Harley's exit and the future of American bikes in India

Iconic Marvel superhero Captain America sports a never-say-die attitude, a deep sense of duty and—to no one’s surprise—a 1942 Harley-Davidson. It’s tough to imagine the quintessential American war hero with anything other than the cult superbike—the brand, after all, has been synonymous with the ideas of strength, freedom, and machismo.

Now, if only its cult status was enough to keep its engines running in India.

The Milwaukee-based company has decided to exit India, the world’s largest two-wheeler market, after having sold only around 2,676 motorcycles in the country in FY19, and just 100 in April-June 2020. In fact, its models in India—ranging from ₹5.3 lakh to ₹50.3 lakh— have sold a little over 27,000 units in a decade while its closest competitor Royal Enfield does a similar number in a month.

Of course, Harley-Davidson’s struggles are not India-specific—globally, it has been struggling to grow its audience beyond baby boomers. As a result, the company, as a part of its “The Rewire” strategy is narrowing its focus to the 50 most profitable markets—including Europe, China, and the U.S.—and pruning its global portfolio by nearly 30%, leading to the India exit.

This move has been long coming, given the import tariff structure which has been a bone of contention between India and the U.S.

Although, in 2018, the customs duty on imported luxury bikes had been reduced from 60% to 50% for less than 800cc engine capacity, it was hiked from 10% to 15% for a semi knocked-down (SKD) kit. Add to that, bikes, when sold to the end customer, attract a GST rate of 28% and an additional 3% cess, taking the total tariff to nearly 81%. A majority of HarleyDavidson’s sales come from the SKDs which are assembled in India—it sells 17 such models in the country.

This then didn’t make business sense for the company, prompting it to draw the curtains on its India business and enter into a strategic tie-up with Hero MotoCorp that will give the latter exclusive distributor rights to import and sell Harley-Davidson bikes in India.

“We are working closely with Hero to ensure a smooth transition for our riders. We are providing our riders with updates as available and have assured them that Harley-Davidson motorcycle, parts and accessories and general merchandise sales, as well as after-sale services, warranty and H.O.G. [Harley Owners Group] activities will continue,” says Sajeev Rajasekharan, managing director, Asia Emerging Markets & India, Harley-Davidson.

Auto experts put the blame on the brand’s failure to drive up volumes and cost effectiveness by successfully leveraging local tie-ups. Triumph and KTM, for example, had joined forces with Bajaj Auto and BMW Motorrad with TVS Motor Co. It doesn’t help that in a market where 20 million units are sold annually, superbikes make up just 10,000 units in sales. (A superbike is usually defined as a sports bike that comes with a large engine that ranges between 800cc and 1,200cc.)

Harley-Davidson is not the first American bike brand to see the end of the road in India. In 2019, the failure of Miami-based UM Motorcycles here led to a loss of over ₹150 crore to its dealers. The maker of the Renegade cruiser, too, cited poor sales and low demand as the reason for its exit. In the same year, Cleveland CycleWerks left India after announcing its entry into the two-wheeler market at the 2018 Auto Expo.

The American bogey is not just limited to bikes. General Motors, which had set up operations in India in 1995, decided to shut shop in May 2017, while Ford, one of the first global car companies to enter the country, recently called off its joint venture with Mahindra & Mahindra.

Why have American vehicles not had much luck on Indian roads thus far? Experts say that the Indian market is one of the toughest to crack. American automakers like Ford and General Motors together had over 8% market share 10 years back; but lack of new launches by these players, low localisation of components, and weak dealership network impacted their volume and market share,” says Ashish Modani, vice president, ICRA Limited. “Post the financial crisis of 2008-09, resource prioritisation for the much larger Chinese automobile market also impacted their market position in the Indian market.”

It’s not that trade relations between the two countries aren’t improving. According to Alyssa Ayres, a senior fellow at U.S.-based think tank the Council on Foreign Relations, India is now America’s eighth-largest trading partner in goods and services. Its trade with the U.S. now resembles, in terms of volume, the latter’s trade with South Korea ($167 billion in 2018) or France ($129 billion).

But the niggles remain. As part of the long-in-talks limited deal, India was supposed to reduce tariffs on high-end bikes like Harley-Davidson and pledge greater market access in farm products, while the U.S. was to restore duty benefits for India under the Generalised System of Preferences (GSP) which was scrapped by former President Donald Trump. But the deal never came through. Under Joe Biden’s presidency, “the administration would like some of the irritants which have been growing in India-U.S. relations to be resolved— like the trade agreement—that have now been going on for a long time,” says Rakesh Sood, foreign affairs expert and distinguished fellow at Observer Research Foundation, a think tank. He, however, cautions: “We can expect a certain kind of protectionism, and trade nationalism from the U.S. If Indian trade is not competitive, there’s nothing you can do in terms of operating in a globalised world.”

Economists also believe the U.S.- China trade war could benefit India if it manages to leverage the opportunity. “Some of the business could come to India from China but there are other countries like Vietnam and Bangladesh that are seeking to attract U.S. investment,” says Sood. “If American companies find that environment to be more conducive, then obviously they would prefer to go there.”

The policies will evolve in good time, but what is in the control of American auto players, however, is increasing emphasis on localisation. Indian buyers, especially in the mass market segment, are highly price-sensitive, argues Sridhar V., partner and practice leader, Grant Thornton India. “American automobile companies haven’t brought in the products with the best features here,” he says. “They assumed what sells in America will sell here. They didn’t come up with categories which could engage with the masses.” The next entrant into India—Elon Musk’s Tesla—he hopes, “will come with a proper understanding of the market.”

(The story originally appeared in Fortune India's February 2021 issue).