Bullish on Hogs: High Gas Prices Drive Harley-Davidson Sales Way Up

Harley Davidson
It's a good time to be a Hog: On Wednesday, Harley-Davidson (HOG) announced a stunning second-quarter jump in income, making the legendary Milwaukee-based motorcycle manufacturer a rare bright spot in a gray economy.

Between April and June 2011, Harley brought in $190.6 million in net income; a year later, its net had jumped 30%, to $247.3 million. But while the company's growing income was a boon for investors -- the year-over-year growth translated to an extra 26 cent dividend on every share -- its changing fortunes also highlight some major, and lasting, political and economic shifts that may have long-lasting effects for the motorcycle market.

Motorcycle Sales Are Revving

Harley isn't the only motorcycle company that is cruising to record profits. According to data recently released by Sageworks, a financial information company, sales at motorcycle and all-terrain vehicle dealers have surged by almost 16% over the past year, surpassing the 15.9% growth rate high they hit in 2004. During the same period, their profits have also gone up steeply -- from about 0.64% in 2009 to 2.55%, almost a four-fold increase.

sales of motorcycles
While the recession can be blamed for some of the earlier slowdown in the motorcycle market -- in 2009, sales fell by 13.77% -- sales had been falling steadily since 2004. Robb Granado, an analyst with Sageworks, offers several possible reasons for the recent rebound. Part, he argues, can be credited to a snap-back from the recession, when tough times kept people from buying bikes and low sales kept dealers from replenishing inventory. But the post-2010 growth, which is still continuing, is harder to explain.

Long-Term Changes

One clue might be the fact that, while this summer's gas hikes have not been as steep as in previous years, prices still remain high, and show signs of rising. Motorcycles are far more fuel efficient than cars -- even Harleys, notorious for their high gas consumption, get between 44 and 59 miles per gallon on the highway. More efficient brands like Kawasaki and Yamaha often do much better, and commuters looking for cost-effective transportation may find that a new motorcycle can quickly pay off.

Another factor, Granado notes, may have been the surprisingly temperate 2012 winter. For many riders, motorcycles are a seasonal option, and often get parked in the garage when the weather gets rough. If last winter was any indication, motorcycle season may be getting longer, further extending the possible savings on gas.

The run on bikes is a worldwide trend. In America, Harley sales are up 4%, a jump that is promising, but pales beside the 10% sales boost the brand has gotten in Asia and the 38% leap it has made in Latin America. Admittedly, other markets are slowing down -- sales have fallen in Europe, the Middle East and Africa -- and the company is going into a seasonally expected slump. But with sales revving up around the world, the future looks bright for motorcycles.

Smart Moves and Tight Turns

Long-term trends seem to be working in Harley-Davidson's favor, but the company has also made some clever moves to shore up its public image and reduce its costs. Long regarded as the brand of bearded barbarians wearing denim vests, Harley has sought to make itself more attractive to women and mainstream riders. As AdWeek recently noted, the motorcycle company has shifted its ad strategy to focus on middle-aged female riders, a group that has gone from 5% of consumers to 11% in the last ten years. For today's Harley, the woman isn't an accessory clinging to the back of a bike anymore; now, she's holding the handlebars.

While reaching out to new riders, Harley has also been showing some of its workers the door. Last December, the manufacturer cut 250 union workers as it switched to a seasonal schedule that was more dependent on short-term workers. Earlier this month, it followed with 125 layoffs in its information technology division as part of a move to outsource the work to an Indian-owned company, Infosys. On the bright side, Infosys is opening a center in Milwaukee, where many of the former Harley employees will likely end up. On the other hand, the laid-off workers will lose the tenure that they accumulated while working for Harley-Davidson.

In other words, Harley is automating, reducing its union workforce, and outsourcing some of its divisions -- basically, following a standard cost-cutting, labor-cutting path to increased profits.

Harley-Davidson's stock has climbed out of the hole it fell into in 2009, and the company reported that retail sales grew more than 25% in the last quarter. Other manufacturers have also announced steep sales growth.

Whether the recent motorcycle sales jump is just a summer fling or the start of a period of sustained growth in fuel-efficient vehicles, one thing is certain: For now at least, bike manufacturers are stepping on the gas -- and dropping some of their excess weight.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at@bruce1971.

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I've been a motorcyclist since 1976... For me, never has a motorcycle been a good way to save money.... But it sure is fun.

August 06 2012 at 12:09 AM Report abuse rate up rate down Reply

I rode a motorcyle for 30 years and I enjoyed it very much. I had a few close calls but in today's world people just drive more crazy and do not pay attention to their driving especially with the cell phones and texting. It is crazy. I stopped riding in 2004 in Fl. and the drivers help persuade me it was time to hang it up.

August 05 2012 at 10:35 PM Report abuse rate up rate down Reply
1 reply to merstockgto's comment

I'm moving to FL. But first, I'm selling my bike.

August 06 2012 at 1:32 AM Report abuse rate up rate down Reply

So lets see Harley Davidson wants you to buy American and even shows disdain for any American that would buy a Yamaha or Honda, but its ok to fire their American employees and give the business to a Indian company that may rehire those employees but at a much lower rate. Yamaha is looking better all the time.

August 05 2012 at 9:40 PM Report abuse rate up rate down Reply

Wait till someone makes a left turn in front of you and your road rashed ass (If It Survives)is racking up the Medical Bills,You can't support your self ! The "Old Lady" that hit you,Has No Insurance,

August 05 2012 at 2:42 PM Report abuse rate up rate down Reply
1 reply to ironmikemiata's comment

Wait until some low life Obama supporter breaks in your house and you shoot him for threating you and your families life, and he didn't die and he sue's the crap out of you because you didn't kill his arse.

August 05 2012 at 9:42 PM Report abuse -1 rate up rate down Reply
1 reply to j.doobie's comment

Wait until some low life redneck republican supporter breaks into your house and you shoot him for threating you and your families life! SHOOT THAT REDNECKWACKJOB!

August 05 2012 at 9:53 PM Report abuse rate up rate down

One other note, Parking. In Urban areas parking spots are a premium luxury. Bikes take up much less space so parking and parking fees are much cheaper. Am important consideration to consider.

August 05 2012 at 11:52 AM Report abuse rate up rate down Reply

Got 2 Harleys....and I don''t ride them to save $ on gas...Ride for freedom !....yup

August 05 2012 at 10:03 AM Report abuse rate up rate down Reply
kline j1

The truth about that is that when you crack that throttle 3/4 to full on a Harley, the gas tank becomes a toilet tank and experiences the same flushing action, they are good powerful motorcycles but you can expect to average about 10 to 12 miles per gallon on a 110 cubic inch Harley.

Bad Journalisim once again, people that can afford a Harley, can afford to feed the beast as well, these reporters rarely check out their stories once they are due for print.

August 05 2012 at 4:49 AM Report abuse +1 rate up rate down Reply
1 reply to kline j1's comment

All current production Harley-Davidson motorcycles except for the V-Rod models achieve nearly 50 miles per gallon or greater average fuel economy in normal highway use. This is because their engines are of a slower turning, long-stroke design than typical of other contemporary motorcycles. Comparably sized motorcycles of other brands, and the Harley V-Rod, with short-stroke, faster revving engines, while capable of higher ultimate power relative to cylinder displacement, achieve significantly fewer miles per gallon under the same normal operation. I agree with you that the writer of this article didn't check his facts, and didn't even make much sense, in stating that Harleys are "notorious for their high gas consumption", while, in the same sentence, reporting correctly, "get between 44 and 59 miles per gallon on the highway." But, is not comparing models of the same size when he states, "More efficient brands like Kawasaki and Yamaha often do much better."

August 05 2012 at 12:18 PM Report abuse rate up rate down Reply

People don't buy Harleys for the gas mileage so this article is stupid. I have an 06 with a big bore kit and I'm lucky to get slightly more mileage than my 4 cyl car. If we were concerned with gas mileage; we would be riding 250cc scooters.

August 05 2012 at 1:47 AM Report abuse rate up rate down Reply

Ever since the band Steppenwolf did "Born to Be Wild" and the movie Easy Rider came out thousands of Harley riders hear the song in their minds---it has to be in their minds because 90% of them can't really hear because they taken off the mufflers.

Most any Japanese or Eurpean bike does EVERYTHING better than a Harley except cost more. Doctors, lawyers, professionals, etc. buy Harleys so they can pretend to be part of a biker gang with the black leathers, the "Nazi" style helmet, Doc Martens.

I wonder how these wannabe badasses feel when they get their headlight blown off by a bike with half the displacement?

August 04 2012 at 10:34 PM Report abuse rate up rate down Reply
1 reply to gosoaring10's comment

"I wonder how these wannabe badasses feel when they get their headlight blown off by a bike with half the displacement" i laugh because you bought a cheap jap bike that'll have 45 cents trade in value

August 05 2012 at 3:04 PM Report abuse rate up rate down Reply

So Harley Davidson is a union buster company, why is people not seeing that

August 04 2012 at 10:12 PM Report abuse rate up rate down Reply