By John Keilman | Photographs by Nicole Neri for WSJ
A black SUV pulled up to Elk River Harley-Davidson last month and delivered an embattled visitor: the motorcycle maker's CEO.
For months Jochen Zeitz has confronted growing criticism from Harley dealers over slow sales and shrinking profits, and he was traveling to meet some dealers face to face. Dressed in jeans and a Harley-branded flannel shirt, Zeitz chatted with dealership owner Jason Bremer about the business, including Harley's efforts to reduce the cost of entry-level bikes.
"How do you feel about the new pricing?" Zeitz asked.
"I think it's beneficial," Bremer replied. But he also had a concern: His dealership's profits are the lowest they have been during his 25 years in the business.
Elk River was Zeitz's final stop in a day spent calling on Minnesota dealerships. While he said he often makes such visits, these came as relations have grown frosty between Harley and its network of more than 500 U.S. dealerships.
Over the summer, a power-sports group that represents the owners of more than 200 Harley dealerships outlined grievances that ranged from unrealistic incentive plans to mandatory building upgrades. A nearly monthlong pressure campaign over diversity, equity and inclusion issues prompted one dealer to call for Zeitz's resignation. A Baird survey published last month found dealer sentiment to be the lowest on record.
Zeitz, who has led Milwaukee-based Harley since 2020 and served on its board for 13 years before that, said it is a tough time for all power-sports manufacturers as high borrowing costs and low consumer confidence hamper sales. Harley is easing shipments, offering promotional help and taking other steps it says will help dealers.
"I've got a lot of support from dealers that have called or written to me," Zeitz said in an interview. "They're usually the dealers that wouldn't speak up because it's the negative voices that want attention." A spokesman said the company doesn't view the power-sports group as official and engages with a separate council of dealers.
The root of the tension concerns profitability. Harley's margins have risen during Zeitz's tenure, while some dealers say their profits have withered, due in part to company-imposed expenses and unsold bikes for which they must pay interest.
"Margin erosion is so significant that it's really put a lot of dealers in a challenging business position," said David Pearson, a former Harley dealer who is now a power-sports consultant.
Dealerships in Florida, New York, California and elsewhere have closed in recent months.
Mark Forszt, who owns six Harley locations in Indiana, said his profits are a third of what they were a decade ago. He said he is considering canceling his order for next year's bikes because he already has too many 2023 and 2024 models.
Forszt blamed Zeitz, who rose to prominence turning around Puma, the German sportswear maker. Forszt said Harley's leadership lacks a history with the brand's unique culture.
"Harley-Davidson does not have a DEI problem; they have a CEO problem," he said.
Zeitz said that before high interest rates constrained demand, dealers enjoyed some of the highest profits they have ever seen. One of the Minnesota dealers he visited, Ann Hofmeister, recalled bikes flying out of the showroom during the days of the pandemic.
"People didn't care what color it was or anything," said Hofmeister, whose Faribault, Minn., dealership is a 45-minute drive south of the Twin Cities. "They just bought them."
Her margins have since become "a lot skinnier," she said, but she still is on pace to hit her sales targets in 2024, a feat others say they won't accomplish. Her dealership has its own loyalty program, hosts group rides and has fully booked learn-to-ride classes from which bike buyers sometimes emerge.
Harley is taking steps it says will help dealers. Some have complained that the company has sent them more bikes than they can sell, leading to major discounting, so Harley has cut shipments to allow inventory to normalize. The reduced shipments contributed to the company lowering its revenue and profit guidance in late October.
Harley is also giving dealers extra marketing development money, lowering the number of bikes they must sell to earn incentives and offering dealer-exclusive apparel. Dealers have complained that Harley's online store has cut into their own clothing sales and showroom traffic.
A company spokesman said dealer sentiment is improving, and that following a recent forum, 73% of dealers surveyed rated Harley's efforts as good to excellent. He said dealership closures are at a normal level compared with prior years.
Zeitz said the company and some of its dealers have had differences before, including in the 1980s, after Harley broke away from holding company AMF to become an independent business. He said the current turbulence isn't surprising as he shifts Harley's strategy, focusing on the most profitable bikes instead of producing a wide range of motorcycles.
"If you want to transform the business, you know, not everybody's going to be part of the journey," Zeitz said.
Bremer, the owner of Elk River Harley-Davidson, credited Zeitz's team for being more accessible than prior executives. He also agreed with one controversial Harley initiative -- the decision to produce some models, including the entry-level Nightster, in Thailand.
While some dealers say making the bikes in Thailand will hurt Harley's All-American brand image, it is also expected to make the bikes cheaper. Harley said most dealers plan to carry the new Nightsters, and Bremer predicted the bikes' buyers, who tend to be younger, won't have a problem with their overseas origin.
Bremer said Harley should have provided a stronger response to the summer DEI skirmish, but he still believes in Harley's bikes and their appeal to riders.
"I'm not 100% satisfied, but I can either complain about it or be part of the solution," he said.
Write to John Keilman at john.keilman@wsj.com
(END) Dow Jones Newswires
November 03, 2024 10:00 ET (15:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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