Harley to offer used bikes as lure
Harley-Davidson has decided the best way to get younger customers to buy a new motorcycle is to sell them a used one first. The Milwaukee-based company plans to roll out a certified pre-owned bike programme, known as H-D Certified. Harley’s embrace of used bikes is part of a five-year turnaround strategy under CEO Jochen Zeitz.
Harley-Davidson has decided the best way to get younger customers to buy a new motorcycle is to sell them a used one first.
The Milwaukee-based company plans to roll out a certified pre-owned bike programme, known as H-D Certified, adapting a strategy carmakers have been following for years to position well-tended used vehicles as a substitute for low-margin “entry-level” new models.
Harley’s embrace of used bikes is part of a five-year turnaround strategy under CEO Jochen Zeitz, and is the latest effort to expand the brand’s appeal beyond middle-aged and affluent riders.
The 118-year-old US brand has been steadily losing US market share amid declining retail sales for six years. But the demand for used Harleys, which are less expensive, has remained strong. Some dealers say pre-owned bikes in 2020 outsold new ones three-to-one.
Melissa Walters, owner of a Harley dealership in Fresno, California, says the coronavirus pandemic has led to an increased demand for outdoor recreational activity, but dealers are hard-pressed to find bikes to sell to customers.
“People are tired of staying home,” she said. “They want to go out and do something.” That sentiment was echoed by a dozen dealers in six states.
Data from industry consultant JD Power shows Harley was the most sought-after brand in the used big bikes market in 2020, boosting bets that the certified programme will draw in new customers.
For Harley it offers a way to build brand loyalty and attract new customers without engineering and manufacturing new lower-cost bikes, which tend to have lower profit margins.
“We believe this programme will drive Harley-Davidson desirability, increase sales and margins, and enhance the overall customer experience while supporting growth,” Zeitz said.
Under the pre-owned bike programme, which was revealed in February, Harley will certify motorcycles up to five years old with up to 40,000km.
Certified bikes will be inspected and backed by a 12month limited warranty, and can be financed by Harley’s financial arm, distinguishing them from other used Harleys.
While the heavyweight motorcycle maker has a similar programme in the UK, this is the first time it is entering the used marketplace in the US, its biggest market.
BRAND LOYALTY
The programme will be launched in late April and more than 300 dealers have expressed interest in participating so far, Harley said.
“It’s going to draw new riders and will give them entry into the Harley-Davidson world,” said Brad Conn, marketing co-ordinator at an Indiana-based dealership that plans to sign up for the programme.
In the vehicle industry, according to JD Power, similar programmes offer higher profit to dealers with faster inventory turnover. JD Power’s data also shows the programmes are more effective in cultivating brand loyalty and tend to generate more business for the financial arms of carmakers, which fund the vehicle purchases.
James Hardiman, an analyst
at Wedbush Securities, said the secondary motorcycle market has become a big business over the past decade and could be a “significant” revenue stream for Harley.
In 2017 online retailer for pre-owned vehicles RumbleOn pegged the value of the US used motorcycle market at $7.5bn a year, with Harley bikes accounting for more than half of sales. The study showed customers aged 18-34 were buying three used bikes for every new one.
A booming demand for preowned Harleys until now has been a drag on the company’s US retail sales, which have declined by nearly 40% since 2014. As its motorcycles do not wear out or go out of fashion quickly, used Harleys tend to be more in demand vis-à-vis pricey new models.
Zeitz has tried to tackle the problem in the past year by tightening the supplies of new
bikes. Leaner new inventory together with the increased demand for outdoor sports have driven up the prices of preowned bikes. Still, the company estimates there are 3-million unsold used Harleys in the US, far more than the 80,000 new bikes it shipped in 2020.
BIGGEST COMPETITION
“The biggest competition for a new Harley-Davidson bike is not an Indian bike or a Honda, or a Suzuki bike, but a used HarleyDavidson bike,” said Hardiman.
Faced with a similar situation in the 1990s, carmakers launched certified programmes to resell thousands of returned leased vehicles to first-time and budget-minded buyers.
The programmes allowed them to scrap less expensive entry-level models, which had razor-thin profit margins, freeing up resources for more profitable products.
Harley is pursuing similar goals. It has done away with some of the cheaper entry-level models and will ramp up investment in touring, large cruiser and trike bike segments that drive company profit.
It is also looking to increase sales of ancillary products such as accessories, general merchandise and financial services by leveraging the certified bike programme.
Michael Uhlarik, founder and lead consultant at Motorcycle Global, believes the certified programme is aimed at replacing lost motorcycle revenue from falling shipments.
Harley’s bike shipments to dealers in the US have dropped more than 60% from the 206,000 units in 2008.
“It will never be a 200,000 vehicle-a-year company,” said Uhlarik. “They have to replace that lost revenue somewhere.”