One of the advantages of being in the securities business in the age of the Internet is instantaneous access to news and information about the enterprises and industries that make up our economy. Efficient markets thrive upon well distributed information, so each morning I make a point to spend 45 minutes or so scanning Reuters News Service for corporate earnings and other announcements that might have an impact on my clients' accounts. After digesting the latest and greatest (or not so great as recently has been the case) news I am prepared to do battle with the market for eight and a half hours.
A few months back I was reading a report on Harley Davidson and was struck by a couple of statistics. In the year 2000, Harley made and sold 225,000 motorcycles. In 2001 they plan on making and selling 250,000, capping an impressive decade of similar growth, and I have no doubt the trend will continue. One of the reasons for the strength of this franchise is that a new Harley Davidson is at once both a luxury and a necessity. For those neuveau upwardly mobile Harley riders with a healthy disposable income, the doctors, lawyers, accountants, dentists, and captains of industry, it is a luxury just like their Lexus or Mercedes Benz. For the stalwart faithful bikers that kept Harley alive even during the lean AMF years, a new Harley is a necessity that falls somewhere between clothing and shelter on Maslow's hierarchy of needs, regardless of their income or lack thereof. Harley Davidson continues to sell into a mind-blowing cross-section of American demographics; if you don't believe it spend an hour at your local dealer, or better yet attend the local HOG rally. You will be no doubt be as astonished as I by the diversity of the participants.
As motorcyclists, the ramifications of these phenomenal numbers should not be lost upon us. Besides the absurd notion of a quarter-million people all lining up to buy the same motorcycle in a desperate attempt to assert their individuality and independence, and the inevitable sale of a corresponding half-million pairs of chaps, it should be obvious that sooner or later the market will be saturated. Or will it? Unlike the similar boom in luxury touring bikes such as the Honda Gold Wing and Yamaha Venture back in the 1980's, these folks are tattooing the Harley Davidson logo on their bodies, a scary thought but a testament to the commitment to the brand. Reminiscent of the tulip bulb delusion in Holland in the late 1600s, regardless of your socioeconomic status you ain't nothing if you don't ride a Harley. Preferably a new one.
And therein lies the soft spot in the market.
A few weeks back I had a "banker's holiday" day off. No work, no kids, no chores, and unfortunately no friends to share the time with, as they had to work for a living. Heck, even my two retired biker buddies were unavailable, in Texas and Florida where warmer weather beckons an eager winter rider. All alone I did what any self-respecting scooter head would do: I spent the day looking at new motorcycles that I could not possibly afford. Eventually I ended up at the local H-D shop, curious if they had one of the new single cylinder Buells. There were less than twenty new bikes on the showroom floor, sadly no Buells, so tired of being ignored, I finally found a "Sales Consultant" and asked if he had time for a few questions. Somewhere along the line he remembered that they had a 96 Buell back in the warehouse and asked if I wanted to see it. Having ridden a Buell and found it to be serious fun, and realizing that there was an extraordinarily limited market for them in Terre Haute, Indiana, I agreed. (You never know.) I was lead around back to another building, and when we got inside I glanced around in awe at the shiny custom paint work and chrome. Feigning interest in the Buell, which had obviously been rode hard and put away wet, I noticed I was standing among over 60 used motorcycles, Harleys all except for the ratty abused Buell and a forlorn Yamaha FJ1100. After a bit of prodding, the Sales Consultant offered up the fact that almost half of those were customer bikes on consignment.
As Harley Davidson ramped up manufacturing to meet the insatiable demand for their bikes in the early to mid 1990's, and interesting phenomena occurred. Waiting lists of up to almost two years on the most popular models became commonplace, and with demand far outstripping supply, the prices of previously owned late model bikes shot up. I remember more than one associate that picked up his new Harley after waiting over a year for it, and simultaneously put his deposit down to get back into the queue for his next one. Amazingly, when the next one showed up he was able to sell the first one for 15% more than he paid for it and ride off into the sunset on the new one a few grand richer. Who says motorcycles are a waste of money? But alas, those days are over just like the days of tripling your money in two weeks on the latest Dot-Com IPO. Now what appears to be happening is that customers are trying to trade in their late model Harley on a new one and unsatisfied with the trade in offered to them are either attempting to sell them themselves or consent to let them languish on consignment at the local dealer.
The dirty little secret that someone forgot to share is that motorcycles are not investments and that used bikes are just that: used bikes. Inevitably, Adam Smith's "Invisible Hand" of supply and demand and well-distributed information will take care of things. When enough leather clad folks realize that at the average Harley dealership there are three times as many late model used bikes as there are new ones, the market will correct itself. It always does. So if you're holding a used Harley and you wish to sell, drop the price a bit and get out while you can; don't be the one left holding the tulip bulbs. And if you've always wanted a Harley wait a year or so, possibly less. As the economy softens and the bubble finally pops I suspect that there will be some terrific deals.