During the summer there's a good chance that if you hit the highway you're going to see quite a few proud Americans riding their motorcycles. Motorcycles are a true symbol of Americana, offering the opportunity for riders to experience the thrill of two-wheel riding and the unique freedom that comes with owning an iron horse.

Source: Moyan Brenn, Flickr.

In 2013, Americans purchased nearly 466,000 motorcycles, with the iconic Harley-Davidson (NYSE:HOG) laying claim to a good chunk of those domestic sales. But riders -- and investors -- might not realize that there's a world full of cycle enthusiasts outside our borders that dwarfs the U.S. market.

Motorcycle sales soar in foreign markets
Motorcycles are often cheaper than cars, and traffic congestion and infrastructure problems are conducive to making bikes practical and popular in a number of foreign countries. So it's perhaps no surprise that global sales for Harley-Davidson and the six other top motorcycle manufacturers totaled more than 33 million bikes in 2013. While Americans might have an appetite for higher-priced and customized bikes, the U.S. market contributed less than 2% of worldwide sales volume last year. 


Source: Sumanth Garakalajula, Flickr.

With the understanding that foreign markets, especially the Asia-Pacific region, are the key to generating millions of motorcycle sales on annual basis, I offer this challenge: Can you guess which motorcycle brand is the world's top seller?

Before you venture that guess I'll give you a few hints.

The big hint is that the world's top-selling brand needs to hit economical price points. Therefore, Harley-Davidson, which saw its global sales expand 4% to 334,032 bikes last year, is not a contender. Harley-Davidson's bikes are often much pricier than its peers' products, and its expansion is tightly controlled, because the company's unique designs are the primary allure of the brand. As long as Harley-Davidson can keep that aura of exclusivity, its brand image remains safe.

Another sizable hint is that scooter production tends to play a large role for the world's best-selling motorcycle manufacturers. Scooters will always be the reason why a company like Harley-Davidson will never compete with some of its peers for highest total production, but they nonetheless remain a vital transportation component in foreign markets where streets are narrow and congested and parking can be very limited.

The other key factor is that a leading global brand needs to have sufficiently deep pockets and significant manufacturing capacity to meet the increasing demands of consumers in foreign markets. TVS Motor in India, for example, continues to see steady bike sales in its traffic-congested home country. However, its smaller manufacturing capability relative to some of its peers, compounded with a predominantly narrow focus on India, ensures that it isn't the world's best-selling brand. TVS Motor's total sales topped 784,000 units last year.

With this in mind, it's now time to venture your guess.

Got your pick?

The world's best-selling motorcycle brand
If you said Yamaha, Hero MotoCorp, Bajaj Auto, or Suzuki, you deserve a pat on the back, as you accurately identified numbers two through five in terms of annual motorcycle sales in 2013. These companies' sales ranged from just over 2 million total units last year to up to 6 million.

However, if you said Honda (NYSE:HMC) then you should have real bragging rights as you correctly guessed the world's top-selling motorcycle brand.

Honda Motor 2013 annual report (link opens a PDF). Source: Honda.

According to Honda's 2013 annual report, the company, inclusive of its subsidiaries and affiliates, sold 15,494,000 motorcycles (including scooters) last year. Sales were widely skewed toward Asia, which accounted for slightly more than 13 million units sold, with Japan, North America, and Europe combining for just 646,000 total units. Other regions, including emerging markets, totaled roughly 1.8 million units.

Honda can attribute several factors to its Asia-Pacific, and global, success.

First and foremost, Honda understands how to keep pricing under control. While price might not be the biggest objection in the United States, as evidenced by strong sales numbers for Harley-Davidson and Ducati, cost is among the most important factors in a number of emerging-market countries. Although the middle class in China, India, and other rapidly growing emerging markets are seeing opportunities for wealth grow, this broad group of people still remains constrained by ample budgetary concerns. That means motorcycle manufacturers need to be smart with their pricing.

Honda, for example, has been manufacturing select models of its PCX series motor scooters in Thailand since 2009, beginning first with its 125cc-class scooters. Thailand offers some of the most competitive labor costs around the world, which has allowed Honda to build in the Southeast Asian nation, and then export its products to key markets at a reasonable cost. The end result is that Honda's motorcycles are competitively priced and well-received throughout its key markets.

Second, Honda understands that emerging markets are key to success. For example, Honda has established three motorcycle subsidiaries in the African nations of South Africa, Nigeria, and (most recently) Kenya. By expanding into underdeveloped and undermarketed regions which, until recently, have been ignored by the world's largest motorcycle manufacturers, Honda believes it can hit consumers' price points and desires while also beating its peers to the punch in getting manufacturing facilities off the ground. The company also recently expanded sales into Myanmar and Bangladesh. Don't forget that emerging-market economies can often grow independent of a global recession, meaning the potential for less volatility to hit Honda's top and bottom lines.

Innovation is another reason Honda stands head and shoulders above the competition. As Honda stated in its annual report, the company has identified a trend in a number of markets in which consumers are seeking a more "fun" riding experience and a bigger engine. Honda's plans include developing bikes with larger engines for its Brazilian customers, as well as the ongoing maturation of its middleweight-series motorcycles, such as the CBR500R, CB500F, and CTX700, which have larger engines and are as primed for pleasure as they are ready to get the rider from Point A to B.

Honda Motorcycles
2013 Honda CBR500R, CB500F, and CB500X. Source: Honda. 

Putting things into perspective
From the standpoint of an investor examining Honda there are two important takeaways.

Perhaps the most important is that you need to put Honda's motorcycle sales into perspective with its other business segments, which include automobiles, financial services, and various power products. Despite being the best-selling motorcycle brand in the world last year, its motorcycle operations accounted for just 13.6% of total sales, while the automotive segment comprised 78% of total sales. The automobile segment, not surprisingly, offers Honda the potential for much beefier profits than its motorcycle segment, with operating income in automobiles nearly tripling that of motorcycles last year.

However, it's also worth noting that operating margins for motorcycles tend to be higher and more consistent than with automobiles. In other words, this is a business segment that Honda will want to continue to promote. Honda's entrance into new emerging markets and the costs and pricing associated with those moves could weigh on its operating margins, but the results for the past five years speak to the consistency of the motorcycle segment.

Honda's share of the motorcycle market coupled with its superior price leverage could be part of the formula that helps push its share price higher over the long run. And that could be welcome news for an avid rider considering investing for the future or an avid stock market hound looking for the next investment, 

This technological shift  has turned into Warren Buffett's worst nightmare!
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Compare Brokers