Industry Profiles: Motorcycles and Bicycles

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Industry Profiles: Motorcycles and Bicycles

Overview

U.S. production of bicycles, motorcycles, and parts is worth approximately $3 billion annually. Although far fewer motorcycles are sold each year, they account for about 75 percent of industry sales because they command much higher prices than bicycles.

While bicycles and motorcycles continued to experience broad-based popularity in the early 2000s as forms of recreation and transportation, they faced vastly different market situations. Bicycle manufacturers faced weak sales in the early 2000s. Shipment values, which stood at $1.2 billion in 1997, fell sharply to $774.6 million in 1999 and $589.6 million in 2000. After strong growth earlier in the decade, some of the leading fads in bicycles, notably the preference for mountain bikes, began to recede by 1996. However, according to the National Bicycle Dealers Association (NBDA), as of 2000, mountain bikes remained the most popular category overall. Youth bicycles and comfort bikes (similar to mountain bikes, but with more comfortable features) accounted for 25 and 14 percent of sales respectively. Although U.S. companies manufactured more than half of their bicycles domestically in the mid-1990s, this percentage slipped significantly by the early 2000s as production was shifted to Asia and Mexico where labor costs are much lower. Changes in the bike retail structure aimed at reducing inventories and ordering new merchandise rapidly as it is sold (known as just-in-time inventory) have also cut into manufacturers' sales.

Motorcycle producers, who have established an important and lucrative market among U.S. baby boomers, saw strong demand for their products throughout the 1990s and early 2000s. The decade's consumption levels are estimated to have increased more than 10 percent annually. At market leader Harley-Davidson, business was booming in the 1990s and early 2000s. The motorcycle segment benefits from the deep pockets of its increasingly affluent customers, who as they age are earning and spending more than younger buyers. That the health of motorcycle sales is dependent on one generation of consumers is illustrated by the rising average age of U.S. bikers. From an average age of 34 years in the 1980s, by the early 2000s, the average Harley rider was approximately 46 years old.


History of the Industry

Bicycles The bicycle originated in France when Paris carriage maker Pierre Michaux fitted cranks to the front wheel of the German-designed draisienne, or hobby horse. By 1867, a bicycle craze was sweeping Europe. According to David A. Hounshell, author of From the American System to Mass Production: 1800-1932, the Boston merchant Albert A. Pope deserves credit for introducing the device to America. Pope began importing the British High-Wheel, also known as the "Penny-Farthing," in 1876. By 1878 he was producing his own version at the Weed Sewing Machine plant in Hartford, Connecticut.

The new product tapped a growing demand in America for increased mobility and provided work for the idling American arms industry. Much of the industrial expertise developed for the weapons industry during the Civil War found useful employment in the production of bicycle components. In 1890, 27 bicycle manufacturers produced 40,000 "safety" bicycles, featuring two equal sized wheels.

By 1897 bicycle production increased to 1.2 million annually. Then demand evaporated as the horseless carriage began to make its impact felt. Auto manufacturer Hiram Percy Maxim noted that the bicycle revealed the advantage of quicker personal transportation but failed to answer the challenge. According to Maxim, the bicycle created the demand for the automobile and provided the technology needed to mass produce it.

Bicycles retained a steady but small popularity through the first half of the twentieth century. It was the baby boomer generation that fueled the resurgence of the bicycle starting in the 1950s. The single-speed child's bike gave way to multiple speed versions and, eventually, the popular lightweight ten-speed. Throughout the 1970s, the ten-speed dominated the market with a market share of 56 percent. However, an American innovation, the mountain bike, changed everything. Initially designed for climbing the scrubby hills north of San Francisco, mountain bikes and all-terrain bikes sported fat tires, heavy frames, and multiple gears. By 1991 they boomed in popularity even in areas miles from any mountain and commandeered a 50 percent market share.

Many traditional companies like Schwinn and Murray failed to react quickly enough to the popularity of the mountain bike, leaving the door open for small innovators to carve out a niche and for large foreign firms like Taiwan's Giant Bicycle, Inc. and China's CBC to gain control of trademarks. The showroom models still sport familiar brand names, but many are foreign-made while others use components no longer made in America. Those firms that did react, like Trek and Cannondale, are enjoying great success in the export market, especially in Europe and Japan

Motorcycles The motorcycle represented a first step from the bicycle to the automobile. The simple expedient of attaching a gasoline-powered engine to a bicycle frame produced a device that was at once exotic and affordable. During the early 1900s, more than 100 companies began manufacturing motorcycles, including Harley-Davidson, Indian, Orient, Excelsior, Cyclone, Henderson, and Marsh. By 1915, they produced models that could exceed 100 mph. The 1915 Cyclone, designed specifically for racing, could reach speeds of 124 mph but had no throttle and no brakes. Harley-Davidson began production of its first model, the Silent Grey Fellow, in 1903, the same year Henry Ford unveiled the Model A. When Ford introduced his mass-produced Model T in 1913 and sold it for $500, most motorcycle manufacturers could-n't compete. After World War I, only Harley-Davidson, Indian, and Excelsior remained. By 1953, only Harley-Davidson remained.

With the OPEC oil embargo of the early 1970s, motorcycles became popular for commuting—but not the Harley. Consumers wanted cheap, reliable, peppy bikes, and those came from Japan. In 1973, sales of motorcycles reached an all-time high of 1.5 million. In 1983, Harley-Davidson sought and received tariff protection from the Reagan administration to help it battle Japanese competition. Even with the 45 percent tariff protection, the company was almost bankrupt by 1985 due to poor quality and inefficient production. By applying Japanese management techniques, Harley-Davidson finally reversed its situation and asked for the tariff to be removed one year before it was due to expire. Meanwhile, Honda miscalculated the heavyweight motorcycle market, concentrating instead on small bikes and high-priced, high-tech super bikes. Honda's market share dropped from 44 percent in 1985 to 32 percent in 1989.


Significant Events Affecting the Industry

Motorcycles in general enjoyed a modest resurgence in the 1980s and 1990s that continued into the early 2000s. This was due in part to market demographics. First-time motorcycle buyers and long absent return buyers more than tripled between 1987 and 1994. Between 1992 and 2001, Harley-Davidson's net sales increased at a compound annual rate of approximately 17 percent per year. Sales of similar bikes from Japanese makers fell 39 percent between 1988 and 1991, but then began to increase again. The market for smaller and faster "sport-bikes," which appeal largely to younger riders, was stagnant due to high prices. Sales of off-road motorcycles, also popular among younger riders, experienced growth throughout the 1990s. In the early 2000s, many older riders in this category were buying larger bikes as their levels of disposable income increased.

Meanwhile, there were signs that the popularity of mountain bikes was dwindling by the mid-1990s, as the sales of these bikes decreased in 1996 for the first time in 10 years (from $1.6 billion in 1995 to $1.5 billion in 1996). This was followed by a smaller decrease in sales during 1997, due in part to falling prices. National Bicycle Dealers Association data indicated that as of 2000, mountain bikes accounted for the greatest amount (43 percent) of retail sales in bicycle stores, down from 46 percent in 1999.

But other styles of bicycles continued to enjoy rising demand. Once again, the baby boomer market was seen as fertile, triggering the introduction of expensive "nostalgia" bicycles by the likes of Schwinn. Some automobile manufacturers have begun to produce bicycles under their own logos, hoping to appeal to customers who want to lead an active lifestyle (or at least to project that image). These companies include Mercedes-Benz, Volkswagen, BMW, and Jeep. Bicycles also are being used more frequently by non-recreational riders such as commuters, couriers, and police officers.


Key Competitors

The undisputed leader in the U.S. motorcycle industry is Harley-Davidson of Milwaukee, Wisconsin, which controlled about 44 percent of the North American motorcycle market in 2001, down somewhat from historic highs. The company's sales rose 113 percent between 1988 and 1996. Between 1997 and 2001, net sales climbed more than 90 percent. Sales of Harley bikes totaled a record 234,461 in 2001, giving the company a record $3.4 billion in sales. Although international sales have consistently grown since the early 1990s, domestic shipments of Harley-Davidsons have grown much faster, accounting for a larger percentage of shipments overall. By 2001, the company exported less than 20 percent of its bikes. In 1998 Harley-Davidson acquired Buell Motorcycle Company, which makes sportbikes. Worldwide, Buell accounts for 18 percent of the company's net sales. By the early 2000s, a number of Harley's smaller domestic competitors, like the struggling Indian Motorcycle Corporation and Victory (made by Polaris Industries, Inc.) were competing in the cruiser bike market, hoping to steal market share mainly from Japanese producers such as Honda, Yamaha, and Kawasaki.

Despite the slowdown in sales, during the 1990s the unforeseen popularity of the mountain bike upset the traditional list of leaders within the bicycle manufacturing industry, as mountain bikes captured a large share of the total market. Old industry leaders such as Schwinn did not enter this market soon enough and were overtaken by producers of the new product. In the early 2000s, another development added to the changing face of the industry. American icon Schwinn/GT, which had struggled financially during the 1990s, was acquired at a bankruptcy auction in 2001 by Pacific Cycle, LLC, which traditionally sold most of its bikes (including the Mongoose and Roadmaster brands) through mass retailers like Wal-Mart. That year, Pacific achieved sales of $295 million and employed 480 workers. One of the company's goals was to re-establish relationships with Schwinn/GT's former dealer network, even though it was considering selling Schwinn bikes in retail outlets along with its other brands.

Trek Bicycle Corporation, founded in Waterloo, Wisconsin in 1976, continued to lead the industry in sales of premium bikes sold through specialty shops. In 2001, Trek reported revenues of $375 million and employed 1,500 workers. Cannondale Corporation, with 2001 sales of $147 million and 923 employees, was another leader in Trek's category.


Industry Projections

Modest growth was expected for the bicycle portion of the industry through 2004, due to both economic and demographic factors (including a decline in the number of children in the key 5- to 14-year-old age group). Helping to sustain or increase domestic sales was a U.S. government bill aimed at increasing non-motorized transportation. Approximately $3 billion in funds could be used for building bike paths and other facilities friendly to cyclists. Growth in the motorcycle segment was expected to be somewhat stronger during the same time period. Harley-Davidson and its competitors were ratcheting up production of their popular motorcycles in response to continued strong demand. For example, in 2001, Harley-Davidson invested $290 million to support increased production capabilities. The baby boomer demographic, with increased spending power, continues to fuel a significant amount of growth in the market for large motorcycles.


Global Presence

The motorcycle and bicycle industry has seen the overall value of imports rise significantly since the late 1990s, from $2.1 billion in 1997 to $3.9 billion in 2000. From 1999 to 2000, values increased almost 31 percent. Meanwhile, the value of exports has declined, falling from $976 million in 1997 to $798 million in 2000. In the late 1990s, the majority of motorcycle imports came from Japan, while Japan, Canada, and Germany represented the leading export markets. Large, touring-type motorcycles were a promising product class for international markets. For bicycles, the majority of imports came from Taiwan and China, and the leading export markets were Taiwan, the Netherlands, and Canada.

By the early 2000s, a significant portion of U.S. bicycle manufacturers had shifted domestic production overseas. Bicycles made domestically accounted for more than half of U.S. sales in the mid-1990s. However, by the late 1990s this percentage fell to less than 35 percent. By 1999, the NBDA reported that more than 90 percent of bicycles sold in the United States were imported from other nations. Facing slowing sales at home, bicycle producers looked to international sales as an important part of their growth strategies in the early 2000s. Asia and Europe were seen as strong growth markets for U.S. bicycle manufacturers, although they had to compete with many local producers in those places. Among the greatest opportunities for exports were mountain bikes and BMX bikes.


Employment in the Industry

The industry employs approximately 15,000 workers in the United States, with an annual payroll of about $627 million. These levels make the motorcycle and bicycle business a relatively minor employer in the United States.


Sources for Further Study

annual survey of manufactures. washington, dc: u.s. bureau of the census, annual.

brown, don j. "systemic change: 1986-1996; motorcycle industry." dealernews, january 1997.

brown, stuart f. "gearing up for the cruiser wars." fortune, 3 august 1998.

duchene, paul. "minneapolis-based polaris to fight harley-davidson in motorcycle market." knight-ridder/tribune business news, 13 may 1998.

jesitus, john. "on the road again; new top management uses a teamwork approach to put schwinn back into the bicycle-industry race." industry week, 4 november 1996.

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Industry Profiles: Motorcycles and Bicycles

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Industry Profiles: Motorcycles and Bicycles