Last Updated : Oct 30, 2020 09:27 AM IST | Source: Moneycontrol.com

Harley-Hero deal: Here's why the deal between makers of high-end and entry-level bikes may just work

The Harley-Hero non-equity tie-up is a distribution-based partnership which does not involve transfer of technology from Harley. It involves handing over sales, service and distribution of its products to Delhi-based Hero MotoCorp.

India would consider itself lucky to have survived the world-wide shutdown of operations by Harley-Davidson, which exited from nearly 40 global markets. The tie-up with budget bike specialist Hero MotoCorp is part of the biggest shake-up carried out by the legendary cruiser bike brand in recent history.

On October 27, the American bike maker decided to switch to a model which it believes is more cost-effective in India. It involved handing over sales, service and distribution of its products to Delhi-based Hero MotoCorp. Hero will also take care of sales of parts, accessories, general merchandise, riding gear and apparels of Harley-Davidson.

India is among 17 global markets where Harley is setting up similar distribution models as part of a complete reset of its markets outside the US. While Harley-Davidson announced the shutting down of Bawal, the Haryana-based assembly factory a month ago, Hero MotoCorp clarified that it won’t be taking over the plant.

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Speaking to analysts, Jochen Zeitz, chairman, president and CEO, Harley-Davidson, said: “Under our focussed participation model, we are exiting about 40 markets where low volumes and little profit do not warrant investments. We are establishing dealer-direct or distributor model in about 17 markets, and our 36 highest potential markets will have the leadership, resources and clearly defined operating framework that we believe will derive desirable growth and profitability in the future.”

A distribution-based partnership

The Harley-Hero non-equity tie-up is a distribution-based partnership which does not involve transfer of technology from Harley. A licensing agreement allows Hero to develop and sell a range of premium motorcycles under the Harley-Davidson brand name.

“With a complete reset of our regional structure, we now have a less cumbersome and much more efficient set-up and have defined a clearer regional strategy in North America, India, Asia Pacific and Latin America,” added Zeitz.

In September, Harley announced the closure of India operations after 11 years of underperformance, which saw the company sell only 25,000 units – a far cry from its target of selling 10,000 units each year. The Haryana-based factory was one of only two Harley factories outside the US. Harley did not provide any clarity about the future of this factory.

Hero in the premium segment

While Harley’s smallest bike is powered by a 750cc engine, Hero has never sold anything above 225cc on its own or under its own brand. In the mid-1990s, Hero and BMW launched a premium 650cc adventure bike BMW Funduro, which was withdrawn within five years, following poor demand.

A few years ago, Hero had bought equity in the US-based performance bike making company, Erik Buell Racing (EBR), with the hope of jointly developing premium motorcycles. The Delhi-based company had to abort those plans when EBR went bankrupt.

Hero’s biggest bike till date was the 225cc Karizma ZMR, which was withdrawn in 2019 after a fruitless run since 2003. Hero now has three bikes with 200cc engines – XPulse 200, XPulse 200T and XTreme 200 – hoping to get a pie of the premium motorcycle segment controlled by the Bajaj-KTM combine.

Having been known for making fuel-efficient motorcycles, Hero has over 70 percent share of India’s entry-level, budget bike category having engines of 100-110cc. Splendor, Passion Pro and HF Deluxe are the entry-level models that generate a bulk of Hero’s volumes.

To crack the ‘low-cost’ emerging markets of Asia and Latin America, Harley began work on a 338cc motorcycle which was expected to fall in the Street Fighter category of bikes. This new bike, which was under development in China, was also expected to make its way to India. However, with the altered plans, Harley will withdraw from the Street Fighter category and instead focus on the Adventure category.

“We eliminated models with the lowest profit or potential, reducing the complexity of our planned product portfolio by 30 percent. We are now pruning further by eliminating optional offerings that customers value the least,” added Zeitz.
First Published on Oct 28, 2020 09:02 am
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