Harley-Davidson feels economy's pinch

For months, Michael Summers has eyed the same 2009 pearl-yellow CVO Road Glide whenever he goes into Mills Harley-Davidson in Burlington City.

Summers, 55, of Fairless Hills, a Harley-Davidson devotee, said that, in a normal economy, he would have traded in his current motorcycle - a 2004 Road Glide - for the new $31,000 bike in a heartbeat.

"This is not a normal economy," said the parts manager for a construction-equipment company in Lionville, who's fearful he could lose his job any day because major road-construction work has dried up. "We don't know when this is going to end."

It's not surprising that sales of big, expensive toys, like motorcyles, RVs and boats, are taking a hit in this bad economy.

With the credit markets in turmoil, the long-standing tradition of going to a Harley-Davidson dealership, picking out a bike, and getting the loan to pay for it all under one roof, is in jeopardy.

"There's no doubt the economic turmoil and lowered consumer confidence continue to make this a very tough business environment," said company spokesman Bob Klein.

In April, the company, with headquarters in Milwaukee, announced that, because of decreased demand, it was reducing shipments of H-D bikes for the rest of the year.

It also announced 730 layoffs - with 328 of those coming at Harley-Davidson's final-assembly operations in York, Pa. The staff cuts were completed over the summer.

Third-quarter earnings released last month showed revenue for Harley-Davidson decreased about 8 percent year-over-year, to $1.42 billion. Retail sales declined 15.5 percent.

For the first nine months of this year, retail sales of new Harley-Davidson motorcycles were down 11.9 percent in the United States, compared with the same period a year earlier. "People are afraid to spend," said Mills salesman Vince Ruggeri. "They aren't thinking about motorcyles right now."

There's row upon row of glistening bikes of every conceivable color and design inside the 46,000-square-foot showroom at Brian's Harley-Davidson in Langhorne.

But foot traffic is off about 20 percent this year, said owner Brian Bentley. Bikes at the shop range in price from $6,500 for a two-wheeler, to $30,000 for a customized bike; a three-wheel motorcyle runs about $33,000.

The Langhorne store, like all independent Harley dealerships, relies on the company's in-house financing unit - known as Harley-Davidson Financial Services, or HDFS - to finance its inventory and consumer loans. But that funding source has been depleted. Third-quarter operating income at HDFS fell 28 percent from the same period a year earlier, to $35.6 million.

To keep lending cash available, HDFS said it would continue to access the unsecured-debt capital markets. The finance unit recently enhanced its credit underwriting and collection activities and raised interest rates on consumer loans.

Management "assured us that they have been shored up and will continue retail financing to the consumer," Bentley said.

The recent challenges are the latest chapter in Harley-Davidson Inc.'s storied history - one that began in 1903 in a 10-by-15-foot wooden shed in Milwaukee to its present position as the top U.S. motorcycle company. Net sales were $5.73 billion last year.

The company was a subsidiary of AMF Inc. from 1969 until June 1981, when a group of 13 Harley-Davidson executives bought the company in a leveraged buyout.

It averted bankruptcy in 1985 when it secured a new lead lender on the last day of the year, followed by a highly successful IPO in July 1986.

Harley-Davidson enjoys strong repeat business as brand loyalty runs deep.

"There's still that mystique," said Tom Hannum, owner of Hannum's Harley-Davidson, a second-generation Harley dealer that has locations in Media and Chadds Ford. "It's an absolutely amazing culture."

Wael Gamaly, 45, a real estate investor from Langhorne, rode 5,000 miles in August on one of his seven Harleys, from Las Vegas to Milwaukee, to attend the 105th anniversary party of Harley-Davidson.

Gamaly, a longtime member of HOG - Harley Owners Group - just purchased a first Harley, a black 883 Sportster, for his wife, Marcia.

"It's the style - being all-American," said Gamaly of his fondness for H-D bikes. As he spoke, he raised his right sleeve to show off a tattoo of a Harley-Davidson shield surrounded by flames.

For Ron Lysebo, 58, of Manville, N.J. - who has a gray beard and wore a black-leather do-rag with matching jacket and boots - his fully customized Harley-Davidson 1970 Chopper was a reflection of him.

"My bike is old school. Nothing like the fancy ones coming out," Lysebo said Sunday, while holding a beer at the outdoor bar of Fran's Pub in New Hope, a popular biker hangout.

"You look at me, that's where I'm from."

While male baby boomers have been Harley-Davidson's core market for decades, the company is now catering more to women and ethnic groups to grow market share.

Local Harley dealers, like Brian's, sponsor "Bike Nights" in Northeast Philly to introduce younger riders to the brand and "Women's Rides" to build rider confidence and camaraderie. New marketing brochures feature women and tout safety courses at Harley dealerships.

Based on 2007 U.S. retail sales of new Harley-Davidson motorcycles, about 12 percent were to women, up from 2 percent a decade ago. Minorities represent about 7 percent of new buyers.

Darlene Robbins of Egg Harbor City, N.J., made the move three years ago from the back of a Harley to the front. That's when she joined the Shore chapter of Women in the Wind, a riding club that promotes a positive image of women on motorcycles.

Robbins, nicknamed "Heelz," because she wears leather boots with four-inch heels when she rides, is in the hunt for a new Harley to add to her 2004 HD Low Rider, and vows to continue to "buy American."

"Bad economy or not, I will buy a new Harley," said the business owner, 49, and mother of two grown sons, "as long as I can have it made safe for me to ride."

But Debbie Wagner, 41, of Bridgewater, N.J., plans to ride out the rough economy and make do with her 2005 Sportster.

"I'd love to have a bigger Harley for the longer trips," she said, "but I can't afford it right now."