ON MARCH 23, 2024 BY PHOTOMOTOMAN WAWAIN MOTORCYCLING
Harley-Davidson as a Case Study in American Purchasing
Yesterday I wrote an article that spoke to some of the challenges that Harley-Davidson are undergoing in 2024, but have been heading towards unabated, (except for one year in 2021) for the last ten years.
Purchasing iconic products that are “American” brings about an emotional response when long-established patterns of sales and purchases are challenged. Harley-Davidson is undergoing challenges and headwinds that illustrate how buyers respond to these changes. However, it isn’t as simple as that.
Politics and global competitiveness become flashpoints that should speak to us about our choices. In today’s world, America and Americans are undergoing change at an unprecedented rate, as is the case for all of us irrespective of nationality. But in America, it’s occurring for a variety of reasons that at least to some extent can be controlled by Americans themselves.
Americans, collectively, have the ability to shape their own purchases. They do this through thoughtful determination of what makes sense in terms of economics and their personal financial situations. However, what Americans say, and what they do, may be quite different in practice.
Let’s take the situation with Harley-Davidson, as an example. There is a sea-change occurring between the assumptions and actions of older buyers (Baby Boomers) and young purchasers of products (Gen Z) adults. There is also a correlation between those extremes and the other intergenerational groups (be they millennials or next-gen purchasers) that is both informative and indicative of future American behaviour. The older the purchaser of a product, the more American-made is important and a determining factor.
As America has seen its stature as the global leader diminish, which it has chosen to do notably over the last 15 years, — there has been a commensurate shift in American buying behaviour. This shift, when carefully analyzed may well be counter-productive, yet unappreciated by many Americans. It is this fact. Isolationism and trade-barriers actually work to make the purchasing power of Americans shrink in response to those actions.
These outcomes are caused by American decisions and by the actions of Americans .
It may seem counterintuitive, but the reality is that this is the case. The more defensive and insular the response to China’s growth that America and Americans become with respect to both geopolitics and economics, the greater the negative impact to America’s GDP and competitiveness. Isolationism, trade barriers and insularity only contribute to a worsening trade deficit.
Forbes.com completed a survey in 2021 of 1000 Americans. It found that 40% of U.S. adults said that, “I will not purchase products made in China.” But what does this mean to America’s bottom line?
According to Forbes.com,
“Some store shelves would be empty, and prices would be higher. One way or another, our economy would shrink…If 40% of our products from China disappeared, then 1.26% of GDP would disappear: Imports are approximately 15% of U.S. consumption, and China’s share of that is about 21%, so our imports from China represent 3.15% of GDP. Forty percent of that is 1.26%.”
“But if China reciprocated and stopped buying, from (America) overnight, another 7.2% of American exports would be directly affected, which translates into about 1% of GDP.”
Forbes.com continues to say, “There are also indirect effects. The Organization for Economic Cooperation and Development data show that 15.5% of American exports have foreign content, and some of that is from China.”
When you add up these effects, the U.S. economy would suffer a drop in GDP of around 3% immediately. With 95% of the world’s consumers outside of the United States, re-shoring (bringing manufacturing back to the U.S) would likely not benefit America. Close re-shoring, (bringing manufacturing back to nations in close proximity to the U.S.) would be beneficial. (Mexico in 2023 became America’s favourite import source, followed closely by Canada).
A future trade war with China would be disastrous for the U.S. and other western nations. So, what then is the answer to this global change in manufacturing and purchasing power?
Americans are the key to their own problem. If Americans wish to “Buy American”, then they must be willing to see a commensurate reduction in GDP, growth and earnings. Again, according to Forbes.com “the cost of paying a Chinese worker on average is just one-quarter of the cost of a U.S. worker. Other non-labor cost factors, such as access to raw materials and inputs, also tend to be cheaper in China.”
The only advantage to producing in the U.S. is that electricity costs for industrial users are lower in the United States.
Which brings us full-circle, back to Harley-Davidson.
Young Americans don’t care nearly as much about where their purchases are manufactured. They are concerned with affordability and lifestyle. As these younger, next generational age, they are more comfortable with a multi-polar world order. Rather than one nation being hegemonic and essentially being capable of dictating the world’s economic order, this new world economic regime means that collaboration, cooperation and intelligent discourse with competitors in every aspect of economics and political life become evermore important to world order. Economic integration is a fact.
If Americans resort to isolationism and insularity, like the 1930’s, there is a real prospect of increased tension, economic disorder, war and scarcity. Globally, a recession or depression would likely be the ultimate outcome were America to resort to an intensive trade-war with China and an isolationist future.
Harley-Davidson can see the reality of what the future holds, should they not act to change. Change is inevitable for every company and individual purchaser. Adjusting to the realities of change, whether caused by economic, political, social or climate related change, is essential within any system if it is to manage that change effectively and come through it successfully.
So, based on these facts, what do you see as the answer for, not just Harley-Davidson, but every American manufacturer who wants to compete internationally in this century?
I look forward to your considered opinions, as the answers are not simple and should not be made on the basis of emotion, but logic.
Thanks for your time and consideration.
Thanks to Forbes.com for their article information and to Gears and Gadgets for the cover photo.
Ciao…
Leave a Reply