Controversy over Harley-Davidson’s production plans, spurred on by
President Trump’s support for a boycott, may be driving riders to the
brand’s top U.S. rival, according to new research published Friday.
BMO Capital Markets analyst Gerrick L. Johnson said Indian Motorcycle
dealers have reported an “uptick” in Harley-Davidson trade-ins in the
three months after Trump took on Harley-Davidson over its announcement
that it will shift some production overseas in response to European
tariffs on U.S-made bikes.
The bank lowered its price target for Harley-Davidson shares to $45 from
$52 and downgraded the stock to “market perform” from “outperform.”
“The overlap between Donald Trump supporters and Harley riders is
significant. Thus, it’s disconcerting to have the President call on these
consumers to boycott the brand,” Johnson wrote in a note sent to clients.
“In response to new European tariffs on American motorcycles, HOG may have
had the right financial intentions but the way it communicated its
strategy was a public relations debacle.”
Johnson also noted that Indian has become a “bigger threat” to Harley-
Davidson than previously anticipated. Though still trailing “hogs” in the
U.S. market, Indian now controls about 7 percent of the heavyweight
motorcycle market, according to BMO. Harley-Davidson said its U.S. market
share was 48.4 percent in the second quarter.
A spokesperson for Harley-Davidson didn’t immediately respond to a request
for comment. The Milwaukee-based company is scheduled to report earnings
Polaris, the parent company of Indian, will release its quarterly
financial results Monday.
In June, Harley-Davidson said it would move production of bikes destined
for the European market to factories outside the U.S. The move followed
the European Union’s decision to hike its tariff on Harley-Davidson’s
U.S.-made bikes to 31 percent from 6 percent – retaliation for Trump’s
tariffs on steel and aluminum. The company also said it would absorb
expenses related to tariffs, rather than lifting prices to offset those
cost increases. Tariff-related expenses could total as much as $100
million annually, Harley-Davidson warned.
Trump criticized the production shift, saying in August it was “great”
that “many [Harley-Davidson] owners plan to boycott the company if
manufacturing moves overseas.”
Donald J. Trump
Many @harleydavidson owners plan to boycott the company if manufacturing
moves overseas. Great! Most other companies are coming in our direction,
including Harley competitors. A really bad move! U.S. will soon have a
level playing field, or better.
5:57 AM - Aug 12, 2018
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In a memo to employees and dealers Opens a New Window. , Harley-Davidson
CEO Matthew Levatich explained that the company has invested in overseas
production to have a “fighting chance” of competing with rivals in high-
tariff markets, including Europe. Levatich also acknowledged that Harley-
Davidson found itself “in the center of a heated political conversation
about fair trade.”
BMO’s Johnson wrote that Harley-Davidson’s plan to reallocate production
was the “prudent business decision,” but the company fumbled an
announcement that many dealers felt was “meant to ‘poke’ the president”
for policies that have hurt the manufacturer.
“While President Trump’s assessment of [Harley-Davidson’s] actions in his
tweets were often factually inaccurate, the damage has been done,” Johnson
said. “Dealers are feeling an impact, and we find that the impact has
become more acute over time. In July, after the announcement and the
reaction by the President, almost every dealer we spoke with was
dismissive, feeling any negative reactions would ‘blow over.’”
Ticker Security Last Change %Chg
HOG HARLEY DAVIDSON 35.99 -1.32 -3.54%
PII POLARIS INDS 85.31 -1.16 -1.34%
But a recent round of channel checks with “hog” dealers revealed that a
majority felt they lost at least some sales, according to BMO. In a recent
survey of Indian dealers, most stores saw an increase in the number of
Harley-Davidson trade-ins, although “only a small handful” of those
dealers believe the Harley-Trump spat was behind the trend. Dealers also
indicated that the pace of Harley trade-ins has recently been
Johnson noted that it stands to reason Harley-Davidson dealers would want
to pin lost sales on the president, while Indian dealers would want to
credit their product lineup.
“Regardless, it should be disconcerting to [Harley-Davidson] investors
that most Indian dealers we speak with are seeing an uptick in Harley
trade-ins for whatever the reason may be,” he wrote.
Harley-Davidson’s U.S. retail sales dropped 8.7 percent year-over-year in
the first six months of 2018 – before Trump’s criticism of the brand. BMO
said Indian recorded a 4 percent increase in retail sales during the same
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