By : SHWETA BHANOT MEHROTRA
MUMBAI :
Just when dealers thought that the arrival of the Festive season would bring with it a new hope of revival, washing away their pandemic blues, the news of Harley Davidson Motor Company “discontinuing its sales and manufacturing operations in India” sent shock waves through them. Now, even customers are clueless about their fate, and the road ahead seems rocky as they weigh their options whether to sell, cancel their bookings and/or hunt for alternate service arrangements.
Though a relatively small premium motorcycle player in India, Harley Davidson was a big ticket buy with each bike costing anywhere between INR 5 to INR 53 Lakhs. Setting up a Harley Davidson dealership in the country was no less than an INR 5 to INR 8 Crore (around US$ 50-80 million) investment and “the brand’s sudden exit from Indian market will make their investment go down the drain,” says Vinkesh Gulati, President, FADA (Federation of Automobile Dealers Associations of India).
He goes on to say that the company had allotted Letter of Intent (LoI) to a few new dealers as recently as January this year and some of the dealers had started setting up their dealerships which is still midway. “We have dealerships in places such as Agra which is under construction, the one in Jammu opened in January but had to close due to the pandemic, they all are now stranded and investments are stuck,” says Gulati. According to the dealer association, no official communication was given to them by Harley Davidson and they came to know about the company’s exit plan via Media reports.
Interestingly, even at the company’s end there seems to be some ambiguity. While the company’s September 24, 2020, announcement on the US Securities and Exchange Commission (Form 8-K filling) talks about discontinuation of sales and manufacturing operations in India and workforce reduction of approximately 70 employees as part of its “Rewire” (Company’s restructuring strategy) strategy, the Press Release by their Indian arm speaks of “change in its business model in India.” And that it is “evaluating options to continue to serve its customers.”
Though, the Press Release does mention the closure of their manufacturing plant at Bawal, Haryana, and about the significant reduction in the size of the sales office in Gurgaon, it also mentions that its dealer networks will serve its customers until their contract term expires. Irrespective of the choice of words by Harley Davidson, the underlying issue is about who will take care of the service and spare parts of the thousands of Harleys on Indian roads.
TURN OF SPEED spoke to a few Harley Davidson bike owners who expressed disbelief over the legendary motorcycle manufacturer’s exit and expressed concerns over the brand’s loyalty and future in India. “This is no ordinary cult bike, it is a Harley Davidson; one that comes with an aura. The Indian market has been an important one for them,” says Anoop Nair, a Harley owner and part of the Harley Davidson riders group in Delhi. He adds that he did receive a letter from the company on the business model change in India. “But what worries me is that it says the dealers will support until the end of their contract term and that they will follow up with updates. We do not know which dealer’s contract expires when and what happens next,” he says.
According to information gathered by TURN OF SPEED, FADA, highlighted that Harley Davidson, via a mail dated September 24, 2020, to its channel partners in India, informed them about the “non-renewal of the dealership contract once the current contract lapses on December 31, 2020.”
Another rider from Chandigarh, Nisheeth Bhatt, adds, “Aftersales service will be a great concern and we are not quite sure how that will be managed as there is no clear communication from the company on it except a general letter.” He further says that the most common complaint of Harley owners was always the long waits to get spares and their motorcycles repaired. And now with “it exiting, one can only wonder how it will be managed.”
When TURN OF SPEED wrote to Harley Davidson seeking to understand the ground situation and seek more clarity in terms of its move, the company responded saying, “We do not have additional information to share beyond the Press Release.”
This is the fourth instance of an automobile company exiting India since 2017. General Motors, MAN Truck, and UM Lohia, all followed the same route, making overnight announcements about closing their Indian operations and leaving the dealer fraternity in a lurch, with crores stuck in the form of investments.
“In India, if any foreign company exits its operations then there is no upfront support provided to its dealers. Harley Davidson’s closure of its operations in India will lead to job losses of around 2000 workers across its retail network. Besides the job loss, auto dealers are also an important link in the automobile ecosystem, who have been closely associated with the brand’s journey in India, and now they stare at losses of around the US $1100-1300 million,” says Gulati.
He further says that customers will now start coming back to dealers to express regret in making their big-ticket purchase decisions. “Complaints like the re-sale value of the vehicle becoming zero, customer service ending abruptly, non-replacement of spares, will happen. Customers will face difficulties in accessing glitch-free servicing as there will be a short supply of spare parts, leading to lawsuits and harassment of dealers due to the delay which they will face,” he says. The entire dissatisfaction and anger will now have to be borne by the dealers, who had assured their customers about the product and its longevity, says Gulati who also goes on to talk about heavy discounting of the standing inventory to liquidate.
According to SIAM’s August report, Harley Davidson Motor Company India Pvt. Ltd. produced 838 units in the period between April-August 2020-2021, a de-growth of 51%, and domestic sales during the same period were 412 units, a de-growth of 65%. It exported 661 units during April-August 2020-2021 with a growth of 30% (Street 750 and 500) which was exported to Europe and other Asian markets.
FADA plans to take up the issue with the Government. “Had there been a Franchise Protection Act in India, brands such as these would not have abruptly closed their operations leaving their channel partners and customers in a lurch. With a brand closing its shop in India, India’s capital flow goes down the drain, along with job loss in the sector,” says Gulati.
“We are already working on a draft with our legal team and have initiated communication with other retail associations to bring the Franchise law in India. The law will support the dealer fraternity in the dire situation of exit/termination and day-to-day issues coming out of dealer agreements. We would also request the government to initiate the law on priority basis as this law will help in levelling the playing field for large international, domestic automakers and dealers and it will also help in regulating dealer setups,” says Gulati.
Puneet Gupta, Associate Director, IHS Markit, says, “As a brand, it is an exit, but it is not a total exit. When we are talking about any brand like Harley Davidson or any manufacturer (2W or 4W), there are many liabilities attached to a business in a country. It may be related to spare parts, labour related issues, supply chain and dealer commitment. So MNCs such as Harley Davidson are very clear and always follow regulations of the country of business, so that they can always come back to India with something new. They would not like to lose the trust of customers or business partners.”
When asked about speculations over Harley Davidson being in talks with Hero MotoCorp for a possible distribution and service arrangement, Gupta adds that “The liabilities will be transferred to some local player and it can probably be Hero MotoCorp.” Hero MotoCorp did not reply to TURN OF SPEED’s email query regarding this matter.
However, reliable sources in the industry tell TURN OF SPEED that Harley Davidson has been looking for a suitable local partner to give away its liabilities for a smooth exit but has been not been successful in striking a deal with anyone so far. Some of the companies that they have been in discussion with include Hero MotoCorp, Royal Enfield, TVS Motor Company and Mahindra & Mahindra (M&M). Meanwhile, sources tell us that Harley Davidson has been able to sell off its machinery and other equipment at the Bawal plant to M&M. Replying to an email query by TURN OF SPEED, M&M said that they didn’t have anything to say about speculations.
Another source told TURN OF SPEED that Hero MotoCorp might be looking at a technology tie-up with Harley Davidson. While big ticket motorcycles look unlikely to lure Hero MotoCorp, sources say the company might be keen on the entry level (250-300 cc) segment plans of Harley Davidson for the country announced last year.
Indicating that Harley Davidson plans to focus on its core markets such as US and Europe, which are relatively big, Gupta adds that the Indian market has been relatively small for Harley Davidson in terms of volumes and more importantly not profitable due to high dealer margins and a much demanding customer base. He further adds that Harley Davidson might look at an arrangement like Ford wherein it has given 50% stake to Mahindra & Mahindra (M&M).
However, according to Gupta, it is a loss for India, as Harley Davidson is a big player, and they make huge investments in terms of plants, setting up the entire network and investing in processes. “An OEM leaving a country does not reflect well and leaves a negative impression on the whole world as people start deep diving into the possible issues that might have led to the exit such as profitability issues, government machinery/policies, labour issues, etc., and then this impacts investors and companies who are or looking to enter the Indian market,” says Gupta.
Harley Davidson had been in News not too long ago for India’s high tariff structure on premium motorcycle imports. US President Donald Trump had expressed his concerns over the 100% import duty on Harleys and called it “unwarranted” which had led to the Indian government reducing duties by half in 2019. (Currently, bikes that are not fully manufactured in India but only assembled here, attract taxes to the tune of 56%, including GST at 28%, custom duty at 25% and Cess at around 3%).
Furthermore, readers may recall that in 2019, Harley Davidson, had moved its manufacturing out of China to Thailand, citing tariff issues. Now, it is believed that Harley Davidson will be expanding its presence in Thailand to serve Asian markets due to the cost advantages it enjoys there.
