Motorcycle

Harley-Davidson needs a major overhaul

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Harley-Davidson (HOG) is the classic case of a divine franchise. While still the world’s largest maker of cruiser motorcycles, it is being swamped by new competition. HOG’s EBIT performance has slid for the last 4 years and is even below the level of 2012. BMW Motorrad, KTM AG, Ducati and Triumph are all growing unit sales and profits. HOG has a very defined product line whereas its competitors are flush with sports, adventure, cruiser, heritage, cafe racers, scooters, off road and much broader engine sizes.

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The further complication is that the Japanese are getting their act together. Honda is targeting over 20mn units in 2018 (mainly driven by emerging Asia). Honda has received rave reviews of its new CB1000R which should keep the fires burning. Several years ago, Yamaha introduced a budget cruiser called the Bolt but HOG responded with a competitively priced bike made in India which showed the desperation of a strategy where it doubted its brand power. Kawasaki has a 12 month waiting list on its Z900RS cafe racer which is a replica of the 1970s classic. Kawasaki has no interest playing in scooter markets and remains focused on its core larger bore segmentation.

Yamaha and Kawasaki have gone down the path of profitability than pure unit growth while Suzuki is the real laggard, lost in me too group think product. Honda has had a real resurgence in product which harks on its history. Honda now has 75% market share in Indonesia, 72% in Vietnam, 80% in Thailand and 82% in Brazil. Only 28% in India. Still, the market share, resale and brand power in Asia no maker will usurp them for decades. Put another way, the risks associated with dethroning Honda in Asia by a dealer channel push would be astronomically high. Yamaha has the other 10%.

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Profitability is starting to look much rosier for the Japanese too. Even Suzuki has managed to pull itself out of loss.

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Sadly for HOG, 1Q 2018 has shown even worse numbers. Global unit sales were 7.2% down on the previous year and 12% down at home.  Japan and Australia were soft. Looking at the strategy it looks like throwing spaghetti at a wall and hoping it sticks. It looks like some consultant has rattled together some funky catchphrases.

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HOG’s problems are simple. It is not listening to customers. When grandson of the founder, Willie Davidson, took over the reins after the near bankruptcy under AMF stewardship in the 1980s, the company really consulted customers and worked out they wanted more reliability and capability. It delivered. Sadly HOG is hanging on by its fingernails on brand alone today. The Polaris-owned Indian brand is coming up with excellent product lines which have all of the cachet of HOG given it was its fiercest competitor in the 1930s.

HOG’s product line up is relatively stale in terms of real innovation. While the Milwaukee 8 engine is a very good start and the Fat Bob is a proper philosophy change, the rest of the line up needs major revamp. At the moment it seems the brand is stuck in an echo chamber.

In closing Harley’s are a cult. There aren’t many brands where customers are prepared tattoo it to their bodies. In all the bikes CM has owned, the Harley had 10x the number of people wanting to ride on the back vs the rest combined. Yet it goes to show that brand only goes so far. Product still matters.

 

Lorenzo to take a 68% pay cut

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After a failed €25mn experiment at Ducati, Spanish MotoGP rider and 5x world champ Jorge Lorenzo (right) is off to take Dani Pedrosa’s (left) ride at Repsol Honda for a reported €4 million per year for two years. Pedrosa had been a loyal salaryman for over 15 years with Honda, bringing 3 world championships in the smaller classes. Dani’s 51kg weight has been his biggest problem in that he is not heavy enough in the larger classes to generate heat in the tyres. Poor old Dani has broken so many bones he’s lost count. Sad to see him go as he is the utter gentlemen/statesman of the field but like any business results matter and in the end and Honda Racing realized it needed a change. Lucky for them Lorenzo’s poor form (despite a win last weekend in Mugello) at Ducati meant he was being heavily discounted. Sports stars are the ultimate sign of same work, different pay.

 

 

Harley-Davidson sales tank in Q1 2018

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Harley-Davidson announced Q1 figures which saw its US based unit sales (c 50% of group) fall 12% with global sales down 7.2% YoY. H-D is often regarded as a canary in the coal mine for discretionary spending. 30 day delinquencies continue to rise in Q1 2018 @ 3.31% the highest in 6 years. Harley wrote,

The U.S. 601+cc industry was down 11.1 percent in the first quarter compared to 2017. Harley-Davidson’s first quarter market share was 50.4 percent in the U.S. The 601+cc industry in Europe was down 7.3 percent in the first quarter compared to 2017.  Harley-Davidson’s first quarter market share was up 1.3 percentage points to 10.4 percent in Europe.”

Highlights:

Revenue up 2.7% despite 9.7% lower shipments

Gross margin 34.7%, down 1.0 pt.

SG&A up

Restructuring charge of $46.8 million

Operating margin of 12.7%, down 5.1 pts.

Harley reported 243,000 units in 2017 (-6.7% on 2016) and it is shooting for mid 230,000s for 2018. This despite some stunning new models. The problem with a divine franchise is that complacency kills. The competition is much fiercer and the prices of its bikes are for the better heeled who seem to be cooling them

 

Marc Marquez memes have mutated

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The memes have already started for the dodgem car race style of Marc Marquez. The fallout from this is likely to be huge. He is without doubt the greatest talent on track. To be able to do a ride through penalty after only 6 laps of a short track and still come out of pit lane ahead of a 5x world champ Jorge Lorenzo who is riding the most powerful bike on the grid speaks volumes about his skill. Yet he punted the 21 year veteran of the game who has more fans, history and records than most of the grid combined. Marquez will soon feel like the the barber in The Untouchables who cut Al Capone while shaving him. Deliberately cutting up Capone in front of the mob isn’t something they’ll forgive easily. The booing in Argentina was severe. Marquez is a 6x world champion but the question is can he act as one when it matters? He may have been forgiven in 2015 but not after yesterday.

Marquez said the move on Aleix Espargaro earlier on was far harsher than that on Rossi, just that the latter crashed in a racing incident (in his view “nothing crazy”) that copped the biggest penalty. Marquez tried to cover his mistake saying, “Honestly speaking I don’t care, I’m just focussed on my box and I know what happened. Of course today I did a few mistakes – a few of those mistakes were from Race Direction and a few were mine. And I recognise and will try to improve for the future.”

Yamaha Movistar Team boss Lin Jarvis said,

“I think it’s pretty obvious from anyone watching the TV images that it’s a move that is totally unacceptable…So it was the number X of many moves that were unacceptable throughout the weekend. We had issues in free practice when he very nearly missed Maverick one time…There have been several incidents against other riders – not our riders – but other riders throughout the weekend. In the race there was a big one with Aleix. There was another one with Nakagami and then with others. Finally he ran Valentino off the track. That’s just not acceptable – period.”

Rossi also sounded off after the collision,

“I’m okay but this is a very bad situation because he destroyed our sport, because he doesn’t have any respect for his rivals, never…If you take for example what’s happened this weekend, one by one these things can happen to everybody. You can make a mistake in braking. You can touch the other guy. Happens. This is racing…

…But from Friday morning he make like this with Vinales, Dovizioso. He made like this with me on Saturday morning. And today in the race he go straight into four riders…He does it purposely – and it’s not a mistake – because he points the leg, between the leg and the bike, because he knows that he don’t crash, but you crash. He hopes that you crash.

“So, if you start to play like this, it’s like you raise the level to a very dangerous point… Because if all the riders race like this, without any respect for the rivals, this is a very dangerous sport and it can finish in a bad way

 [His apology is] a joke. First of all he don’t have the balls to come in my office alone, but he come like always with his manager, with Honda, in front of all the cameras because what is important for him is this. He don’t care about you…So I don’t want to speak with him. I don’t want to see him close to me because I know it’s not true what he say to me…I hope that he is clever enough to don’t come…

MotoGP is worried that it is without a star to replace Rossi when he retires in several years. So much of the sport’s growth has been down to him. Marquez was supposed to be the coming rider to fill his boots. In skill he has it in spades, his ability to smile for cameras is a strong suit but these incidents against the man he was supposed to replace will create headaches for race organizer, Dorna Sports. He is now a villain and rebuilding that image looks like a lost cause. All smells a bit like the Aussie Cricket team antics in South Africa.

Grand Theft Moto

Current Moto GP World Champ Marc Marquez relived the video game Grand Theft Auto (Moto) in Argentina. He was the quickest rider by a good 1-2 seconds a lap throughout the entire weekend. Yet the red mist from his own screw ups got the better of him during the race seeing him collect three penalties – a ride through penalty for stalling on the grid (as above).

After serving the ride through he was lucky to escape penalty for ramming Aleix Espargaro on the charge back through the field.

Then Marquez received a one position penalty for overtaking on the grass.

Then he clattered 9-time World Champ Valentino Rossi needlessly out of the race when he would have swallowed him safely in two corners to take 5th position after he which he was handed a 30 second penalty which knocked him back out of the points.

It was an ugly display. It was almost a reversal of the 2015 Malaysian GP when Marquez, out of reach of the title, carved up Rossi in a way that wasn’t racing but ensured he’d lose time to eventual World Champ Jorge Lorenzo (who in that race wasn’t penalized for overtaking on a yellow flag). Rossi ran Marquez wide in an attempt to stop him playing games and allow a fair fight for the championship Before the latter crashed in the infamous ‘kicking incident’.

Rossi was relegated to the back of the grid for the final race and lost the championship as a result. He almost caught up through the field in the final race in Valencia but even then Marquez cut up his own team mate Pedrosa in the dying laps to slow Rossi, denying a 10th title. When the Spanish King crowned a Spanish 2015 world champ in Spain and a Spanish crowd booed at the lack of sportsmanship it told us everything how the fans felt at the poor governance showed by the race organizers, Dorna.

While Marquez did go to apologize to Rossi for his blatant stuff-up in this race his team wasn’t having any of it.

Race Direction actually ruined the entire Argentina race for pole sitter Jack Miller by him being the only one to opt for slicks and all others on rain tyres. They stopped the race as all others dived to change to slicks causing a restart which ruined Miller’s chance of winning through a better strategy. Marquez should have started from the pits after the stall but Race Direction botched that too.

Throw in Marquez’s multiple indiscretions and one wonders how he wasn’t black flagged. Rubbing may be racing but Marquez was ramming not riding. Will he be summarily punished? Yes, Marquez is without a doubt a far better rider than anyone else out there but he needs to work on winning at all costs.

 

He’s not called ‘Jackass’ for nothing

Aussie Jack Miller, affectionately known as ‘Jackass’, finished in his first ever pole position at the Argentinian MotoGP after risking slick tyres in the wet conditions. If anyone wondered why MotoGP is so much better than the politically correct F1 this is why. Talk about putting it on the line!

Truly inspiring

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The video speaks for itself. U.S. veteran Jason Zaideman, along with other veterans who work at Operation Combat Bikesaver volunteer their own time and money to put back the lives of other vets who’ve suffered trauma on the battlefield. Jason didn’t get to finish the bike he was building with his combat veteran father due to his death but mixed his ashes in the paintwork to make sure he was part of the finished product. Truly inspiring.