Can Harley-Davidson and Indian Succeed in Reviving the Motorcycle Industry?

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The motorcycle industry is in a slump. After steadily climbing back from the collapse of the financial marketsin 2008, motorcycle sales fell last year. This year, they aren't doing much better. Harley-Davidson (NYSE: HOG), which tracks motorcycle registrations for bikes with engines 601 cubic centimeters and above, shows they're down 6.7% over the first six months of 2017. Sales of its own motorcycles are doing worse, with shipments down 14.5% year over year.

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While rival Polaris Industries (NYSE: PII) reported a larger 23% drop in sales, a good portion of that can be attributed to it winding down its Victory motorcycle brand in the first quarter. Its Indian Motorcycle brand continues to see significant success, with second-quarter sales alone rising 17%.

But Polaris is much less forthcoming than Harley-Davidson about how many bikes it actually sells, and because it is still growing from a minuscule base, its gains are going to appear greater. It's for that reason Polaris CEO Scott Wine recently told the American International Motorcycle Expo in Ohio that bringing in new riders was critical to the industry's future.

The future is coming fast

Wine said the "reality isn't fantastic" and noted the industry "has a long way to go." He was followed by Harley CEO Matt Levatich, who also said developing a new generation of motorcycle enthusiasts was essential to the industry's health. "Let's not forget what an awesome thing riding is," he said, in imparting that a sense of excitement would be needed almost as much as developing new bikes to attract the riders. 

Harley-Davidson has committed to adding 2 million new Harley-Davidson riders and launching 100 brand new models over the next 10 years while growing its international business by half. To achieve its goals, Levatich told analysts it requires moving "from thinking in terms of 'we build bikes' to thinking in terms of 'we build riders.'"

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That's actually evident in the programs Harley is unveiling, such as the Harley-Davidson Riding Academy, where it's trained some 32,000 new riders. In fact, it set out to train one entire town in North Dakota to ride a bike, 15% to 20% of whom went on to buy a Harley-Davidson motorcycle (OK, the town only had 94 residents, but it got 70% to participate).

Its also expanded a bike rental program in partnership with EagleRider, a motorcycle rental service, while last quarter opening 13 new dealerships in countries like China, Thailand, Korea, Switzerland, Italy, United Arab Emirates, and Russia.

Similarly, Polaris CEO Wine said that with the global motorcycle market estimated to be a $54 billion opportunity, there was more than "enough to prosper if we get this right." He sees technology helping the industry attract new riders, such as allowing buyers to build their bikes online, which would help tap into the customization and personalization trends that are bolstering many other industries. Polaris is also considering experimenting with rentals, believing its three-wheeled Slingshot would integrate well into the so-called sharing economy.

Are motorcycles enough to turn Harley and Polaris around?

While these initiatives are all outside of the actual hardware Harley and Polaris are building, we can arguably see best their attempts to lure in new riders with the bikes they're introducing.

In August, Harley-Davidson launched eight new cruisers as part of its ambitious product-development program, but also saw it fold its Dyna lineup into the Softail and kill off its V-Rod sports bike. Indian has also introduced a slew of new models, like its new Indian Scout Bobber that harkens back to an earlier customized bike ethos.

These bikes are geared to the new demographic of rider who is younger, more urban, and female. Make no mistake -- Harley-Davidson already owns large swaths of these markets. With an overall U.S. market share of 48.5%, the big bike maker also owns 42% of the 18- to 34-year-old demo, 60% of Caucasian women, 54% of African Americans, and 54% of Hispanics. Its sales may have fallen sharply for the past few years, but it's still the 800-pound gorilla.

Yet despite both Harley-Davidson and Polaris Industries knowing what they need to do, and even taking many of the same approaches to do it, can they really help the industry bust out of its current slump? The big-bike course may not be the best route. As I've suggested before, acquiring dirt bike maker ATK Motorcycles, the only other U.S. maker of bikes, is an avenue that should be given serious consideration.

The time to make an impression on new riders is when they're kids, and off-road dirt bikes are where many riders got their first taste of "the awesome thing that is riding."

Both Harley and Indian have histories that span back over a century, so they've seen various peaks and valleys. It's true some of the bad times nearly killed them off -- Indian has been in bankruptcy several times -- but the bike makers of today aren't the same as they once were, and I'm guessing both good bets for figuring it out and generating that healthy long-term growth we'd like to see.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Polaris Industries. The Motley Fool has a disclosure policy.