There has been a flurry of posts flying around lately about Harley Davidson (HOG) and their status as a “discretionary” purchase. Now, while the choice to buy a motorcycle may be for some, riding a Harley is not necessarily. There is a huge segment of the Harley population that considers their cars their second mode of transportation.
I am reminded of a story told to me by a friend. His buddy called him and said he was bringing over his new Harley for him to see. As my friend came out to look at it, his buddy’s wife was sitting on the back of the bike. “Isn’t she the most beautiful thing you have ever seen?” he was asked. My friend then looked at me and said, “He was of course talking about the bike”. Ever here a story about that from a Mac user? Or a Ford (F) driver? Me either…
I think the confusion here may be based on the term “discretionary”. When I think of the word I think of mowing my lawn myself vs. having the kid down the street do it. Buying Coke (KO) or buying the generic store bought brand of soda. Going to the movies vs. waiting for it to come out and renting it. Those are truly discretionary purchases.
A Harley Davidson rider will never, ever, make the decision to NOT buy a Harley and instead hop on a Suzuki to “save a few bucks”. That very fact means there is a very large limit to just how discretionary the bikes are.
More “misinformation” is also bantered about that people do not have the money to spend “15k to 30K” for a bike. Now, I have been to a dealership lately and I can tell you there is a whole swath of bikes available for $8,000 to $12,000. That alone makes the potential affordability of it audience wider.
Now, all this is not to say that for some people the bike is discretionary. I as much said so last year when share were trading at all time high’s near $70. Shares have since cratered and sit under $40. Slowing sales and rising credit issues are the main culprits.
What has happened is Harley riders has slowed to rate at which the “trade up” their bikes to bigger, more expensive models. They have not decided to go with another brand. Were Harleys truly discretionary, this would be the trend. Rather than trading in an existing bike for another, riders are sticking with what they have. This is the reason recently the observation was made that the secondary market has remained so strong. The demand for the bikes is still there, people are just being more selective in their purchases.
Let’s not forget that this brand is so powerful people tattoo its logo on their skin. Ever see Google (GOOG) or Apple (AAPL) tattooed on anyone? We know how passionate those folks are about their products, yet it would seem they pale to those who ride HOG’s. You cannot both put a price tag on this and underestimate the power of the brand in people decision making process.
This passion means there is an in-elasticity to the “discretionary” aspect of the bikes. If that is true, and I believe it is, then we may have reached the limit of it and shares have bottomed. That is why I bought earlier in the year…
Another note: As expected, the labor issue has been put to rest.
Disclosure (“none” means no position):Long HOG, None
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