Harley Davidson's growth comes screeching to a halt

Harley-Davidson, the motorcycle maker favoured by serious bikers around the globe, warned yesterday that demand has slowed among US customers, forcing it to reduce profit forecasts for 2005.

Harley-Davidson, the motorcycle maker favoured by serious bikers around the globe, warned yesterday that demand has slowed among US customers, forcing it to reduce profit forecasts for 2005.

The company said profits would be between 5 and 7 per cent higher this year, compared with a 12 per cent increase expected by analysts. The unexpectedly downbeat news sent its shares down by almost 20 per cent in morning trading in New York.

Harley-Davidson has quadrupled profit between 1998 to 2004 and has tripled motorcycle sales over the past decade by selling bikes such as Fat Boy and Road King to those with a love of the open.

Having posted an unbroken string of quarterly earnings gains since 1997, it has come to be a favourite on Wall Street, and Malcolm Glazer, the US billionaire pursuing Manchester United, has tried unsuccessfully to buy it.

While 80 per cent of sales are generated in the US, the company has also built up an enthusiastic following in Europe and Japan. But Jim Ziemer, the chief financial officer, said sales in the US had been "relatively flat, falling short of our expectations" in the first quarter of the year.

Harley-Davidson, the largest motorcycle maker in the US, cut forecast for shipments in 2005 to 329,000 motorcycles. That is an increase of nearly 4 per cent of likely sales compared with last year, but down 3 per cent on the number of bikes the company had expected to sell.

Mr Ziemer, who takes over as chief executive this month, said it "may not hit the goal of 400,000" shipments in 2007.

As with America's car makers, the Milwaukee-based company has been under pressure from competition from rivals such as Honda, the world's largest motorcycle maker, and other low-cost manufacturers in Asia.

Another problem is that Harley-Davidson, created a century ago by William Harley and Arthur Davidson, has had difficulties matching supply with demand. The company made a decision to cut waiting lists by increasing production, harming prices, according to analysts.

Mr Ziemer said he "thought it was prudent to narrow the gap [between supply and demand] to create better prices for customers". But he added: "Demand still exceeds supply".

Reporting first quarter figures, the company said net income increased to $227.2m (£120m) from $204.6m a year earlier. Shipments of customised bikes dropped 7 per cent.