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Harley Davidson Partners With Local Firm To Build New Bikes In China

Summary:
Wednesday's FOMC statement has come and gone, and judging  by the  market's reaction, it off a laudable feat: Signaling that interest rates could soon be cut, particularly if the trade war isn't resolved before then.  But in the latest report that could add some urgency to the discussions for both China and the US, Reuters ...

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Wednesday's FOMC statement has come and gone, and judging  by the  market's reaction, it off a laudable feat: Signaling that interest rates could soon be cut, particularly if the trade war isn't resolved before then. 

But in the latest report that could add some urgency to the discussions for both China and the US, Reuters revealed that Harley Davidson is planning to partner with China’s Qianjiang Motorcycle Co to build a newer, smaller motorcycle that will be manufactured and sold in China.

The new model is a departure from the "big hogs" that Harley is known for manufacturing and selling in the US.

Harley Davidson Partners With Local Firm To Build New Bikes In China

But the decision isn't terribly surprising considering Harley's promise to move more production abroad. Trump even once vowed to hike taxes on HD in retaliation for its 'unpatriotic behavior.  But, again, it's not just the trade war that's becoming an increasingly problematic issue for Harley: It's slagging sales  in the US, which is forcing the legendary bike maker to focus more intensely on other markets.

China's huge bike and moped market is probably the biggest growth market in the world for Harley, and the company is hoping its partnership will help it wrest control of a large swath of this market.

Harley's bike will feature the smallest engine yet installed on one of its bikes. The bikes will also feature better fuel efficiency.

The partnership Harley outlined on Wednesday is aimed both at taking a bigger chunk of China’s huge bike and moped market, while also fitting in with a plan to cut costs and source half of all sales outside the United States by 2027.

The new bike would have an engine displacement of 338 cubic centimeters, one of the smallest in the company’s 116-year old history, and would be sold in China from the end of 2020.

Harley’s existing range of motorcycles are generally far larger and come with high price tags and engine capacities of more than 601 cubic centimeters.

That has made the company a niche seller in Asia’s big markets, where lightweight bikes and scooters dominate, and left it struggling to win over consumers globally to replace a traditional U.S. customer base which is aging.

Harley's sales in China grew 27% in 2018, even as Harley's big bikes remained mostly 'niche' products. Though Harley didn't tell Reuters what its pricing range for the new bike will be, its partner said the bikes will be "affordable" by Asian standards.

Harley said it picked Qianjiang, owned by Chinese Volvo brand operator Geely, based on the ciompany's experience developing upscale smaller motorcycles. As part of its plan to bolster its Asian presence - something Harley has called "More Roads to Harley-Davidson" the company expects to spend $675 million-$825 million over the next four years, cutting costs and generating $5.9 billion-$6.4 billion in revenue in 2022.

That has made the company a niche seller in Asia’s big markets, where lightweight bikes and scooters dominate, and left it struggling to win over consumers globally to replace a traditional U.S. customer base which is aging.

Harley declined to reveal a price range for the new motorbike, but Qianjiang said it would be "affordable" and Harley said it would be introduced elsewhere in Asia after the initial launch in China.

"The international motorcycle market is huge, but Harley-Davidson has not been able to penetrate it with large/expensive bikes,” said Craig Kennison, an analyst with brokerage Baird.

"Our recent dealer survey work reinforces the need for Harley-Davidson to add more first-time riders. For many, affordability is an issue."

As investors wait for more details, we will also be waiting to see whether Trump fires off another angry tweet for Harley Davidson to completely disregard.

Tyler Durden
Tyler Durden (a pseudonym) represents the idea that a return to truly efficient markets is a possibility and a necessity. After having experienced the inner workings of capitalism at various asset managers and advisors, Tyler believes that the current model is flawed and a deleveraging at every level of modern society is needed to reinspire the fundamental entrepreneurial spirit. Visit his blog: ZeroHedge (http://www.zerohedge.com/)

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