In this week's FinMail we bring to you Harley Davidson's Comeback Story after initially shutting down its Manufacturing Plant in Bawal. Also, read how Mangoes brought Harley Davidson to India and what led Harley Davidson into wrapping up its operations in India and how fate led Harley Davidson into a U-turn to make a comeback again on October 27.
The Comeback Story
On October 27, 2020, Harley Davidson announced its comeback in Indian Markets and notified that it has entered into a partnership with Hero Motocorp. Hero Motocorp too in its release to exchange notified that it had struck a deal with Harley Davidson to sell HD bikes in India. Hero Motocorp will also sell parts and accessories and general merch such as riding gear and apparel. This activity will be undertaken by Hero Motocorp through an HD exclusive brand network as well as Hero's current network of dealers. This deal would enable Harley Davidson to introduce cheaper motorcycles in India, which earlier it didn't.
"These actions are aligned with Harley-Davidson’s business overhaul, The Rewire, and the company’s announcement in September to change its business model in India," the companies said in the exchange filing.
What lead to this deal?
According to a media report stated on the Times Now website, Harley Davidson had already been in search of a strategic partner in India for the past few years, and Hero Motocorp was already been looked upon for collaboration. A Hero Motocorp - Harley Davidson partnership was expected but not too soon.
What led to the wrap of Harley Davidson in India?
According to the company officials, the decision of wrapping up is part of the 'Rewire' strategy. A company that was once the largest motorcycle manufacturer in the world decided to exit from the loss-making markets. But why this decision to wrap up? For that, we have to go back a few years, actually decades back.
Harley Davidson, the company that started in 1903 survived the great depression and yet was still not able to enter the Indian Motorcycle Market - A market that would become the largest motorcycle market in the year 2017.
Back in India, the import policies were a lot stringent. There was a 60% import duty and 30% additional duty for luxury items. This prevented US manufacturers to enter the Indian Markets and Harley Davidson never saw Indian roads and neither did Indians were able to ride the bike of Gods.
So to lay a foot in the market there were talks going around in the US government and the Indian government as well. So what happened was mangoes enabled Harley Davidson's entry in India which finally was possible in the year 2007.
The Alphanso - Harley Story
While Harley was struggling to enter India, Indian Alphanso Mangoes were looking to be sold again in the US Markets.
What exactly happened?
The USA government had banned the import of Indian Mangoes into its country from 1989 because of the concerns of pesticides used by Indian Farmers to protect the king of the fruit. What happened was that a consignment of rich and juicy mangoes was found infected with flies and since then a ban was imposed on imports of Indian Mangoes.
Cut to 2006, our then Prime Minister Manmohan Singh met then American President George Bush at New Delhi where a swap deal was signed by both the countries.
India would allow the imports of Harley Davidson Bikes with an engine capacity of 800cc or above provided that they comply with Euro - III emission norms. In exchange, the USA would lift the ban on the Import of Indian Mangoes.
After many delays due to high import tariffs and emission regulations, Harley Davidson finally set foot in India in 2010. The first 5 lineups that were introduced in India were Sportster, VRSC, Dyna, Softail, and CVO.
These bikes were imported at one piece (CBU) and attracted 100% tariffs. The price range of these Harvey Davidson bikes was 6.95 lakh - 34.95 lakh. In 2011, Harley Davidson set up its only manufacturing facility in India at Bawal, Haryana to assemble Harley bikes.
What turned haywire for Harley Davidson?
After initially setting its manufacturing facility in India at Bawal in Haryana in the year 2010, Harley Davidson in September this year announced that it will shut down its facility. Apart from shutting down the manufacturing facility in Bawal, there were reports suggesting that it was going to 'significantly reduce' the size of its sales office in Gurgaon. All while the management saying that it is under the Rewire strategy. However, the management also assured that it will continue servicing their existing base of customers through their brand stores suggesting a collaboration sort of with a company that will handle all of this for them.
And this was not limited just to India, Harley Davidson's Rewire strategy includes a plan to exit 40 global markets including India. And the tie-up with Hero Motocorp is part of the revamped business plan that Harley Davidson is going to conduct in 17 global markets including India.
But why isn't Harley Davidson able to set foot in the world's largest Motorcycle Market?
Harley Davidson in its 11 years of business in India was able to sell only 25000 units in total against a total of 21.18 million two-wheelers sold in India in the year 2018-19 alone. Harley Davidson had an annual sale target of 10,000 units which is way more than the sales number for Harley Bikes. So it is clear that even after 11 years of presence in Indian markets, Harley Davidson wasn't able to set its foot in the largest motorcycle market in the world.
Take a look at the chart of Harley Davidson's sales numbers in the last years.
Plus, Harley sold only 168 bikes in September 2020 against 10,16,977 two-wheelers sold in the September month alone this year.
If we were to find reason or reasons for this there are some that can be pointed out.
The highest-selling motorcycle of Harley Davidson in India is Harley Davidson Street 750 which is the cheapest bike sold by H D in India. According to a report by Motilal Oswal, 95% of Indians can't afford a Harley Davidson. India is the largest motorcycle market in the world for a reason.
1 - India's Population
2 - India's Low Per Capita Income
3 - Most Indians can't even afford a four-wheeler and hence they rely on two-wheelers
According to a report, only 22 people out of 1000 people own a car in India against 774 in New Zealand, 740 in Australia, and 164 in China. And the cheapest car starts from 3-4 lakhs in India while the cheapest Harley Davidson that is available in India starts from about 5 lakhs.
Plus Harley's bikes being costly is added disadvantage because there are many cheaper options available in the market like Jawa, Royal Enfield, KTM & Bajaj which not only offers budget-friendly motorcycles but also has Youth Appeal which Harley Davidson lacks.
Harley Davidson is famous among adults above 40 years old and the average Harley customer is aged around 47 years. And Indians aged 47 years and above generally don't go buying around a Harley. They are already busy running around planning for their Retirement ;)
What makes a Harley Davidson bike so pricier in India?
Import Tariffs! And as high as 100%
This makes Harley more luxurious than it is already.
Tariffs are so high in India, Donald Trump has declared India as 'Tariff King' and is a repetitive topic in his speeches concerning India. The bashing led India to reduce the import tariffs on Harley bikes by 50%. But still, it wasn't enough to make Harley Davidson a worth buying bike in India and the sales just didn't push up for it. And then again the covid-19 spread led lockdown put up a dent in the already sinking boat of Harley Davidson in India. So in September, to finally put a rest to this bashing and pile-ups of losses, Harley Davidson decided to wrap up manufacturing in India and to revamp their business model in India because no one wants to leave the largest market in the world till all roads are closed. And hence, this tie-up with Hero Motocorp.
What's in it for Hero Motocorp?
This deal will help Hero Motocorp enter the mid-capacity motorcycle segment which ranges between 250cc - 500cc and 500cc - 800 cc in the premium motorcycle segment as well. This licensing agreement between the two companies will also enable Hero Motocorp to develop a range of premium motorcycles and sell it under the brand name of Harley Davidson. It can also mean that Hero can develop bikes with 200cc or higher. Currently, it has only two bikes that have a 200cc engine, which is the highest, i.e. Xpulse and Xtreme. And the highest that Hero Motocorp ever developed was Karizma which was pumped at 223cc. So, it can be fair to say that both of the companies are trying to lay a foot in markets in which they both are but interchangeably. H D wants to enter the lower cc engine segment and Hero on the premium segment with high capacity engines. However, the company notified that it is not going to take over the Bawal plant of Harley so there is no technology transfer in this deal.
There are no further details that are available about this deal. We will keep you updated anyways!
See you next week with another great story. Thanks for being with us!
Sources: Wikipedia, Harley Davidson, Hero Motocorp, Times Network, The Indian Express, Various
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