Harley-Davidson (NYSE: HOG) is the largest manufacturer of heavyweight motorcycles in the world by market share, capturing half the U.S. market and a third of the global market. As a luxury good, Harley competes primarily on design and quality, rather than price, which keeps margins high; gross margin in 2011 is projected to be approximately 34%.
Harley's past growth has caused continued success. it is closely tied to its customers brand loyalty; Harley is arguably the only company whose customers have been known to regularly tattoo its trademark on their body. Despite this rebellious image, the average Harley customer is an upper-class 47-year-old white male, and has been getting older at a rate of 6 months every year for the last 20 years.
Harley Davidson announces a 73.5% increase in income in year-ago comparisons, totaling $119.3 million for the first quarter of 2011. Increases in income were driven by a 1.5% increase in revenue, totaling $1.22 billion for Q1 FY 2011. Similarly, retail sales increased by 3.5% for the quarter when compared to the previous year, with the majority of increased sales coming from Europe. International sales overall increased by 11.3% with European sales increasing by 22.7%. Harley Davidson's market share decreased by 1.9% to 53.4% for the quarter. Total revenue from motorcycle sales increased by 2.5%, totaling $1.1 billion.
Harley Davidson announced a 1 percent decrease in retail sales of Harley motorcycles for the fourth quarter of 2010 when compared to the fourth quarter of 2009. Sales in the U.S. decreased by 0.2 percent for the quarter whereas international sales decreased by 2.1 percent. Retail sales decreased by 8.5% for FY2010 when compared to retail sales in FY2009. Decreased U.S. sales drove these figures, with retail sales in the united states decreasing by 11.7 percent and international sales decreasing by 1.9 percent.
Revenue for the fourth quarter, however, increased to $697.8 million, a 26.4 percent increase from the fourth quarter of 2009. Shipments of Harley-Davidson motorcycles increased to 44,481 from 35,938 in year ago results. Similarly, gross margin was 29.6 percent for this past quarter as compared to 20.3 percent in the fourth quarter of 2009. For the full year, revenue decreased by 1.2 percent to $3.14 billion. Shipments also decreased by 5.6% for the 2010 fiscal year.
Harley has two main businesses: selling Harleys, and giving people credit to buy Harleys. Specifically, Harley Davidson sells motorcycles directly, sells motorcycle parts and accessories, operates retail motorcycle dealerships, sells motorcycle gear and general merchandise, and offers loans to buyers.
The primary business of the Motorcycles segment is to design and manufacture premium motorcycles for the heavyweight market and sell them at wholesale. Harley-Davidson branded motorcycle products emphasize traditional styling, design simplicity, durability and quality. The Company manufactures five families of motorcycles: Touring, Dyna, Softail, Sportster, and VRSC. The Company’s Harley-Davidson engines range in displacement size from 883cc’s to 1803cc’s.
The touring segment of the heavyweight market was pioneered by Harley-Davidson and includes the Harley-Davidson Touring family of motorcycles, including three-wheeled motorcycles, which are generally equipped with fairings, windshields, saddlebags and/or Tour Pak luggage carriers. 4641354
Parts and Accessories (P&A) products are comprised of replacement parts (Genuine Motor Parts) and mechanical and cosmetic accessories (Genuine Motor Accessories).
General Merchandise includes revenue from MotorClothes apparel and accessories. The Company’s licensed products include t-shirts, vehicle and vehicle accessories, jewelry, small leather goods, toys and numerous other products. Although the majority of licensing activity occurs in the U.S., the Company continues to expand these activities in international markets.
The Company’s revenue from the sale of motorcycles and related products to independent dealers and distributors located outside of the United States was approximately $1.361 billion, or approximately 32.5% of net revenue of the Motorcycles segment, during 2010. Europe accounts for about 50% of international sales. Canada accounts for about 3.8%, while Japan accounts for 5.6%.
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Harley Davidson’s average customer has been getting 6 months older for the past 20 years, and is now 48 years old. The children of Baby Boomers generally do not want huge bikes that drive most of Harley's sales. Younger generations have a taste that errs towards smaller, cheaper Japanese bikes.
To address this trend, Harley bought out Buell, a fast bike producer, in 1998, introduced the unconventional V-Rod in 2002, and bought out the Italian MV Agusta company which makes premium light-weight bikes in 2008. However, Harley-Davidson has decided that this strategy does not fit well with its brand image. On October 15, 2009, Harley-Davidson announced its intent to divest MV Agusta and that it would exit from the Buell product line.
Harley will need to attract younger buyers to maintain its long-term market share, while not alienating its core customer.
Harley Davidson is increasingly reliant on international sales, especially in Europe. In 2004, only 18% of the company’s sales were international. This figure had moved to 32.5% by 2010, helped by a heavily weakening dollar.  Because Harley incurs its production costs in the United States, it benefits when the dollar weakens against the Euro and the Yen.
People tend to buy dollars to buy U.S. goods, or to hedge against the fluctuation of global currency (the U.S. Dollar is the world's most trusted currency). When people buy dollars, the dollar goes up, and Harley gets hurt.
Some say the collapse of General Motors (GMGMQ) was the end of an era for American manufacturers. GM did not just collapse because of high pension obligations. Its cars did not sell well. Asian competitors were making cheaper cars that broke less, took less gas, and went faster. 
As an increasing number of American factories go overseas to reduce expenses and do not see a decline in quality. Even Harley imports some Japanese parts due to their higher quality. The "American-made" premium is more nostalgic at this point than anything else. Honda and Kawasakis compete head-to-head with Harleys on technical specifications. Harley is able to charge premium prices for their motorcycles primarily because of their brand image.
The question is: can a brand built on an increasingly distant past survive the future?
Harley faces two threats with its reliance on its brand image. First of all, cool retro-"Easy-Rider" culture could fade out of style along with corresponding demand for Harley's. Secondly, custom American chopper producers such as Big Dog Motorcycles and American IronHorse actually deliver the promise of an All-American bike that is more powerful and customized than almost anything out there.
Harley-Davidson maintains a large margin in its dominance in the U.S. Heavyweight Motorcycle market as compared to its major competitors. While the United States is HOG's most important market, the company sells motorcycles in many other markets worldwide.
Harley-Davidson's main competitors include:
Honda Motor Company (HMC): headquartered in Japan, Honda is the world's fifth largest automaker and largest motorcycle producer by recent standards.
Suzuki Motor (SZKMF): a Japan-based manufacturing company, Suzuki operates in four business segments. The Two-wheel Vehicle segment is engaged in the manufacture of two-wheel vehicles, as well as the manufacture of parts for two-wheel vehicles and the sale of two-wheel vehicles in domestic and overseas markets. The Company has 141 subsidiaries and 37 associated companies.
Yamaha Motor (YAMHF): Yamaha Motor is the world's second largest producer of motorcycles (after Honda). It also produces many other motorized vehicles such as all-terrain vehicles, boats, snowmobiles, outboard motors, and personal watercraft.
Kawasaki Heavy Industries (KWHIY): Kawasaki is a global manufacturer of transportation equipment and industrial goods. KHI manufactures ships, rolling stock, aircraft and jet engines, gas turbine power generators, environmental and industrial plants, and range of manufacturing equipment and systems. KHI also produces consumer products, such as Kawasaki-brand motorcycles and personal watercraft.