Unfortunately for Harley-Davidson (NYSE:HOG), there's no way it can capitalize on the decision by Polaris Industries (NYSE:PII) to kill off its Victory brand of motorcycles. Although it means there will be one less American-made motorcycle on the market, which ought to bolster the made-in-America motorcycle king, its rival's move to focus instead on its fabulously successful Indian Motorcycle nameplate means Harley is going to have an even harder time selling its bikes.
A losing proposition
Few would argue Polaris didn't make the right move. Despite 18 years on the market, Victory hardly made a dent in the consciousness of bike riders. Growth was negligible, and the brand had accumulated losses of $100 million for Polaris. With an industry in the midst of a downturn, pouring more resources into Victory was not feasible, certainly not when Polaris has the Indian brand that could benefit further from the additional investments that will be thrown at it.
Because Indian has made swift inroads into Harley's market share, quickly jumping into second place in the short span of years since the nameplate was bought out of bankruptcy, having even greater resources available to it could see larger swaths of the market fall into its camp.
As Harley-Davidson's fourth-quarter earnings show, that's a distinct possibility. While the bike maker finally snapped a two-year losing streak of falling quarterly sales in the U.S., the gains weren't anything special. Revenue rose 0.1% over 2015, as it sold exactly 33 more bikes in the period than a year ago.
At least it didn't try to fudge the shipment numbers this time around. Unlike the last two years in a row -- when it pushed out more motorcycles onto dealer lots in the fourth quarter than were warranted, to be able to say it made its full-year shipment forecasts -- this year Harley just wouldn't have been able to justify the big spike needed to make even the low end of its forecast. In the end, shipments fell 12%.
That means Harley-Davidson missed its guidance for the year. Where it had said it was confident it would ship between 264,000 and 269,000 motorcycles in 2016, it ended up shipping a little over 262,000 bikes.
Harley maintains that it grew its market share in motorcycles 601 cubic centimeters and larger, though that's seemingly hard to square with the results. Its motorcycle sales were largely flat for the period, and for the year they're down 1.6% worldwide, while bike makers such as Honda Motors (NYSE:HMC) say their unit sales have consistently risen in successive quarters. And Polaris itself just reported that Indian brand sales jumped more than 20% in the fourth quarter, continuing the double-digit (and sometimes triple-digit) gains it has notched since relaunching the bike.
The problem, of course, is in how one defines the market. Harley talks about bikes of 601 cc and above, Polaris references those 900 cc and over; and Honda doesn't discuss market share at all, but then its bikes run the gamut from 49 cc models, such as its CRF50F trail bike, to cruisers such as the 1832 cc Gold Wing F6B. With both Harley and Polaris claiming market-share gains, the losers are likely to be Honda, Suzuki, BMW, and other imports.
Losing ground more slowly, for now
That's why Polaris' decision to wind down the Victory brand isn't going to help Harley-Davidson. It's clearly not preventing Indian from gobbling up larger slices of the pie, and with Polaris now focusing all its attention on an equally storied brand, Indian just very well might accelerate its gains, further encroaching on Harley's turf.
Of course, no one thinks Polaris is about to overtake the industry behemoth. With a 50% share of the market, and being appreciably larger in size than its rival, Harley will firmly remain the leader of the pack. But even though an American-made rival is exiting the market, riders are looking for the next exciting development from Indian Motorcycle and not Harley-Davidson.
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