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Harley Makes Inventory Changes to Stabilize Costs Hot

Harley_Davidson_Dealership1A recent survey conducted by Robert W Baird & Co. of 64 Harley-Davidson dealerships across the US concluded that dealers were concerned with inventories by a 2-1 ratio. Now don't go thinking that we're slagging off our boys at H-D. I know that dealers will complain about anything to justify poor sales. If it's not inventory, then it's the weather, or the sales team, or the management, or F&I. If they're selling, everything is just peachy. We know this, but I digress.

According to Baird Analyst, Craig Kennison, the slowing in production is actually good for dealers overall. 42 percent of Harley's are still going off the showroom floor above sticker. It's a far cry from the days of old, but still a strong figure considering the state of the industry. Given what H-D has been through, even 1 percent over production could result in pricing changes across the country, killing dealer profit.

"There are some dealers with huge numbers of 2010-model bikes left over. Their showrooms are full," said Richard Kummer, vice president of Route 43 Harley-Davidson in Sheboygan. "I am very fortunate that I only have four 2010 bikes left," Kummer said.

Chaz Hastings, owner of Milwaukee Harley-Davidson, definitely won't let inventories keep him from rolling a new bike off the showroom floor. " Inventories are a little tight. But as dealers, we have become good at trading with one another. I won't lose a sale because I don't have a particular bike on the showroom floor," Hastings said.

On the flip side, some dealers don't mind having a lean inventory. Take note that if a dealer has too many bikes on the floor, it can skyrocket costs, including interest payments on units that haven't sold. "I don't think that Harley's approach is wrong. It's going to be to our benefit later this season," said Kirk Topel, president of Hal's Harley-Davidson in New Berlin.

I think Harley is actually making an ace move with keeping production low. They projected a 5-10 percent decrease in production this year. It only makes sense to lean out costs until the industry stabilizes a bit more. Fortunately, Worldwide retail sales fell only 5.5 percent, a stark improvement from the Q1 drop of 18 percent. 

One thing we know about consumers, they'll always come back and buy. 2011-2012 is right around the corner, so I wouldn't worry too much about people not wanting more stuff to cram in their garages.

 

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0 # Terry Reilly 2010-08-30 12:07
Cutting supply in the face of weak consumer demand is a perfectly reasonable business tactic for HDMC or any manufacturer. But that is only half the story. That HDMC rewards dealers with additional inventory based on unit sales growth regardless of dealer per unit margin undermines any benefit hoped for by cutting inventory. It ain't brain surgery. Dealers who discount to sell Harley units are rewarded with a greater share of the reduced inventory. Customers become trained to expect the discount and behave accordingly. New Harleys become devalued as MSRP becomes meaningless. Consequently, used Harleys are devalued. As fewer HD dealers hold the line on prices and resist discounting, they sell fewer units and then get fewer replacement units to sell. Who loses? Everyone does. Discount HD dealers lose (you can't make up lost margin in volume). HD dealers who won't discount also lose (you can't make up lost margin with no volume). The consumer loses (owns increasingly devalued and depreciating product). And HDMC loses too (lack of growth, inability to attract new buyers in new markets to a fading premium product, loan defaults by both dealers and consumers places HDFS in peril). Cutting supply while simultaneously devaluing the product in the marketplace by having disjointed tactics in place is a prescription for ultimate failure. Get it together Harley, or your days as a premium brand may be numbered. Haven't you learned anything from the Big 3 auto makers?
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