Finally! Harley in bid to acquire Ducati

Harley should have let Porsche re engineer the entire line of engines..
And then clean up and modernize the rest of the bikes.


They are currently stuck in the 20th century..

 

Of course they are...and that's right where their customers want them to be.



Mark

 

From what I recall, the reasoning at HD for taking over MV Agusta was to gain a foothold and quick entry into the European markets for the HD brand. I also seem to recall that the original target was Cagiva/Ducati but could be wrong on that count.

 

Yes agreed, and I think that should be the strategy...they need it.

 

As a Ducati owner and lover, I really hope HD doesn't end up acquiring them. HD is light years behind Ducati in technology, and has failed in the sport bike market multiple times now. MV Agusta was an absolutely catastrophic failure on their part, selling it back to the original owners for a mere $3.97. Then there's EBR that they've failed with multiple times, I just do not see HD doing any good at the helm of Ducati.

 

H-D had nothing to do with EBR. Zilch, nada, nothing.
Buell (not EBR) did not "fail" in the traditional sense. They were shuttered by H-D when the economy tanked in 2009/2010.

 

Correct.

It's interesting how some equate Harley's technology with their ability to run a company. I would suggest people read up on them - they are a very shrewd, well run company. They've made mistakes, no doubt, but every company does.

 

Harley may be well run as a corporate entity, their marketing of their "product" has been great too, but when it comes to the non traditional Harley motorcylce business they are beyond clueless.

They could have tured MV into ducati, and they failed and ruined Buell.

In the period after those two failures harley missed the whole cafe racer theme which the hipseter youth loves, and for which sportster platform would have been ideal. Now street trackers are hot. Harley pretty much owned that style yet they have not one bike to answer that call.

Harley sort of knows sportsters and chrome laden cop bikes and baggers. Cafe racers and street trackers are two huge markets in their realm they totaly missed and could have adressed with existing platforms. Like all corporates they are good at their existing formula but otherwise as useless as tits on a bull.

I fail to see what they can possibly add to ducati, which is an overplayed brand anyway.
And years of torpor under harley are not going to lead to great ducatis.

 

There's nothing they can offer Ducati other than funding...but that's not the point.

The point is market share, which Ducati DOES have, particularly in markets where Harley does NOT.

Rather simple.

 

I thought the VAG group owned Ducati..they are selling it off?

 

Not really simple because the company does not come for free and they are paying a huge price. Unless they can grow ducati sales or bring new cutomers to their core harley product its decades till payback. In the meantime harley may cause Ducati to wither.

Now if its all about income boosting stock price the yes it makes sense for management.

But smart management would have made Mv or buell into a ducati and if they couldnt do that with their funding then how good will they be for ducati in term of sustainabaility or growth.

Smart management woudl have been able to expand the bandwidth of harley offerings, like cafe racers, street trackers and even a modern take on an egli vincent. Thats would have brought in young hipseters and grown the harley brand.

But yes as a stock price gambit its simple, and indicative of a company run by finance not product people. it will all work till the fat lady sings, then there will be a re-organization.

 

My money is on this, just like they did with Holiday Rambler...5 years, they are out. That's not what I hope happens, but given the company's history, that's what I think will happen.

MV too niche, Buell not enough global appeal. I think they had a better chance with Buell, especially if they considered a street bike based on the VR1000, but they blew it.

Tried many times and failed. Arguably, they didn't try hard enough but they had the Sportster CR, XR1000, the Aermacchi offerings, even a recent EMEA only product. Didn't work. I think the traditional buyer and dealer rejects these. They need an established brand with an existing dealer network and market share, little product overlap. Ducati fits perfectly.

Very few companies run by product people survive - at least at this level. I'd argue Harley is more influenced by product people than most - hence the resistance to change, which is hard to diminish as they have survived on lifestyle and nostalgia.

You also realize the Sportster line is a loss leader? They really don't make money on them, it's the big twins that have strong margins. Their data shows the majority of Sporty owners move to the bigger bikes when they outgrow the small bikes. A financial org would probably kill off the loss leader (as one of my old companies did).

I've followed HD since the late 70s through today - this is a smart move. That doesn't mean they'll handle it properly, but at first blush, it makes sense from at least a financial perspective.

Ducati does about $800M of revenue, gross margins around 30%. Purchased at $1.5B (or 2x revenues), seems reasonable given their growth rates.

Otherwise, not many options for them - aging customer base, stagnant stock price, layoffs, slow revenue growth...organically creating a new product for a highly competitive segment makes no sense for them. Growth by acquisition is really the only option.

 

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If you look at Harley's short track record with companies they have purchased it has not been all that great for either company. Buell was purchased in 1993-ish and liquidated in 2009. MV was bought and the main thing that saved them were Italian laws as I understand it. Harley lost millions on both. In the neighborhood of a quarter of a billion dollars between the two in fact.

Several things to consider:
1) Who says VAG actually wants or has to sell Ducati? They contribute positive cash flow.
2) Who says Harley actually has the money to pay upwards of $2B for Ducati? That doesn't seem a known fact at all.
3) Who says Harley has any idea what they are doing actually running Ducati? As I mentioned above their track record is not that great.

TBH if Harley were to buy Ducati I think you would see negative changes to the brand and its products, and a demarcation line among Ducatisti: BH and AH (before and after Harley). The AH products not nearly as desirable.

 

I'm trying to wrap my head around this one; marketing the "Sportster CR, XR1000, the Aermacchi offerings" to "the traditional buyer and dealer". That's a total fail and obviously they rejected it, and will continue to do so.

Now put "Ducati" in place of "Sportster CR, XR1000, the Aermacchi offerings" with the same MO, and what do you get? Same failure.

The problem, from the beginning, is HD refuses to develop a product to gain market share from Ducati buyers, and BMW, Suzuki, Kawasaki, Yamaha and etc.

Instead, they want to turn everyone into a "rugged individualist".

 

Ok - we discussed this, they aren't putting Ducatis in HD dealerships...it's not happening. HD has limited market share in EMEA, where Ducati is strong. They will leave Ducati to continue growing in the region where HD is weak. If anything, you may see Harleys in Ducati dealerships in Europe.

A wholly owned subsidiary generally means they leave it be. When McDonalds owned Boston Market or invested in Chipotle, could you get burritos with your Big Mac?

 

Harley tried the same thing with MV. Soon after they bought MV, and immediately after the H-D dealer convention that year I quizzed my local dealership owner regarding the matter (my hope was MV Agusta would be sold and serviced at Harley shops).

His answer did not surprise me and after I knew they (H-D) had no clue what they were doing. The intent of paying millions for MV was to acquire their dealership network where Harley's was weak. A boutique manufacturer with a "spotty" network if I am being generous? Sounds more like H-D management had to appear to do something and that was buying a name. The rest as they say is history.

So I assume that is the same basic premise postulated here: buy Ducati and allow Ducati to pull Harley sales with it in certain parts of the world? Not Ducati in Harley dealerships, but rather Harleys in Ducati dealerships? Or is it perhaps that they keep them separate, accept that H-D will be a small player in certain areas but have no fear through a $2B acquisition they now have a brand that is strong in these areas?

Count me in the dubious camp on this one.

 

No no no - MV is a fly speck on Ducati's ass...it didn't have market share let alone a dealer network.

So a 100+ year old company that dominates its segment in the #1 market in the world is somehow stupid?

MV doesn't move 10,000 units annually, Ducati nearly 60,000! It's apples and oranges - not even close. I keep hearing the same thing, but it's not.

This makes perfect sense, and HD has Goldman advising them...are they all idiots and somehow the people here know more?

I'll buy the discussion HD can **** it all up, but not the argument that this is a bad idea - they have very few options if they want to grow globally.

 

MV sold less than that when Harley bought them. Why did they even bother if MV was insignificant and had little to offer them? Nothing about their brief tenure as owner made any sense. MV benefitted greatly though, given the money to develop products and wipe their debt.

The apples and oranges you speak of is who buys a Ducati vs a Harley and why. If Harley thinks they can apply their lifestyle branding strategy to Ducati they will fail miserably. I would not argue that Ducati has a branding and marketing strategy of the "Ducati Lifestyle", but it is not the same thing as Harley's and never will be. That will be a good way to piss off many hardcore Ducati enthusiasts.

If Harley can only grow by buying a brand that they have never had success challenging, they have already lost. Philosophically speaking that is. They do one thing very well, and sell one type of bike to one type of buyer. And not much else. In that way they are a one-trick pony but they can do that trick very well.

If this acquisition happens it will be interesting to see how it falls out. If their initial steps to meddle in what working at Ducati (I assume H-D leadership will not have enough sense to let well enough alone with Ducati), and those initial changes fail...natural inclination for the Harley folks will be to go back to what they know which is their own techniques to market the brand and bikes- - WHICH WILL NOT WORK WITH DUCATI - -.and they will accelerate the issues that they themselves have caused.

No, if VAG sells Ducati my personal hope is it is to someone like Mercedes or more specifically AMG. Maybe McLaren. Or Ferrari.

 

It made some sense, but it wasn't the right target...maybe in time it would have been, but you are forgetting a major part of why it was unsuccessful.

MV was purchased when the market was still warm for sport bikes. Unfortunately, it collapsed - HARD. At the time HD sold MV to the Castiglionis, NO ONE WANTED IT (I think they literally sold it for 3 euros...I need to check that). And while MV has enjoyed some NICHE success, it's not a volume play - never was and never will be. I'm 99.9% sure I posted HERE ON F-CHAT that MV Agusta was a mistake when they bought it. Didn't fit the criteria for what they were trying to do (gain market share in EMEA). Buell was killed off right around the same time, and having been closer to the Buell market, same problem...niche play, never going to get HD to where they want to be.

Side note - I thought Keith Wandell was an idiot. That being said, when he was in charge, the company was in tough shape and it's come out of that (somewhat). I never liked the idea of purchasing MV Agusta, but for the $109M or so they paid, it was probably worth more long term. No harm no foul, past history.

The apples and oranges are MV and Ducati. It's not even close. One sells less than 10,000 units, the other nearly 60,000 units - a near order of magnitude greater. Again, if you are trying to penetrate a market (EMEA), and you can't with your core offer - what do you do? Give up? Quit? Close shop?

Last I checked, most companies acquire other companies with share. Exactly what HD is trying to do, very smart move.

Who said anything about lifestyle branding strategy? Ducati has it's own lifestyle branding. What I suggested is HD acquire and leave it alone - a wholly owned subsidiary. DO NOT IMPOSE THE HD LIFESTYLE, STRATEGY, DESIGN, ENGINEERING - NOTHING - ON DUCATI. Again, very sound and simple, no part of injecting the HD DNA into Ducati was ever promoted from my POV.

Again, who suggested they are challenging Ducati? They aren't, there is nearly ZERO OVERLAP in product.

You said it yourself - HD does one thing very well. Ducati ALSO does one thing very well. It just so happens that neither company does that one thing well against the other. The synergy from a portfolio perspective is near perfect. Not to mention the regional market share.

Neither of us knows what management will do - execution is unknown. Recent history suggests HD hasn't figured it out, but past history suggests the opposite (their ownership of Aermacchi and Holiday Rambler were quite good).

I'm someone with many years of managing portfolio P&L for products up to ~$1B in revenue, and I'm an armchair quarterback. I know what I know, meaning, probably a lot less than the HD folks. Let's assume I'm a complete idiot.

If I'm a complete idiot, and I KNOW that meddling with Ducati is a bad idea, then why wouldn't the folks at HD know that? Are they more of an idiot than I am? I'm not buying it - they aren't...they CAN'T be that stupid. To somehow suggest VAG knows, but HD doesn't is short sighted. Surely, VAG is advising HD to leave it be. Surely GS is advising HD to leave it be. Surely, recent history is advising HD to leave it be.

Why wouldn't they get that? No, they understand the market better than either of us (well, I'm assuming that, you may know more about the motorcycle market than I do, but I do think I know it well)...it flies in the face of any logical reason they would acquire Ducati. They don't need help building air-cooled pushrod engines. They don't need help with heavyweight cruisers. They don't need help in America. Same with Ducati - they don't need help (other than a deep pocketed parent to help them continue to take share in their core markets).

I'm pretty sure HD is aware of this.

 

We agree then that H-D should leave Ducati alone.

If this comes to pass it will be very interesting to see the reaction from Ducati owners. I can only speak for myself but it would not be a positive thing, and I know I am not alone in thinking this way.

These toys are emotional purchases, Harley should not discount the level of...shall I say it nicely...ambivalence many motorcycle enthusiasts have for the brand as a whole. They should not automatically assume that every potential Ducati customer wants anything to do with H-D products.

There will be many people watching what happens with management fallout and in the ensuing year or two how the two brands mingle if at all.

A negative scenario (although entirely plausible) would be Harley killing off segments of Ducati's products which compete with theirs or even worse, taking them as their own. No one needs an XDiavel with chrome Harley bits and badge.

 

I get it and don't disagree. McDonald's and Chipotle were at opposite ends of the spectrum on MANY things, not the least of which their respective corporate cultures.

Yet, Chipotle may not be where they are today without McDonald's investment and subsequent influence (see the recent impact of Chipotle's changes in the wake of people getting sick from the method of food handling).

There should be little to zero cross pollination between HD and Ducati. And, short of rebranding some Euro-market bikes, HD left Aermacchi alone as well, owned it for 18 years - one could argue a moderate success.

I see this one going the same, or I would agree - it fails.

 

While you're wishing ana hoping ana preaching "What I suggested is HD acquire and leave it alone - a wholly owned subsidiary. DO NOT IMPOSE THE HD LIFESTYLE, STRATEGY, DESIGN, ENGINEERING - NOTHING - ON DUCATI. Again, very sound and simple, no part of injecting the HD DNA into Ducati was ever promoted from my POV."

HD will do exactly opposite. Mark my words.

 

Correct. As a previous poster said, they are selling it due to the emissions scandal fine.

 

They may...but we don't know that yet. I can't argue against that point, but I'm hoping this time it's different.