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Harley Production Cut May Drive Up Price, Prestige

  • Forbes, Friday, April 18, 2008 10:45 AM
In reporting that its profit has dropped even as revenues increased, Harley-Davidson says it will trim production as a cost-cutting measure. The adjusted production rates will lead to layoffs of 370 unionized employees and 360 other workers. The cuts should limit discounts being offered on the bikes, aiding margins.

In years past, small production runs often led dedicated consumers to purchase Harley cruisers for prices well above the manufacturer's suggested retail price, says Robert W. Baird analyst Craig R. Kennison. "By cutting production, Harley reduces the level of dealer inventory, helping the brand regain its scarcity value," Kennison points out, which is "critical for a premium brand."

Harley's retail sales in the U.S. decreased 12.8% in the quarter, but beat the 14.0% decline in the overall segment. International retail sales increased 16.8%, making up 26.0% of total motorcycle sales, compared to 21.4% of total sales last year.

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