Harley offers rare incentives to shift bike overhang: dealers

Harley-Davidson Inc has taken the rare step of offering rebates on its 2016 motorcycles to U.S. dealers as an incentive for them to shift a backlog that has restricted sales of its latest models, three dealers and two analysts said.

The unusual promotion, which the dealers expect to run until the end of April, is likely to weigh on the U.S. motorcycle maker's margins in the first half of the year, the analysts said.

Demand for Harley's motorcycles in the United States has slowed as its loyal baby boomer demographic ages and rivals such as Indian-motorcycle maker Polaris Industries Inc and Japan's Honda Motor Co Ltd <7267.T> offer competitive discounts.

Harley, keen to protect its premium-brand image, does not discount its bikes. The Milwaukee-based company commands slightly more than half of the U.S. "big-bike" market: motorcycles with engine capacity of more than 601 cc.

Speaking on a post-earnings conference call in January, Chief Financial Officer John Olin said Harley would focus on selling its 2016 motorcycles through the first quarter of this year.

As a result, he said, Harley would limit shipments of its 2017 models, including touring motorcycles with the new "Milwaukee-Eight" engine. The company has forecast it would ship fewer bikes in the quarter than in the year-earlier period.

Three U.S. dealers and two analysts said Harley was offering rebates of up to $1,000 on each sale of its 2016 motorcycles, including its higher-end touring bike, cruisers and Sportsters.

A 2016 model Sportster SuperLow costs upwards of $8,499, while prices of Softail Slim cruisers start at $14,899. Harley's touring bikes are among its costliest, with the price of a 2016 Road King starting from $18,749.

Two of the three dealers said they had been able to clear most of their 2016 inventory, and the third said it could take another month or two to shift last year's models.

The dealers spoke to Reuters on condition of anonymity as the information is confidential. Dozens of other dealers declined to comment on the rebates.

Harley did not respond to a request for comment on whether it had offered rebates to its dealers. As of Dec. 31, Harley had 701 U.S. dealerships.

'NOT NORMAL'

Though Harley has been known to offer attractive financing schemes and extended warranties to customers when there is a seasonal overhang of motorcycles, two of the three dealers said they had never before been offered a rebate.

"It's not normal," a Harley dealer in the western United States said. "Usually, any incentives are customer-facing."

James Hardiman, an analyst at Wedbush Equity Research, said the rebates were likely to hit Harley's gross margins in the first and second quarters.

But, he and two other analysts said the scheme would have helped first-quarter shipments to track close to the higher end, or even above, Harley's forecast of 66,000 to 71,000 motorcycles.

The forecast implies a drop of between 20.5 percent and 14.5 percent from the year-earlier quarter.

Warmer-than-usual weather, meaning an earlier start to the annual riding season, would have also helped shipments last quarter, dealers and analysts said.

Customer response to the "Milwaukee-Eight" engine bikes had been strong, dealers said.

Harley is scheduled to report its first-quarter results on April 18.

(Reporting by Ankit Ajmera and Rachit Vats in Bengaluru, Editing by Robin Paxton)