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Why Harley-Davidson Failed to Make It Big in the Indian Bike Market

Editor, TRANSFIN.
Oct 1, 2020 5:01 AM 4 min read
Editorial

Harley-Davidson, the iconic American motorcycle manufacturer, is shutting shop in India after a decade of trying to crack into the world's largest bike market.

The company is closing its sole manufacturing facility (in Bawal, Haryana). The phase-out could involve $75m in restructuring costs and job losses for Harley’s 70 remaining employees in India.

What Harley-Davidson’s Exit Means for India

Harley’s exit comes at a bad time for the Indian economy, which is reeling under the effects of the COVID-19 pandemic, lockdowns and the pre-existing slowdown.

Not because the company was a major employer or a big deal for the country’s motorcycle industry...but because of the signalling effect it has, especially when the Government is eager to attract more multinational firms to invest in India.

The exit also sheds light on the tight market that is the Indian auto industry. Before the coronavirus, this sector was severely affected by the prolonged slowdown. Lacklustre growth and uninspiring sales prospects caused many international auto manufacturers to pack their bags.

In 2017, General Motors left the Indian market. A year later, Germany’s MAN Trucks followed suit. Last year, it was Ford’s turn to quit its operations. And only two weeks ago, Toyota announced that it would halt its expansion plans in India, picturesquely lamenting about the country’s “We Don’t Want You” taxes.

So, Harley’s exit is not an outlier considering the trends plaguing the Indian auto industry. At the same time, Harley decamping from India is not a shocker considering the American company’s long-term plans...

 

A Little Bit of Harley History

Since Harley opened its manufacturing plant in Bawal in 2011, it has sold a little over 25,000 units.

Just for context, India is the biggest market for two-wheelers in the world. More than 17 million two-wheelers were sold in the country last fiscal. So, Harley’s 25,000 in nearly ten years is merely a drop in the ocean. And over the years, due to the slowdown and macroeconomic doldrums, the company’s sales numbers declined consistently - to a mere 2,676 units in FY19.

Then came the coronavirus.

The American brand has been a staple of popular entertainment and culture for about a century. But it could not escape the pandemic. It recorded its first global quarterly loss (of $92m) in more than a decade in April-June this year. Sales and product revenues plummeted steeply across all markets.

To placate losses and consolidate its position, the company has embarked on a broad restructuring programme it has named “The Rewire”. This involves streamlining its operations by exiting loss-incurring markets and concentrating its attention on countries with promising growth and substantial sales volumes.

Thus, it was inevitable that Harley-Davidson would exit India, a market where it found a breakthrough elusive.

 

Harley’s India Challenge

Harley failed to make a major mark in the Indian auto market partly because it was ill-suited for it and partly because of a difficult business environment.

Harley-Davidson bike prices in India start at ₹5.33L ($7,356) for Harley Davidson Street 750, which is the cheapest model. The most expensive Harley Davidson bike CVO Limited is priced at ₹50.53L ($69,745). Such an elevated entry price significantly narrows the Total Addressable Market (TAM) in a fairly price-sensitive market like India. So Harley faced an uphill climb even before it forayed into the country in 2011.

While India may very well be the world’s largest bike market, it is primarily characterised by low engine capacity (India’s top selling bikes are sub-150cc compared to Harley’s cheapest model at 750cc), high mileage, low service and maintenance costs and a leaner design for swift intra-city and intra-state operations through dense traffic. All this while being priced at a discount to four-wheelers. A characterisation where Harley-Davidson doesn't quite seem to fit it.

Another reason why Harley found itself fighting a losing battle was fierce competition, especially from local brands like Hero and Royal Enfield. The latter put up a particularly brutal fight, capitalising on the renewed consumer interest sparked by Harley’s entry to market its own premium bikes, which were cheaper, lighter and easier to maintain.

Along the same lines: because the Indian auto market is so difficult to crack, global manufacturers often tie up with local ones to stay afloat. KTM and Triumph partnered with Bajaj Auto. BMW joined hands with TVS Motors. Ford joined hands with Mahindra & Mahindra (at least for the remaining aspects of its India business). Such tie-ups are designed to de-risk operations while leveraging local expertise and can be seen beyond the auto market. Tata-Starbucks, HDFC-Ergo, Walmart-Bharti (prior to Flipkart acquisition) are just a few such tie-ups engineered to efficiently crack the Indian market. In comparison, Harley-Davidson tried to make it on its own, and this stifled its potential. There were rumours of a possible collaboration with Hero, but no such deal surfaced over the years.

Then there’s India’s tariff regime. India is a high-tariff economy. And this has been a sticking point not only for Harley-Davidson’s growth prospects but also for India-US trade ties - especially so since Donald Trump took office as President.

In 2017, Trump berated India’s high import duties on engines larger than 800cc, which were actually 100%. This number was subsequently brought down to 75% and then 50%. But Trump still criticised the tariff as being “too high and unacceptable”.

For its part, Harley opened an assembly plant within its manufacturing facility for less-expensive models. This is because a completely-knocked down (CKD) unit attracts much lower tariffs - 15%.

But could even a zero-tariff arrangement have helped Harley make it big in India?

Perhaps not. The company manufactures products for which India has few buyers in the first place. And the market is a difficult one to navigate for any company, no matter how fat its wallet or how iconic its name.

In the end, the coronavirus recession was the last nail on the coffin for Harley’s ailing India operations.

FIN.

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