As I’ve seen, other high-ticket discretionary purchases, whether it be RVs, boats, ATVs or PWC, have certainly felt the impact. We were down shy of 11 percent in the U.S. six months year-to-date and no one likes that. We positioned the company so that we could go forward with that situation. I can’t predict what will happen, but we did position the company (for the economic challenges). But being down even in the U.S. 10-11 percent, we’re fortunate because we do things differently. It’s the experience, the lifestyle. Yes they don’t need (a new Harley), but they want it. We’ve created that want and they want to be part of it, especially this 105th anniversary and the celebration. That certainly helps. I think we’re doing well not only because of the economy but the consumers’ mindset right now. No one knows how long this is going to last or how bad it’s going to get or what gas prices will be. The consumer is taking a step backwards and says, ‘I’m going to wait and see,’ which is worse than the economic downturn because they’re waiting and seeing.

PSB: We’ve seen quite a bit of state legislation addressing current dealer-OEM distribution plans. We know Harley-Davidson addressed its distribution plan in the last year. I know you don’t want to get into the specifics of the plan due to competitive reasons, but can you tell me the goals of the new plan?

Ziemer: In the U.S. we changed our allocation system. Our (previous) allocation system certainly worked in a condition where demand exceeded supply. When we got it closer to a balance and you have the dynamics of different regions or markets, our situation then was not very responsive to changing regions and markets. (The previous plan) was based on history. It wasn’t based on what we thought would happen in the future. So we installed a system that was more responsive, more dynamic. Now, we have circumvented that system this past year when we cut off production for a couple of weeks to adjust to the current economic environment.
Everybody is very encouraged about the goals of the current allocation system — it’s predicting what (dealers) need so people don’t have too much or too little. And that’s our goal. We’re better balanced to what’s going on in the marketplace.

PSB: What have been the challenges of the new distribution system?

Ziemer: The challenge is making sure everybody believes in the system even though you’re not going to see the benefits for a year. Maybe the year is a little longer because, like I said, we intervened. When you chop some bikes out of the schedule, people are in different spots (in their allocation system) in each region of the country. You may have a different consumer dynamic or backlog in New York vs. in Texas. So it affects everybody differently. That disruption caused us some problems. So the biggest challenge is the fact that it takes 12 months or so to get it up to speed, and that it’s new. Other than that, it’s going to be a great system. After we explained it, dealers supported the system.

PSB: During Harley-Davidson’s last quarterly conference call, it was mentioned that preowned sales were becoming a bigger part of the business. Do you see that trend continuing, not only for the manufacturer but for the dealer as well?

Ziemer: We look at the preowned (market) and there’s no doubt that used bikes are selling at a higher rate than ever before. There’s more transactions occurring than ever before. And we’re seeing the prices on the transactions also come up, which is all a good thing. But it’s also indicative of the economy. It’s also indicative that we’ve brought our new bike inventory down so it creates more demand for used bikes. It’s all good things. It means that people still aspire for a Harley-Davidson. This is not a cycle we’ve gone through or a fad. (Harley consumers) are out there, they want it.