The last few months have been particularly rough on Harley-Davidson (NYSE:HOG) as its typical target market, younger folks, eschew Harley altogether in favor of something smaller and more generally electric. It was looking especially bad when a new move came out that led to Harley abandoning India altogether and pulling at least one model off the floor in Europe. New reports, however, suggest that India may not be completely off the table, after all, giving investors new hope that the company might be able to produce sales therein again.
A Harley Franchise Deal?
Granted, the news wasn't exactly great for Harley-Davidson in the overnight hours, either; the company was well off its close in overnight trading, but has since recovered to gain eight cents on its closing price yesterday.
The gains likely stem from a new development; on Thursday, the company announced that it was planning to shut down its manufacturing plants in India, which would leave the company out of the game in one of the biggest markets on the planet. However, that news was quickly followed up by reports that Harley-Davidson is close to inking a new distribution deal with Hero MotoCorp. The deal in question would see Hero act as a kind of franchise agent, importing Harley motorcycles for sale in India.
Such a move would accomplish two purposes at once, both of which are excellent news for Harley. Not only would it allow the company to remain in the Indian market, if only tangentially, but it would allow Harley to remain in the Indian market without having to maintain a complete factory presence therein. Granted, it will have shipping costs connected with that particular business, but there's a quite a difference between shipping costs and the costs to run and maintain a complete factory.
A Difficult Market
Harley, according to reports, has been trying unsuccessfully to establish a viable presence in the Indian market for the last decade now, which goes a long way toward explaining why Harley is pulling out of the subcontinent altogether. The deal with Hero MotoCorp, however, may be just what's needed here.
Not only is Hero MotoCorp looking to sell currently-built Harleys, it's also interested in becoming a manufacturer of them too. Specifically, Hero wants to produce one Harley that has a smaller engine than normal, specifically, a 300 – 600 CC engine. Given that Harley engines typically start in the 700 CC range—the Flathead 45ci weighs in at 737 CC, and it goes up from there to the Twincam 95ci at 1556 CC—this would be quite the departure, but it may also be the departure that's necessary.
It's safe to assume that Hero MotoCorp knows its market, and on a certain level, a smaller-engined bike makes a lot of sense for the Indian market. After all, a lot of India's population lives in very densely-packed cities, so a smaller bike may be just the ticket for easily getting around in a very crowded area. It would take less gas to operate, and it would be better suited for tight turns and tighter parking. Yet clearly, not all of India is Bangalore, so something that can also handle long-distance runs is also in order, and Hero MotoCorp may be able to handle both of those demands at once if this new arrangement goes through.
A Split that Suggests Opportunity
Harley-Davidson stock in general has proven rather polarizing. While 180 days ago, opinions were pretty broadly split, the “buy” side has been steadily gaining ground over the last six months. 180 days ago, the stock had a consensus view of “hold”, with three “sell” ratings, two “buy” ratings, and a whopping nine “hold” ratings. Fast forward to the current day, and the consensus leans slightly to “buy” with eight “hold” ratings and nine “buy” ratings. There are no “sell” or “strong-buy” ratings to be had here. The price target is an almost-unfathomable $31.43, which, given the stock's current level, means a gain of nearly a third in the short term.
While this deal alone—if it goes through—may not be enough to launch Harley back to its old self, it's certainly a step in the right direction. Handing over the reins to someone who better knows the market isn't a bad idea, and Harley may have the right plan by letting distributor operations step up as Harley itself pulls back to be more a manufacturer than a dealer.
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