Indian Motorcycle has made large inroads against Harley-Davidson's market share as new models and price points appeal to all riders. Image source: Indian Motorcycle.

With Harley-Davidson (NYSE:HOG) reporting yet another quarter of falling sales, it's clear Indian Motorcycle continues to eat away at its larger rival's market share. Yet credit for the achievement goes not only to Polaris Industries (NYSE:PII) for smartly positioning the Indian nameplate across styles and price points since the brand's resurrection three years ago, but also to Harley, which actually handed it a bigger piece of the pie.

Polaris Industries has rolled out nine new Indian models since 2013: from the first Indian Chieftain, which harkened back to its original roots, to the Indian Scout, aimed at riders new to motorcycles as well as to the Indian brand. They also cross over a variety of prices, from the Roadmaster that starts just under $29,000 down to the affordable Scouty Sixty, which begins at under $9,000.

A tale of 2 V-Twins

That's made it intensely competitive with Harley's own touring, cruiser, and sport bikes. Where Indian has been growing at double-digit rates or more since it first came back to the market out of bankruptcy, Harley-Davidson has been on a long, slow slide down. For seven straight quarters, the big-bike maker has reported lower year-on-year quarterly U.S. sales. While there was hope in the first quarter Harley might have turned things around, as domestic sales fell just half a percent, its second-quarter results tumbled once more, falling 5% from the year-ago period.

Harley-Davidson is suffering through a three-year decline in quarterly sales with no bottom in sight. Polaris Industries' Indian brand seems to be picking up most of the gains. Data source: Harley-Davidson quarterly SEC filings. Chart by author.

At the same time, Polaris is on a roll, recording a 23% increase in sales. Polaris doesn't provide nearly as much detail as does Harley, and it lumps Indian in together with its Victory brand and the three-wheeled Slingshot. But it reported retail demand for the segment was up in the mid-teens range, though CEO Scott Wine told analysts that Indian's retail was up over 20% for the quarter.

What's important about these numbers: Polaris also said industry retail sales for bikes 900 cc and above were down by mid-single-digit percentages in the quarter, so Polaris generally and Indian specifically were taking large swaths of share. And as noted earlier, Polaris has Harley-Davidson, at least in part, to thank for it.

Don't discount the effect of discounting

As the economy's softened over time, the motorcycle industry has engaged in highly promotional activity, discounting its bikes to maintain or grow market share. While Polaris has bemoaned the fact that it has to participate in these practices, Harley-Davidson has not. It's said it wants to preserve the premium it gets on its bikes, and not cheapen them by discounting.

Instead, Harley has undertaken marketing initiatives intended to introduce first-time riders to the brand as well as to motorcycling. In the first quarter it reported it boosted its marketing spend this year by $70 million, a 65% increase from 2015. Harley hoped that with promotional campaigns like "Live Your Legend" and the "Heroes Ride Free" rider training program for military and first responders -- programs that showcase its Street 500 and 750 bikes -- people would learn to ride a motorcycle, and having ridden a Harley-Davidson, would subsequently buy one.

No doubt someone who felt comfortable on a Street in training might turn around and purchase one afterwards, but Polaris's Wine also said he was going to benefit too. During Polaris's first-quarter conference call back in April, Wine said he thought Harley's marketing campaign would give the industry a tailwind, and remarked that it was "nice when somebody else pays for your advertising."

Riding coattails

Yet it doesn't seem the industry got a lift at all, nor Harley-Davidson. The only ones seemingly benefiting from this have been Indian Motorcycle and Polaris Industries. Heck, even Polaris Industries' Victory brand, which has been caught in its own downward spiral, turned positive this quarter.

Because of the large gap between Harley and Polaris, the former can remain safely above the fray for a time. It did preserve its margins, after all, while Polaris saw its own slide. But giving your competition gift-wrapped sales, as it has, can't stand for very long. If Indian continues to pick up market share, Harley-Davidson is going to have a much tougher fight on its hands.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.