The Global Motorcycle Industry – 2003

STVP-2003-003 [Rev. January 17, 2004] The Global Motorcycle Industry – 2003 Why do people ride? Itʹs almost impossible to explain. Because there are roads and distant towns. Because we share a sense of adventure. Because we have the freedom to do it. For the commuter, motorcycles receive freeway access benefits, get great fuel mileage and are easy to park. For the touring rider, motorcycles bring you into the world instead of enclosing you from it. Others enjoy the challenge of riding, leaning into turns and feeling the motor beneath them. Motorcyclists connect with other riders in a way that goes beyond mere transportation, which is why many riders attend events and rallies. And everyone who rides a motorcycle does so because itʹs fun. ~ Harley‐Davidson Website 2003, Reason to Ride (http://www.harley‐davidson.com) From 1975 to 2003, Honda, Kawasaki, Suzuki and Yamaha continued to dominate the motorcycle industry, although several European and American companies (BMW, Ducati and Harley‐Davidson) established strong positions in niche markets. Important economic and political developments in various regions, including the strong growth in Asia, changed the playing field significantly and forced the manufacturers to adjust. For low‐end models, manufacturing operations shifted closer to emerging markets in Taiwan, Thailand, Vietnam and India. As a result, the motorcycle industry evolved from an export‐based operation in the 1960s to a truly global business. The maturing economies in North America, Western Europe, and Japan increased the demand for high‐end recreational models, while the developing economies in South East Asia and South America created a need for easily assembled, inexpensive transportation. Although Japanese makers entered the high‐end market in the 1970s and 80s, several nice players remained dominant in this segment. Harley‐Davidson rebounded from near disaster in the early 1980’s to become the market leader in large custom motorcycles. The turnaround was the result of a massive corporate restructuring effort which began in 1981 when ownership of the company was returned to the hands of a small group of Harley executives. Content to operate in the large‐motorcycle market, Harley‐Davidson found success in Japan, the United States and several European countries. Honda, by far the largest player in the motorcycle marketplace, controlled North America and Japan, and was strategically positioned to take over emerging markets. With its strength in This case was written by Eric Cherng, Graduate Student, under the supervision of Thomas J. Kosnik, Consulting Professor, Stanford School of Engineering as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. It is a sequel to Note on the Global Motorcycle Industry 1995, STVP‐1998‐002 Copyright © 2003 by the Board of Trustees of the Leland Stanford Junior University and Stanford Technology Ventures Program (STVP). To request permission to reproduce materials, contact 1‐650‐723‐ 2973, or email Professor Tom Kosnik, Director, Stanford Technology Ventures Program Case Development Factory at [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Stanford Technology Ventures Program. STVP 2003‐003 Global Motorcycle Industry 2003 scooters and sport bikes, Honda was prepared to satisfy the demand for cheap transportation in areas such as Vietnam, China, and Brazil.1 In sync with its automobile strategy, BMW chose to focus on the luxury and sport touring segments, and achieved a strong position in Europe. By emphasizing safety technology and an adventurous image, BMW sought to attract recreational riders willing to pay for comfort and a premium label. In 2003, senior executives of Harley‐ Davidson, Honda and BMW gathered in their respective boardrooms to discuss the challenges and opportunities in the evolving global marketplace, and to develop their competitive strategy for the road ahead. Motorcycles Motorcycles were often classified by engine capacity as lightweight (50cc ‐ 250cc), middleweight (251cc ‐ 750cc), heavyweight (751cc ‐ 1199cc) and super heavyweight (1200cc and up).2 Motorcycles were also divided by types of use, generally separated into four groups: standard, which emphasized simplicity and cost; performance, which emphasized racing and speed; touring, which emphasized comfort and amenities for long‐distance travel; and custom, which emphasized styling and individual owner customization. The standard models tended to have the smaller engines, while the performance motorcycles often had an engine capacity of more than 251cc. The touring models typically had a comfortable seating position and their engines ranged from the middle to super heavyweight types. The custom models generally have the high output (super) heavyweight engines but the styling of these motorcycles was the key to their appeal. Figure 1: Approximate Price Ranges Class Price Range Engine Size Standard $2,700 - $4,000 50cc - 250cc Performance $5,000 - $6,000 251cc - 1200+cc Touring $10,000 - $18,000 251cc - 1200+cc Custom $12,000 - $25,000 751cc - 1200+cc Source: Various dealerships 2003 In developing economies, the demand for motorcycles was dominated by the low cost models with a small engine capacity. The need for cheap transportation was initially satisfied by the purchase of a scooter or a moped. The transfer to a motorcycle, often a major household investment, was made as the income level increased. Lightweight model purchases often led to later purchases of middleweight or larger motorcycles. In developed economies, the motorcycle buyer often had dual purposes in mind ‐‐ both transportation and recreation ‐‐ and was willing to invest more in a motorcycle. Thus the demand for the heavy and super heavyweight custom, touring and performance models was significantly higher than in the developing countries. 1 Based on 6/5/2003 e‐mail from Tom Blinn, Honda Motorcycles account manager at Dailey and Associates 2 It should be noted that the (legal) classification of motorcycles often differ from country to country 3 STVP 2003‐003 Global Motorcycle Industry 2003 Honda CBR600RR (Performance) Harley‐Davidson Fatboy (Custom) The Japanese makers dominated the worldwide market for the light and middleweight models. Although Harley‐Davidson regained its leadership role in the heavy and super heavy market segment with its custom motorcycles, the Japanese and European makers were still very active in this growing and very profitable market. BMW aimed for the touring bikes, Ducati focused on the performance models, and the Japanese had both. Harley Davidson dominated the custom segment, though the Japanese competition had “Harley‐look‐a‐likes” on the market for about 20 years, indicating the vast appeal for the “American Retro‐Cruiser” pioneered by Harley‐ Davidson. Some of the models competing with Harley for this market were Honda’s “Gold Wing”, “Shadow” and the newly released 1996 “Valkyrie” as well as others such as Kawasaki’s “Vulcan”. Honda Gold Wing Kawasaki Vulcan 4 STVP 2003‐003 Global Motorcycle Industry 2003 BMW R 1150 RT Consumers The Average Biker in the U.S. The Hollywood myth of the young and wild motorcycle rider became less and less a reality at the turn of the millennium, according to Motorcycle Industry Council statistics. Even in the 1990s, riders had become more mainstream and were less likely to be a part of some counterculture motorcycle gang. “The end of the road for today’s motorcyclist is just as likely to be a boardroom as a burger joint,” said Beverly St. Clair Baird, Managing Director of Discover Today’s Motorcycling, a public awareness campaign of the Motorcycle Industry Council.3 The motorcyclist in 1998 was male, 38 years old, married, had attended college and earned a median income of $44,250 – compared to about $42,800 for the average American household (Exhibit 1).4 The average income of the motorcyclist in 1998 had more than doubled since 1980 ($17,500). In 1980, less than 2% of riders made over $50,000 per year. In 1998, more than 30% of riders had attained that income level. Riders in the late 90s were also much older, in contrast to the average rider age of 24 in 1980. They used their bikes more for leisure and recreation than had the riders of the early 80s. The typical rider was interested in the outdoors. In surveys about their other interests besides motorcycling, fishing and hunting topped the list. The demographic profile showed that motorcyclists came from all walks of life and a variety of occupational, educational and economic backgrounds.5 Motorcycle fatalities had risen by more than 50% between 1997 and 2001. Despite state helmet laws and increasing enrollment in rider training programs, the number of crashes had increased steadily since 1997. Although motorcyclists were likely to be more skilled and responsible than riders of the 1970s and 1980s, injuries were at an all‐time high by 2001.6 3 Motorcycle Industry Council, 1995 Statistical Annual 4 US Census 2002 (http://www.census.gov) 5 Motorcycle Industry Council, 1998 Statistical Annual 6 ibid 5 STVP 2003‐003 Global Motorcycle Industry 2003 Women Riders – an emerging force Women, though still less than 10% of the American motorcycle‐owning population, accounted for 17% of all operators, and had been a growing segment of the industry. The AMA (American Motorcycle Association) had women members since 1907. In 1998, close to half a million women in the U.S. rode their own motorcycles, and one of every four new owners were female.7 The average female rider was 39 years old compared to her 38‐year old male counterpart. 64% of women riders were married and 56% completed some college. In contrast, 59% of male riders were married and 42% received some college education. More women riders worked in white collar occupations than male riders, and on average earned $3,500 more per year.8 Many women riders belonged to a riders club and were passengers for a few years Ducati Motorcycle before they purchased their first bike.

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