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 From cars to construction equipment, the impact of the strong
dollar is a big problem for U.S. companies selling overseas. But the
U.S. dollar's recent surge to multiyear highs against major
currencies, such as the euro and yen, has also become a challenge to
their efforts to protect market share on home turf.
Harley's U.S. market share slipped nearly five percentage points in
the first quarter to 51.3 percent as competitors offered discounts
of up to $3,000 per bike and slashed suggested retail prices by up
to 25 percent.
Honda Motor Co Ltd and Suzuki Motor Corp both currently offer $1,000
cash back on selected models. Suzuki has cut the suggested retail
price on 13 models and Honda is offering low-interest financing.
Harley says it will not compete on price to protect its brand, a
declaration welcomed by industry analysts.
"They (Harley) are taking a reasonable long-term view of the
market," said Michael Millman, founder of Millman Research
Associates in New Jersey. "They want to maintain their pricing and
their image and will have to take some of the competitive knocks
that go with that."
AUTOS, HEAVY EQUIPMENT HIT
Harley-Davidson is not alone in feeling pricing pressures from the
dollar. Many companies including Caterpillar Inc and U.S. automakers
Ford Motor Co, General Motors Co and Chrysler also face tougher
competition as result.
Unlike Harley, Caterpillar benefits from the natural hedge of having
much of its production overseas, said Longbow Research analyst Eli
Lustgarten.
The Peoria, Illinois-based construction equipment maker does face
"stiff face-to-face competition" from Japanese rival Komatsu Ltd
when bidding on projects, he said.
Other market factors face Caterpillar besides the dollar. While the
U.S. construction market is solid, Caterpillar's energy- and
commodity-related businesses have "gone off the cliff" as oil and
commodity prices have fallen, Lustgarten said.
But U.S. automakers face a different challenge. Many "foreign" brand
vehicles are now built in the United States of parts sourced from
North American factories, said Barclays analyst Brian Johnson.
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Rather than competing on car price tags, automakers like Toyota
Motor Corp are instead likely to focus on adding more frills and
gadgets to vehicles without raising prices.
This could put pressure on suppliers like Delphi Automotive that
produce added options like advanced driver assistance programs or
infotainment, rather than GM, Ford or Chrysler directly, Johnson
said.
To ride out the currency turmoil, manufacturers such as Harley, with
production mostly in the United States, will have to weigh tough
choices between cutting prices to spur demand, or cutting production
to avoid getting stuck with too much inventory.
Jaime Katz, an analyst at Morningstar, said thanks to more flexible
just-in-time manufacturing, Harley can quickly adjust production up
or down. The company signaled it expects shipments to drop as much
as 10 percent in the second quarter.
If the dollar remains strong, she will be watching to see if the
motorcycle maker cuts its shipment forecast when it next reports
earnings in July, as it did on Tuesday.
At some point, Harley could face a tough choice about what to do
with its existing floor models if it cannot sell them later in the
year, she added, noting that is some way off.
The problem with discounts is that customers come to expect them,
said S&P Capital IQ equity analyst Efraim Levy.
"If you cut prices, people expect discounts hold out for a better
deal," he said.
Foreign motorcycle makers are also taking a gamble by cutting retail
prices that could hurt them if the dollar weakens, Levy added.
"Reinstating prices is harder than raising prices again," he said.
"Then you run the risk of consumers getting sticker shock."
(Reporting by Nick Carey, additional reporting by Ben Klayman;
editing by G Crosse and Joseph White)
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