Slimmed-down Spending Means Less Money for "Hogs"

After several years of strong performances, iconic motorcycle maker Harley-Davidson last week reported that its net income dropped 91% for the second quarter — or by $19.8 million. Revenues were down 27% from the same period a year earlier for the company, which earns much of its revenues through sales of extended, branded products ranging from leather jackets to underwear.

Now Harley-Davidson plans to cut 1,000 jobs and close four plants. That’s quite a crash diet for the company, which also uses HOG as its New York Stock Exchange listing symbol. And it follows the elimination of some 1,300 jobs earlier this year, which left the total number of workers at about 9,300.

Perhaps it’s no surprise. After all, Harleys are high-end machines, and luxury goods typically suffer more during a recession than other products. The bikes are favored by lawyers, doctors and other professionals — sometimes called “Rolex riders” — in addition to groups that buy into the company’s storied history, retro style and, for some, the fact that Harley’s bikes are made in the United States. That’s all part of what some call the "Harley mystique" that often allows the company to charge double the price of, say, a Japanese-made Yamaha with comparable performance characteristics.

“Harleys are expensive,” says Wharton marketing professor Patti Williams, and so Harley-Davidson is bound to suffer in an economic downturn. It has also suffered some losses in connection with motorcycle-related loans. But are the problems entirely the making of the economy, as the company maintains, or are there additional factors related to a new kind of consumer? One big question is whether the Harley-Davidson brand name “will continue to be the same kind of self-expressive brand it has been in the past,” Williams adds. Consumers may just cinch their belts and discover other, less-expensive forms of self-expression — or they will find other “selves” to express, she says.

“We’re seeing some of the latter certainly as consumers find pleasure and identification through being thrifty and economical,” Williams notes. It’s also possible that younger consumers — Gen X and Gen Y — may turn toward other self-expressive brands.

“I think it’s possible that Harley’s success may be a baby boomer phenomenon,” Williams adds. The ethos of the brand may be tied to a place and time that resonates only with that generation. “It’s also possible that there are still plenty of consumers out there who want to live the HD [Harley Davidson] lifestyle, but simply can’t afford to now. And I guess if that’s the case we’ll have to see whether or not HD can survive long enough in this economy for its consumers’ consumption to pick back up.”

The company expects to build 25% to 30% fewer motorcycles this year than last year, when it sold just over 300,000 units. The overall damage stems not only from fewer sales, but also more directly from the financial crisis: The motorcycle maker reported a $72.7 million credit loss provision for bad motorcycle loans and a $28.4 million charge related to the purchase of Harley-Davidson Financial Services 14 years ago.

As is often the case in these situations, however, Harley-Davidson’s stock rose after announcing its austerity measures, at least initially.

Williams is co-author of a just-released book, Marketing for Financial Advisors – Build Your Business, Bring in Clients, and Establish Your Brand. Her fellow authors are Eric T. Bradlow, also a Wharton marketing professor, and Keith Niedermeier, director of Wharton's undergraduate marketing program.

For related Knowledge at Wharton coverage, see the following:

The New High-end Consumer: 'Please Put My Bottega Veneta Wallet in a Plain Bag'

Half-a-Million Job Cuts: Is There a Strategy Behind the Layoffs?

Luxury Brands: Marketing the Upscale During a Downturn