Harley tattoo may be fading

Motorcycle brand tries to expand beyond boomers

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May 08, 2007|By McClatchy-Tribune

MILWAUKEE -- As baby boomers become more interested in hip and knee replacements than motorcycles, Harley-Davidson Inc. might feel their pain.

Even as it comes off the most profitable year in its history, the Milwaukee maker of the world's most famous motorcycles has challenges on several fronts:

The graying of its prime audience. The median age for a Harley buyer is 47, compared with 38 for other motorcycle companies.

Increased manufacturing costs. Harley is gearing up for labor contract talks in Milwaukee and Kansas City, Mo., after weathering a short but costly strike at its largest assembly plant in York, Pa. Some union members say the spirit of cooperation that once existed between labor and management is broken.

Foreign competition. Manufacturers such as Honda and Kawasaki are making high-quality bikes that compete with Harley's products.

Yet Chief Executive Officer James L. Ziemer, a 38-year Harley veteran named to the top job in 2005, says the company is stronger and more capable than ever.

"We have an iconic brand that transcends all ages and cultures," he said in an interview. "There are three things that keep us going: market leadership, operational excellence, and strength in our financial position. We have the whole basket, and that's how we are going to sustain the company."

Harley had $5.8 billion in revenue in 2006, the 10th consecutive year of increased sales. For the first time, the company topped $1 billion in annual profit - a major increase from $4.8 million two decades earlier in 1986.

If you had bought $100 in Harley shares at the end of 1986, they would be worth about $23,000 today.

Last year, the company shipped 349,196 motorcycles, compared with 36,735 in 1986.

Although boomers have been good for Harley, the brand is facing substantial demographic challenges. Executives must bridge a generation gap between boomers, who turned the brand into an icon, and younger riders, who may have no brand loyalty at all.

Harley also must continue its efforts to attract women and minority customers.

Only about 12 percent of Harley motorcycle owners are women - but that's up from 2 percent in the 1980s.

Also, about 40 percent of the participants in Harley's how-to-ride classes are women. Nearly one-third of the participants are under age 35.

"We sell to more people under age 35 than our total sales were 20 years ago," Ziemer said.

Yet some analysts worry that the price of a Harley - about $7,000 for a Sportster and up to $30,000 for a deluxe touring bike - could send younger riders to less expensive motorcycles offered by Japanese manufacturers.

The maker of Fat Boy and Softail bikes will lose market share if it doesn't attract younger riders, predicted Donald Brown, a motorcycle industry economist in Irvine, Calif.

"A lot of Harley's success has to do with its demographics," Brown said. Boomers have been loyal to Harley partly because it's an American-made motorcycle. But younger riders don't always have that loyalty, especially if their first motorcycle was foreign-made.

This year, Harley introduced the Nightster, a bike with raw-boned styling and a macho, black denim finish. It has been popular with younger motorcycle enthusiasts, according to the company.

Harley also has the V-Rod, a European-style sport bike, in its stable of motorcycles aimed at younger riders.

But the need to attract a younger crowd presents a dilemma, because Harley can't afford to offend customers who have been faithful to the brand for decades and who won't necessarily embrace new types of bikes.

"I can't think of another company whose customers have the name tattooed on their arms. That's pretty unique, although I think the tattoo might be fading," said George Reis, a stock analyst in Two Rivers, Wis., who has followed Harley for more than 20 years.

To a certain extent, Harley also must deal with a problem brought on by year after year of record-breaking sales.

"There's nothing unique about owning a Harley now," said analyst Anthony Gikas with Piper Jaffray Co., a Minneapolis investment firm. Gikas has been a Harley rider for more than 20 years.

"Even as recent as 2000 it was still like being in an exclusive club, " he said. "Now it's kind of a broken group with a bunch of doctors, lawyers and Wall Street yuppies."

In February, a strike shut down the York plant where Harley assembles some of its most profitable motorcycles.

The company blamed the strike, and lackluster U.S. sales, for an 18 percent drop in first-quarter 2007 profit.

Ending the work stoppage, union workers in York overwhelmingly approved a new labor agreement Feb. 22 that called for a 12 percent wage increase over three years.

Starting wages for new employees will be lower, but they will be able to advance to the same maximum rate earned by current employees.

This summer, Harley will begin negotiating a new labor contract in Kansas City. The next round of negotiations for Milwaukee will begin early next year.

Health care costs and wages will be on the bargaining table.

In the 1980s, Harley and its labor unions worked together closely as part of the company's turnaround from the brink of bankruptcy.

Some of the spirit of cooperation faded as Harley became a much bigger, profitable company, according to the unions.

"We are trying to get it back," said Scott Parr, business representative for the Machinists union's Lodge 78 in Milwaukee. "As with any large corporation, it seems the relationship has split and the partnering has drifted away."

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