Harley Davidson Kills Buell, To Sell MV Agusta

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I wish I could say I was surprised this morning to finally see the news made public that Harley-Davidson was going to sell MV Agusta, and shut down Buell’s operations.  But, I wasn’t.

Let’s address the MV Agusta deal first.  I never really understood exactly what the MoCo thought it was getting when it purchased MV and Cagiva.  Turns out I’m not alone in that, since apparently nobody at Harley-Davidson did either.  Cagiva was a financial basket case, and MV–though it had a glorious racing past and venerable reputation–had been reduced to a boutique maker of a small number of motorcycles.

And once HD had finished crowing about buying it, they proceeded to do…nothing.  No press releases.  No earth-shattering changes.  They just let it sort of sit there.  They owned it, but once they did, they didn’t seem to know what to do with it.  So now, they’re selling it at what is probably going to be a deeper discount than they purchased it for, so it seems like it was just a multi-million-dollar bath for Milwaukee.

Oh, well, it’ll make a nice write-off against tax, I’m sure.

As for Buell, I’ve already gotten into some detail in the post linked above as to why the MoCo had completely bungled the management of Buell.

A brief tour of BadWeb, the Buell biker forum, today shows that the Buellers are no more receptive to hearing bad news about the company–nor any more prone to think about it realistically–than they were last month when I wrote that my sources indicated to me that Buell was probably going to be shut down.

It’s full of fantasies about some sort of demonstration to make HD reverse its decision.  There also seem to be a number of analysts who write that this is an insane decision for the MoCo, because losing Buell will destroy Harley.

That’s just fantasy.  Quite apart from the fact that Harley is doing a fine job of destroying itself by confining itself to an aging customer base, the fact is that Harley killed Buell a long time ago through their mismanagement of the brand.  Killing Buell is a symptom of HD’s problem, not the cause of it.

The company says they are doing this to concentrate on their brand, by which I assume they mean continuing to market even more aggresively to their shrinking, aging customer base.  As one industry wag put it to to me today, “How many more 52 year-olds looking for their first bike can they find?”

As far as Buell contributing much to harley financially, well, that’s just absurd.

In 2008, HD’s annual report states that they sold $313.8m in general merch, making up 5.6% of corporate revenues. Buell Motorcycles, on the other hand, made $123.2m in revenues, or 2.2% of corporate revenues. According to the company 10k statement for 2008, Buell accounted for 4,000 of HD’s 222,200 motorcycle registrations. Of the 686 HD dealerships in 2008, more than half of them don’t even sell Buells.

In other words, Buell accounted for 0.2% of HD motorcycle sales, and the MoCo made twice as much money selling orange dog scarves and rhinestone belts for girls than from the sale of Buell motorcycles.

So, the idea that keeping Buell motorcycles will make up for…well…anything at Harley Davidson is so at variance with the actual facts as to qualify as sheer fantasy. Let’s not pretend that Buell has either the user base or financial performance to rank as a serious part of Harley Davidson.

I guess it does show, though, that some people personalize their motorcycle brand very deeply.

I guess my take-away for those people is that sometimes, when people write negative things about your favorite motorcycle brand, it’s not because they hate it.  Sometimes, they write it because it’s true.

Just something to think about.

In 2008, HD’s annual report states that they sold $313.8m in general merch, making up 5.6% of corporate revenues. Buell Motorcycles, on the other hand, made $123.2m in revenues, or 2.2% of corporate revenues. According to the company 10k statement for 2008, Buell accounted for 4,000 of HD’s 222,200 motorcycle registrations. Of the 686 HD dealerships in 2008, more than half of them don’t even sell Buells.

So, the idea that Buell motorcycles will make up for…well…anything at Harley Davidson is so at variance with the actual facts as to qualify as sheer fantasy. Let’s not pretend that Buell has either the user base or financial performance to rank as a serious part of Harley Davidson.

2010 MV Agusta F4 Sneak Peak

It won’t be officially unveiled until November, but MV Agusta has released a sneak peak photo of the 2010 F4.  It’s not much of a photo, and it doesn’t show much except the headlight, and the general shape of the fairing, front-on.

2010 MV Agusta F4 Teaser
2010 MV Agusta F4 Teaser

It looks a bit different, but it still has the essential Tamburini styling.  What is more important than the fairing is what’s under it.  An what’s under it may be nice.  We’ve already seen the 2010 Brutale, and that bike is essentially the naked version of the F4.  Since already know that the 2010 Brutale 1090R is pretty much brand new, with 85% new components, we can probably assume that the F4 is similarly new.

Still no word on anything like a specification for the new F4, of course.

I guess we’ll still have to wait ’til November for that.

Something New From MV Agusta

There was a time when MV Agusta was one of the world’s premier motorcycle brands.  Not only did they make fantastic and beautiful motorcycles for street use, but Agusta was also a potent force–and for a time, perhaps the potent force– in motorsports all across the world.  Sadly, in recent years, Agusta has suffered a steep decline from those glory days.  Not only has MV Agusta essentially disappeared from the racing world, the company has essentially produced only two models for the past decade: the F4 sportbike, and the Brutale naked streetfighter.

This appears to be changing.

Earlier this month, the first spy pictures of a brand newMV Agusta 675cc triple sportbike appeared on the UK motorcycle web site Visordown.  Now, Visordown is reporting that they will be revealing a new MV Agusta superbike model in the next few weeks.  This bike will not be an F4 model, but a completely new Superbike-class machine, that is also expected to lead MV Agusta back to participation in WSS or WSBK racing.  Other than that, no one seems to have any idea about what this new superbike model will be.  We don’t even know if it will be a new model that slots in above the F4 in Agusta’s line-up, or if it replaces the F4 as an entirely new model.  All we know is that it’s on the way.

I’m not exactly sure what value MV Agusta brought to Harley-Davidson when the MoCo purchased agusta several months ago.  But it appears that Harley brought MV Agusta the opportunity to expand their decade-old line-up.

2010 MV Agusta Brutale Models

The new, redesigned, 2010 Brutale models have been announced by MV Agusta.  And by redesigned, I mean redesigned.  According to MV 85% of the components in the two models are new, including the frame, swingarm, and engines. The suspension has also been redesigned.

The US retail price for the 99R will be $15,000, and the 1090R wil be $18,000.

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Wanting What I Can’t Have

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2007 MV Agusta F4 1000R
2007 MV Agusta F4 1000R

On my way home from work today, I had to make a few stops to pick up some things.  One of those stops took me right past the Moto Forza Italian bike dealership, so, without anything better to do, I went in just to look around a bit.

They had your Ducatis, your Benellis, etc.  They also had this bike.  The very one you see pictured here.

It’s a 2007 MV Agusta F4 1000R.  Unused.  It has 9 miles on the clock.  174 HP.  82 lb-ft of torque.  Sticker price…$14,999.

I told the guy I’d probably be getting an isurance settlement check in another month or so.  He just laughed in my face, and said, “Oh, it’ll be long gone by then.”  Thanks for the ray of hope, Ass.

So, how did they come by a new 2007 F4?  Well, according to Moto Forza’s web site:

MV USA came up with a handful of new bikes that had somehow slipped through the cracks. Some were display bikes for trade shows, some bikes were used for promotional photographs, etc. This 2007 F4 1000R up for sale is one of these few bikes.

Some sorry SOB is gonna walk into Moto Forza in the next week or so and buy it.  I hate him.

I just keep telling myself, “It’s got a archaic chain drive.  This is 2009.  What am I supposed to do, spend my Saturdays lubricating a chain like an animal? Who needs it?”

Riiiight.

A Rare Tactical Mistake, an Ongoing Strategic Problem

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Harley-Davidson, whatever the company’s faults may be, have gotten one thing consistently right: Marketing.  They are a marketing powerhouse.  When you buy a Harley-Davidson, you don’t just buy a motorcycle.  You buy a ticket to the “Harley Lifestyle”.  The company’s marketing is ubiquitous and effective.  But not perfect…

H-D’s CEO, Keith Wandell, admitted in an interview with The Business Journal that the company flubbed their forecasts of the recession’s impact on their customers’ buying choices.

[T]he company mistakenly thought the recession would push consumers toward Harley’s Sportster and other less expensive motorcycles.

The company increased production of those types of bikes, but retail sales “didn’t materialize,” he said.

Harley dealers currently have a glut of the mid-priced V-Rod models.

Instead, many consumers who have been buying Harley-Davidson motorcycles have been buying more expensive custom and touring bikes, Wandell said.

“It left us with a bigger imbalance,” he said. “We have a lot of inventory.”

As a result, Harley-Davidson will shut down final assembly operations of the Sportster and V-Rod motorcycles and V-Rod motorcycle powertrain production in Kansas City, and production of Sportster motorcycle powertrains in Wauwatosa, for 14 weeks this year, including all of the fourth quarter.

Let me put on my MBA hat here.  (And yes, I do have one.  An MBA, I mean.  I don’t actually have the hat.  But, I’m thinking of getting one made.)

Harley’s real problem, however, is not the occasional tactical marketing error, but a more fundamental strategic error that the company keeps compounding.I’m kind of stunned that the MoCo would make such a mistake about the buying habits of their customers.  Sportsters certainly have their fans, but general, people buy a Sportster because they want a Sportster. I can see how someone wanting a Softtail might settle for a Dyna, but not a Sportie.  At least with the Dyna they still get the Big Twin engine.  Surely the company must know that the Sportster is called the “baby Harley” and “girls bike”.  They must have some inkling that salesmen at dealerships constantly advise prospective Sportster buyers that they’ll quickly outgrow the bike, and want a Dyna in a year or so, so why not buy a Dyna that you won’t outgrow instead?

People who want a Big Twin–and often they already have a Metric big twin they’re looking to trade off–aren’t interested in scaling down to a smaller motorcycle.  They want one of the big dogs.

And as for the V-Rod…well, I don’t know what they were thinking when they thought they’d see an increase in sales there.  It’s a nice bike but it certainly isn’t the company’s most popular product line.  Not by a long shot.

It’s strange to see the company make such an unusual tactical error, and now the employees are gonna pay for it, as the MoCo cuts production to align inventory with customer demand.

Harley’s real problem, however, is not the occasional tactical marketing error, but a more fundamental strategic error that the company keeps compounding.

The brand is an absolute icon for the baby boomers.  Among the Gen-X set and younger riders…well, not so much.  The MoCo has a serious strategic problem when it comes to marketing, in that younger riders just aren’t attracted by the Harley brand.  Harley obviously knows that their customers are aging, as evidenced by the fact that they’ve started producing factory trikes, so that their customers can keep riding long after the ability to hold up a 750 lb. hunk of steel fades away.

But Harley’s challenge isn’t to figure out how to keep an aging band of retirees buying their products, but rather how to entice younger riders to the brand.  It’s clear that, looking at the advancing average age of H-D customers, they haven’t figured it out.  Or rather, if they have, they’ve declined to implement the obvious solution.

To properly understand the problem, we need to look back at a bit of history.

If you were born in, say, 1980, Harley-Davidson has never been the Big Dog motorcycle.I was born in 1964, so that makes me the very last of the baby boomers.  When we were growing up a “superbike”–the term didn’t really exist back then–was a Norton Commando 800.  A Harley-Davidson was a massive motorcycle with an ungodly large 1200cc engine.  You started riding motorcycles with a Montgomery-Wards 125cc thumper, maybe graduated to a BSA 500cc, then you finally got the money to get one of the Big Dogs, a Harley.

In the 70s, that all started to change.  The Japanese began producing game-changing bikes like the Honda 750Four, and the Kawasaki Z-1.  Performance increased dramatically.  By 1984, when Yamaha introduced the frighteningly powerful (for the time) V-Max, real superbikes were available. The mid-80s explosion of Sportbikes, like the Kawasaki Ninja, raised the bar forever in terms of new motorcycle riders’ perceptions about what a powerful motorcycle was.

Harley’s response was, and continues to be, incremental increases in engine displacement from 1200cc air cooled twins to 1600cc air-cooled twins, along with incremental improvements to frames, suspension, and, thus handling.  But the styling and riding characteristics of the company’s products remained mainly stuck in the 1950s-1960s.

1965 Harley Davidson FLH1200
1965 Harley Davidson FLH1200

Don’t believe me?  OK.  Compare and contrast the two bikes shown here.

Can you think of any other product where so little styling has changed in the past 44 years?

So, if you were born in, say, 1980, Harley-Davidson has never been the Big Dog motorcycle.  It’s been a manufacturer of heavy, slow, low-performance cruisers.  You’ve grown up in a world of 150+HP superbikes–a world that did not exist when the boomers were young.  Younger riders have an entirely different mental impression of how the motorcycling world is put together.

To thrive as a company Harley needs a product that is connected to the modern era, as well as the past.  That doesn’t mean that Harley should jettison its classic styling completely.  There’ll always be a market for that, because it has a definite appeal to some riders.  But to grab younger riders Harley-Davidson–as a company, not a specific brand–has to have something else.  It has to have a line of motorcycles that appeals to those younger people who want more sport than cruiser.

And, interestingly enough, Harley already has that with Buell motorcycles.  And does almost nothing with them.

2009 Harley Davidson Road King
2009 Harley Davidson Road King

First, until last year, the entire Buell line–except for the now-defunct Blast–was limited to cast-off Sportster Evolution engines.  Erik Buell’s division tweaked them as well as they could be tweaked, but the XB series of bikes has never–and can never, from a technical point of view–compete with 600cc sportbikes like the Yamaha R6.  And I simply can’t believe that an old privateer racer like Erik Buell is satisfied with the performance of the products he’s been allowed to put out by his masters in Milwaukee.

And, to make matters worse, Buell doesn’t even have its own dealership network.  Instead, Buells are relegated to the dark corner of Harley-Davidson dealerships, and the sales staffs often know little about the brand…and care even less.  I’ve personally had sales people intentionally steer me away from Buells, to point me in the direction of a Softtail or Road King.

H-D needs to move beyond the cruiser world if it wants to compete in the future. And that means letting Buell have some more leeway to operate beyond the Harley-Davidson cruiser world.

Companies survive by making products the public wishes to purchase.  They don’t survive on tradition.  They don’t survive on selling lifestyles.They need to break into the younger markets by producing bikes that can compete with the Gixxers and Ninjas. That means giving Buell the go-ahead to dump the Thunderstorm engine in favor of water-cooled twins and V-4 or I-4 engines.  Buell has some fascinating design ideas for sportbikes, but one of the reasons they’ve never been accepted is that, performance-wise, Buells suck compared to the Japanese brands. Buell needs a powerplant to mate with their technical innovations.  The 1125 is a good start.  Now, they need to make the next step.

They need to liberate Buell from the H-D dealership network, and open up dealerships where Buell enthusiasts work.  It doesn’t matter how good the bikes are if their sales network doesn’t want to sell them.  Making the customers force the dealer to sell them a Buell is silly, and it needs to stop.

Harley also has MV Agusta, the venerable maker of Italian sportbikes, including the F4 312RR, the most powerful production motorcycle in the world, as well as its parent company, Cagiva.  Maybe figuring out how to get those Italian brands over here would be helpful as well.

Companies survive by making products the public wishes to purchase.  They don’t survive on tradition.  They don’t survive on selling lifestyles.  The reason the MoCo’s customer base is aging and shrinking is because they aren’t making products the younger generation wants to buy.

But Harley owns the brands, and has the capability to make the bikes that will attract the younger generation of buyers.  It only remains to be seen if Harley will continue to rest on the laurels of the brand’s prestige, or if it will become determined to compete in the new markets that the Japanese currently own.