Harley-Davidson has joined hands with Hero MotoCorp to recreate its magic in India. How will this story evolve? Who will benefit from this and how? Autofintechs tries to find out.
Harley-Davison’s announcement to quit India after operating here for more than 11 years created quite a repealing effect in the Indian auto industry. But the American iconic motorycle brand has then taken a U-turn and joined hands with Hero MotoCorp in order to stay afloat in the lucrative and world’s largest two-wheeler market. These two two-wheeler giants signed a deal that has two separate parts distribution agreement and licensing agreement.
Under the distribution agreement, Hero MotoCorp will sell and service Harley-Davidson motorcycles along with parts, accessories, general merchandise riding gear and apparel. Hero MotoCorp will use a network of brand-exclusive Harley-Davidson dealers and the homegrown two-wheeler major’s existing widespread sales and servicing network in the country for this.
On the other hand, as part of the licensing agreement between the two companies, Hero MotoCorp will develop and sell a range of premium motorcycles that will use the Harley-Davidson (HD) badge. These moves are claimed to be coming in line of Harley-Davidson’s business overhaul, christened as The Rewire.
Harley earlier hinted at exiting some tough markets as part of the new business strategy. This strategy included pulling out from the loss making markets and focusing more on core markets like North America, Europe and part of Asia-Pacific.
Now, with the revised business strategy and without direct operations in Indian market, new questions are coming up. How it is going to help Harley-Davidson in India? How beneficial this new business partnership is going to be for Hero MotoCorp?
Boost to Hero MotoCorp’s premium aspirations?
World’s largest two-wheeler manufacturer Hero MotoCorp has been known as a mass-market brand since the beginning. While Hero motorcycles are known for daily use, Harley models are known for their targeted leisure riding purposes.
However, the 36-year old Indian motorcycle and scooter company has always shown its aspirations to enter the premium segment as well. Specially, after TVS Motor Company and Bajaj Auto, two of its homegrown rivals joined hands with BMW Motorrad and KTM respectively to bring in premium products, Hero MotoCorp’s premium product aspirations have grown further.
On 1st July 2013, Hero MotoCorp acquired 49.2% stake in the American motorcycle sport company Erik Buell Racing (EBR) for $25 million to expand its operation in premium motorcycle segment. Interestingly, the Wisconsin-based firm have a Harley-Davidson connection specializes in designing and manufacturing powerful and high-speed motorcycles. As part of this strategic partnership, Hero MotoCorp was supposed to receive support from EBR, in terms of cutting-edge technology and design to develop upmarket two-wheelers. On the other hand, EBR was supposed to distribute Hero motorcycles and scooters in North America starting in the summer of 2014.
However, not much have been helpful for the Hero since then from this partnership. The company was not able to successfully capitalise its move and as part of that, there have been no major growth in the two-wheeler company’s portfolio so far.
In fact, even after having a product like Karizma in its kitty, Hero MotoCorp has been failed to capture the higher end market share in India. The Impulse adventure motorcycle too couldn’t grab a string spot. Both Karizma and Impulse were discontinued in 2017 due to low sales and change in emission norms.
On the other hand, the company that has reported its highest-ever single-month sales in October 2020 with 806,848 units, recording a 35% YoY growth compared to 599,248 units of October 2019 has always been able to maintain its stronghold in the smaller cc category thanks to the Splendor, Passion series and HF Deluxe.
Lately, the company has introduced models like Xtreme 160R, Xpulse 200 to grab a spot in the above 150cc category. Currently, the brand is working on Xpuls 200T modern retro motorcycle. However, cash puller for the brand are still the lower cc models.
The Hero Splendor registered 2,80,250 units in September 2020 to become the top-selling two-wheeler in India. The Splendor has always remained among the top 2 bestselling two-wheelers in India juggling positions with the Honda Activa scooter, bestselling scooter of the country.
Coming to the Harley-Hero alliance, auto industry pundits believe the partnership between these two will be a win-win for both of them. However, there are different opinions as well.
Avik Chattopadhyay, co-creator of Expereal India and former marketing head, product planning and PR at Volkswagen India believes, Hero MotoCorp should not waste energy and resources in the premium segment at all. “The brand has a much more purposeful role to play in democratising mobility in India and two-wheeler penetration has a long way to go. The entire organisation is geared for low-cost value-engineered products. And their task is not yet over,” says Chattopadhyay.
As business strategist Lloyd Mathias opined on the partnership to a publication, these two brands are within a same category but compete in totally different segments. He believes this partnership is a win-win for both the companies as Harley will be able to use Hero’s vast distributor network, while the Indian company will get to develop and sell premium motorcycle and use HD’s brand name making its way into the top-end of Indian motorcycle segment.
So far, Hero has always struggled in the premium motorcycle segment. Partnership with Harley Davidson would certainly create positive impact on the homegrown two-wheeler brand’s overall market share. However, only time will tell the tale whether this partnership will boost Hero MotoCorp’s premium aspirations or not.
What’s in there for Harley-Davison?
Harley-Davidson being a 117 year old iconic motorcycle brand has already created phenomenal brand image. The company doesn’t need overt publicity and relies solely on the hallmark its has created over the last century.
Despite being an iconic brand, the company has failed in India for multiple reasons. These include lack of understanding of the Indian consumer mentality, pricing and distribution issues, faulty product portfolio etc. Even the market strategies adopted by HD didn’t help the company to gain ground.
The leisure biking is a small but lucrative segment. It is growing in India as well, which led to several premium brands coming to India with their global products. However, considering the market share of leisure biking in India, it is difficult for a global company to set up full-fledged operations in a country that has a small contribution to the leisure biking.
Now, with this partnership, Harley will not have to worry about the issues, as Hero will take care of these. For Hero MotoCorp, there would be perfect synergy in operations and leverage for the brand. Harley on the other hand would still be able to capitalise from brand name usage by Hero. However, it is to be seen, how Harley changes its advertising strategy and go-to-strategy in India.
So far, experts believe that despite joining hands with Hero MotoCorp, Harley will not be a Hero-brand and retain its own image. Hero too will make sure the same ensuring the brand values of the different entities remain intact.
As Avik Chattopadhyay says, “For HD, this helps them maintain presence in India and more importantly, service their existing customers who otherwise could resort to some serious trolling of the brand on social media. Also, the licensing agreement allows them to maintain an arm’s length and not be directly responsible for any further calamities.”
Same company, two-sub brands
Having two sub-brands under a single company is nothing new in the global auto industry. For example, Bajaj has entry-level mass-market products as well as premium portfolio like Pulsar as well. Among the carmakers, Maruti Suzuki has introduced the Nexa channel exclusive for its premium products. Toyota too owns Lexus that sells luxury cars only competing with the brand like Mercedes-Benz, BMW, Audi etc.
Hero MotoCorp can create a similar story by retaining and building on Harley’s existing premium brand value and perception. However, this will not be an easy task for Hero considering its well-established brand image of a mass-market brand.
What about existing Harley-Davidson dealers?
Under the distribution agreement between Harley-Davidson and Hero MotoCorp, the latter has announced to use a network of brand-exclusive Harley-Davidson dealers along with company’s existing sales and service network. Despite the manufacturing and distribution agreement between the two brands, fate of Harley-Davidson’s 33 dealerships across metro cities and smaller towns in India still remains confusing.
Dealers are still awaiting clarity on the future strategies from Harley-Davidson or Hero MotoCorp. Several dealers estimate that the network will be scaled down by more than 50% to 13-15 dealerships from the current 33.
According to a section of Harley dealers, continuing business with several recently opened showrooms may not be viable in this scenario, especially in smaller towns and metro cities. On an average, dealers selling the number of Harley-Davidson motorcycles have been 20-25 per month, and in the wake of economic crisis and Coronavirus pandemic, the number has been declined to single-digit.
Street 750, the entry-level motorcycle of Harley-Davidson in India, accounts for 70%-90% of total sales for the brand in the country. However, the mid-sized motorcycle has been out of production for more than a month. However, Harley-Davidson had firmed up plans to increase volumes for the Street 750 and newer mid-sized motorcycles in order to boost sales. This led to many dealerships expanded and refurbished their showrooms.
However, now with first HD announced its exit from India and then taking a U-turn to join hands with Hero MotoCorp has changed the scenario completely, leading to confusion among the dealers. According to a section of Harley-Davidson dealers, continuing with many recently opened showrooms in metro cities and smaller towns may not be viable anymore in current scenario. With huge amount of investment made, eyeing long-term business plan, the Harley dealers are looking for compensation or positive intervention with clarity on future steps.
Impact on Make-in-India/Atmanirbhar Bharat
In the last couple of years, several global auto brands like General Motors, UM Motorcycles, SsangYong, MAN Trucks called it quit from Indian market, with Harley-Davidson being the latest one in September 2020. While the Indian government has been promoting the Atmanirbhar Bharat or Self-reliant India initiative (Call it the rebadged Make-in-India campaign), a brand like Harley’s exit could have caused another major blow after GM’s exit from India.
However, the company’s U-turn and announcing partnership with Hero MotoCorp has probably saved the the pro-industry face of the Modi government. However, according to expert view, the exit wouldn’t cause any impact at all, as except General Motors, all other brands exited India were not mainstream and they never reached a level of market acceptance that would have left a vacuum when they exited.
According to an industry expert, over a period of time nobody will really miss any of these auto brands. They exited for their own faults and not due to any policy issues or lack of ease of doing business. Their numbers and spaces will be taken up by others.
Harley-Hero: On par with Bajaj-KTM, TVS-BMW Motorrad?
Hero MotoCorp’s partnership with Harley-Davidson is certainly driven by the homegrown company’s premium ambition. Despite having the lion’s share in the Indian domestic market, the company dreams to be on par with Bajaj-KTM and TVS-BMW with its ride on the back of Harley.
Harley-Davidson in its positioning and product portfolio is surely a notch above than BMW Motorrad, KTM or even Husqvarna. KTM has already garnered quite an attention and popularity among the young riders who wants to own a premium high-performance bike. A key reason behind this is the clever pricing with local manufacturing under its partnership with Bajaj Auto.
To achieve similar success, Harley has a lot of work to do in creating an India-relevant product range, not only in terms of price points but also design, application and reliability as well. That is going to be the American brand’s real test.
Harley-Hero story is certainly an interesting one. But considering Hero MotoCorp’s repetitive attempt in the premium segment it is to be seen how the brand capitalise its latest move in the space. Only time will tell the significance of the partnership.
As Avik Chattopadhyay says, “For Hero, I do not see any clear benefits apart from the ego gratification of partnering a ‘premium’ brand. But they have had previous experiences with BMW and Buell. Guess despite being twice bitten, they are surely not shy.”
Also Read: Harley-Davidson calls quit India; major blow to local manufacturing