Harley confident about its future

The company’s customer base is aging, a motorcycle industry analyst said.

MCCLATCHY NEWSPAPERS

KANSAS CITY, Mo. — As U2’s “One” piped over the hum of the assembly line, Karl Eberle showed off a motorcycle built at Harley-Davidson Inc.’s Kansas City plant.

The VRSCDX Night Rod Special is a sleek, sporty, all-black bike.

“It’s a powerful bike,” said Eberle, who helped launch the Kansas City plant 10 years ago and last week became senior vice president of Harley’s manufacturing operations. “It’s for young riders, and it’s big in Europe. Everything’s got to be all-black for kids.”

The models made at this Harley plant generally are designed with younger riders in mind. But the Harley brand is best known for its heavyweight tour bikes that are the staple of its biggest customer base, the baby boom generation.

Harley-Davidson’s impressive run of 20 consecutive years with higher sales and profits is expected to end in 2007, sparking some worries about the motorcycle maker’s future. That worry can’t help but wash over the 1,000 employees here, most of whom will experience their first temporary layoff the week of Nov. 26 as Harley tries to get its inventories in better shape.

The Milwaukee-based manufacturer certainly is in better shape than its counterparts in the auto industry. However, some experts wonder whether Harley’s inability to attract more young riders will eventually hurt the company’s financial performance.

The median age of a typical Harley buyer now is 47. Twenty years ago it was 35.

“The customer base is aging, and that’s not going to change,” said Don Brown, a motorcycle industry analyst in Irvine, Calif. “They’ve been helped by people who had this ‘rah-rah, buy American’ mindset. The younger guys don’t care about that. Harley is going to have to build a different type of motorcycle to compete with the Japanese.”

As Chief Executive Jim Ziemer looks down the road, he sees the company’s fortunes rising to meet him. Younger riders do want Harleys like the Night Rod built in Kansas City, he said, and its international sales are growing at a double-digit pace.

He believes Harley’s recent setbacks are due mainly to the U.S. economy.

After reporting a disappointing third quarter, Harley said its full-year earnings per share will be down by 4 percent to 6 percent along with a “modest” sales decline. In 2006, the company earned $3.93 a share on $6.2 billion in revenue.

Shipments this year are expected to be between 328,000 and 332,000 vehicles, down from 349,196 last year. In September, the company announced that its five manufacturing plants will be down the week of Nov. 26 in response to the weaker demand.

While the Kansas City facility had a production slowdown a couple of years ago that resulted in a partial, temporary layoff, this will be the first time the entire plant will be idle for economic reasons.

But Ziemer points out that Harley’s sales are split evenly between new and existing customers. And while the median age of baby boomers is now 50, the average Harley buyer’s age has risen only by 12 to 18 months in the past six years, according to Ziemer.

“We’ve got more and more programs aimed at younger riders,” he said.

The company is also aggressively marketing to other new customers, such as women. Ten years ago, 2 percent of its customers were women, compared with 12 percent last year.

Harley is also in the high-performance bike business, aside from the models made at the Kansas City plant. It owns Buell Motorcycles, a division devoted to racing bikes. Although Buell accounts for only 2 percent of Harley’s total sales, Ziemer said, the company has high hopes for Buell’s first liquid-cooled engine bike, similar to the V-Rod.

It is also looking at ways to keep its dedicated Harley owners even as age makes it tricky to handle an 800-pound motorcycle. Harley has invested in a company making trikes, three-wheeled motorcycles for older riders who are looking for a safer and more stable ride.

A couple of analysts agreed that too much has been made of Harley’s suffering.

Harley generally is selling motorcycles to buyers who are getting older, its biggest market being white males between the ages of 35 and 47. While the annual growth of that age group has slowed to a crawl, Harley has compensated by getting more of them to buy motorcycles, said Craig Kennison, analyst with Robert W. Baird & Co.