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Tarrific. There go my new bike plans.
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Welcome to the Throttle and Roast podcast. I'm your host, Niels Meersschaert. Unless you're living under a rock, you've probably heard the news about the wide ranging tariffs announced by the Trump administration. These tariffs affect nearly every country and all products, and they are significant, with the lowest being 10% and going up to as much as 47% and probably climbing with some of the more recent announcements for China.
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Now, while I'm not planning on turning this podcast into one about economics, I did want to look at what this means specifically for motorcyclists, especially if you were planning on getting a new bike this year.
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So let's start with what exactly are tariffs? Well, tariffs are a tax at the time of import. And what this means is that they are paid by the importer, not the origin country.
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Now, the goal is to sort of dissuade consumers from buying products from that particular host country and maybe to encourage the manufacturers in that country to move production to the United States, for example, or to whomever the country is that is imparting the tariffs. But obviously, that's not an immediate turnaround. It takes years to build, manufacturing plants. So what happens as a consequence of this is that in general, if it's a small tariff, it might be absorbed by the importer just they consider it a cost of doing business. And they may then say let's it's a 2% tariff. They may just absorb that and keep the retail price of whatever their product is exactly the same.
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However, when you're dealing with tariffs that are quite significant, they eat all of the profit margin that that importer has on the product that they're selling. So in all likelihood, those prices are passed on to the consumer in the form of higher prices. Now, in general, most importers will try to keep a profit margin And this profit margin is not a dollar amount, it's usually a percentage amount.
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So, if you have a 30% increase in tariffs, it could mean a 30% increase in the retail price of a particular good or product.
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Now here in the United States, we have had motorcycle tariffs in the past. In fact, you look back into the 1970s and 1980s, Harley-Davidson, which is pretty much the big U.S.
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motorcycle manufacturer, was not doing all that well. Their sales had plummeted. They went from about 75% of the market down to about 25%. And this was between 1973 and 1980. the mindset, I think, at Harley at the time was that this was to be the blame of the Japanese motorcycle manufacturers. The thought was that they were flooding the market with lower priced products and effectively dumping.
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So they actually asked the U.S.
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International Trade Commission to raise tariffs on Japanese imports. this was also that AMF era of Harley. So to put it gently, their bikes were really bad and that was probably the main reason why the bikes weren't selling so well, rather than it just being only about the Japanese. But it was there could have been a combination of the two. But this was really where that era was coming in.
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President Reagan signed a tariff memorandum in 1983 that actually didn't just affect the Japanese manufacturers. It affected all motorcycles greater than 700 CC.
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Even though Harley had only asked for bikes from Japan in the first year, that tariff was 45%, and then that would drop to the second year of being 35%, 20% in the third year, 15% in the fourth year, and dropping down to 10% in the fifth year.
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Now, it had a quota on volumes to avoid small scale manufacturers being affected really negatively. So it was 5000 units within the first year, increasing to 10,000 units by the fifth year. Interestingly, German motorcycles were exempt, which pretty much meant BMW was okay. There really weren't a lot of other German manufacturers that were importing into the U.S. at that time. So it was really a carve out specifically for BMW. time, there was a 6000 unit limit for Japan where they were exempt from the tariffs. So if they were small, volumes were up to 6000. It was exempt. It was only when it went above 6000 units that this had the tariff apply onto it. Now, when you think of that number, that 45% tariff number, that sounds really scary. I mean, that could be a massive, massive increase onto the cost of the goods. Now what really happened and this was sort of maybe luck in some ways, maybe a little bit of preplanning and an assumption that the tariffs might come into play. But a lot of Japanese bikes had already been imported into the United States. And so there was a a bit of a pent up inventory in the United States.
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So the prices didn't jump immediately. And but they did start to climb in like years two and three, when, of course, the tariffs did start to come down.
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But now they had to actually start to import more bikes The other thing that the Japanese manufacturers did is that they would rework their bikes to come under that 700 cc mark to avoid the tariffs. So you would see a lot of six fifties, for example, or 600 CC bikes really became a lot of the mainstay of the Japanese manufacturers to avoid that tariff affecting them. Now, interestingly, by 1987 Harley had actually asked for the tariffs to be dropped, saying that they no longer needed them.
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when you think of that, really it was not because they had the protectionism necessarily of the tariffs, but Harley actually spent a lot of energy on reworking their business. They were able to improve internal processes. They actually invested into R&D. They had just in time manufacturing. So a lot of the things that were creating that malaise in the seventies for Harley, they were able to rectify in the mid to late eighties and they were building better bikes and they had better processes within there and that enabled them to be able to compete more effectively against some of the other manufacturers.
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And this is this is where I think that tariff debate kind of gets a little weird is it's not just about the, maybe some market manipulation that may be coming in for a particular country It's also the quality of the products or what the consumers are seeking. You have to have that market fit, and it's usually the combination of those that's affecting that deficit, if you will. when we think of motorcycles specifically within the United States, I think it's important to sort of realize that in general, and we talked about this in an earlier episode, we use motorcycles in the United States for leisure purposes. And as a consequence, a lot of them tend to be a little bit more on the pricey end of the spectrum.
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We're not buying those cheap low CC commuter bikes. We're tending to buy something that's a little bit more power. We're doing it.
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It's a weekend warrior type of bike. And so they're already in that very high price spectrum.
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now we covered in an earlier episode that there's been a bit of a mindset, at least in the United States, that bike prices have been becoming extraordinarily expensive already, and this has been causing a bit of consternation and worry amongst motorcyclists in that they couldn't afford a new bike, so they were having to rely on to buying used bikes because the new bikes were just getting to be insanely, insanely expensive. Now there were a few examples of where there were some more affordably priced bikes. The irony is, of course, that they were made abroad. They were not American made brands like Harley or Indian.
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So that brings us to the tariffs that were recently announced. Now currently and I'm recording this on April 8th, so this may change within the next few days. This has been a very rapidly developing story. So who knows what's going to happen?
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But today there are no current quota limits. There are no carve outs for capacity like under 700 CC and it's generally an across the board tariff on all products.
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When you think of this for motorcyclists, what does this mean? We, we already have this perception that bikes are already expensive and those standouts that I mentioned that are the value standouts tend to be those made abroad. Harley in fact, their cheapest model today is the Nightster, which comes in at about $10,000. Now, that's not a small chunk of change for most people. therefore, if you think of it, that's really the lowest price point for them to buy an American made motorcycle that would not be subject directly to The tariffs that would be coming in. Now on the other end of the spectrum, we have the lowest cost bike available in the United States today, which is actually the Honda Navi. This sells for about$2,000 so far more affordable than even the lowest priced Harley Davidson would be. In fact, Royal Enfield's entire line of motorcycles is less expensive than the cheapest Harley. So their most expensive model is still cheaper than the cheapest Harley Davidson. Now, what are the tariffs going to have as an impact onto these bikes? Well, let's talk about Royal Enfield, because Royal Enfield is one of those great value options out there in motorcycles, certainly in the United States. Well, Royal Enfield is built in India and India's tariff rate is 27%.
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That's a massive increase in terms of the price of a bike. So if you had a $5,000 bike and you increase that 27%, that's going to very significantly change the affordability of that particular motorcycle. Now, that bike, which was a value bike and maybe let's say it was seven or $8,000.
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Well, now it's going to be at around 10,000. It's going to be comparable in price to that.
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Harley Davidson. And you might sit there and say, well, okay, but that's going to make that person then buy the Harley instead of the Royal Enfield.
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Well, no, because they couldn't afford the Harley. That's why they were considering the Royal Enfield, because it was 30% cheaper. This is this is the problem is that the tariffs don't magically make it where we're going to have more spending on there. It's just going to raise the price for us.
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And this is the hardest thing I think, for us as motorcyclists is we're going to be affected by this. Now, let's let's talk about another brand. Let's talk about triumph. Another great manufacturer out there. They make some phenomenal bikes.
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They're really awesome. Very well put together. But at least the ones that are imported in the United States tend to be built in Thailand. Now, Thailand actually has an even more significant tariff of 36%. So imagine you have a $10,000 triumph that you're considering buying. And now it's going to cost you almost $14,000. That's insane in terms of a change in price. And who realistically is going to be paying that? I don't know that there's going to be bike consumers who are going to say, hey, I'm going to go out and buy that bike. A couple of other ones, Japan, which we talked about with how Harley had asked her tariffs on Japan in the eighties. They're going have a 24% tariff on the bikes that are made in Japan. Now, some Japanese makes are actually built in the United States. So they would not be subject to those tariffs. But those that are imported from Japan absolutely would be. you know, another one that we can look at is Ural. If you remember Ural was originally made in the Ural Mountains in Russia. And when the Ukrainian invasion happened, the company that produces the Ural motorcycles decided to move their manufacturing outside of Russia and they moved it to Kazakhstan. Well, Kazakhstan is now subject to a 27% tariff. So those Urals, which were already not very high volume bikes to begin with and therefore they were a bit more pricey, are going to be even more expensive than they were before. now we talked about that an importer, of course, could choose to absorb some of the costs rather than passing it on to the consumer. And if it's a small percentage, you know, 2%, 3%, like a typical tariff would be, they may choose to do so and just say, hey, that's just part of I just lose a little bit of margin onto that. But with these numbers, we're talking 27% for India, 36% for Thailand, 27% again for Kazakhstan. Like those manufacturers, there's no way that they will be able to absorb that significant of a tariff on those bikes. So it's going to be passed on to the consumer.
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At least here in the United States, because we're mostly riding motorcycles as a leisure activity, these price increases may just cause riders to say, yeah, I'm just not going to buy another bike or I'm not going to buy a bike at all. New riders are even more price conscious because they haven't even gotten a chance to enjoy it.
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So they're not going to sit there and spend 20 $30,000 on a new bike when they've never ridden before. They're going to probably start off with something a little bit more affordable, decide if this is really something that they're passionate about, and then invest in something over time.
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Well, if you've just taken the bottom end of the market out by increasing the prices, they're going to just say, yeah, I'm not going to even try this activity and I can even get into motorcycling. And before we say, Oh, we, you know, this'll just be fine. It'll help the American manufacturers. The thing that we have to realize is that there is assembled in America and then there's made in America, and there's actually a very specific definition of each of those. So while most Harley and Indian motorcycles are definitely assembled in America, not every part on the bike is made in America. And as a consequence, there are tariffs on the parts that are used to build a Harley or an Indian. So what's going to happen? Well, the cost to manufacture those bikes will become more expensive for Harley and Indian, and they will either have to try to absorb those costs and thus have a lower profit margin, or they will raise prices to push those costs on to consumers. even if they don't think of the direct costs, what oftentimes happen is prices are not only based upon the costs of the manufacture, the based upon what the market can bear and how you can have a competitive offering to other options out in the market. Well, if the other bike prices are climbing, there's really nothing that's preventing them from raising their prices as well. So Harleys and Indians could. raise their prices just because other bike prices go up. So this can really affect the motorcycle industry and motorcycle riders who might have been considering buying a new bike this year. And now prices are just going to be climbing and climbing and climbing. And if I'm comparing, let's say, buying a you know, a$7,000 Royal Enfield, which is now going to cost me closer to$10,000, and then I may say, hey, well, that Harley is now, you know, with a bigger engine and similar price point that might be comparable. But now Harley is going to bump the price and maybe now it's $14,000 for that bike. And now all of a sudden it's like, well, I went from 7000 to 14000. There's no way I'm going to make that kind of a jump. I'm just going to do without a bike. So this is, I think, the worry that I have certainly when it comes to I'm going to make some assumptions that let's assume that these tariffs stick around, at least for the next year. If they do, I expect to see a massive drop in new motorcycle sales in the United States. For example, if Triumph's prices increase by 36%, their sales are going to plummet. Same goes for BMW, Ducati, any of the other manufacturers made in Europe or in Asia. Their bikes are going to climb dramatically. And even the low cost bikes are going to go up a lot. That cheapest bike, that Honda, Navi, who's made in Mexico actually, and sells for$2,000 today, there's a 25% import duty on that bike. Well, that's going to be passed on to the consumer. So that $2,000 bike is no longer a $2,000 bike.
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It's not a $3,000 bike, but it's more like a $2500 bike. That's a significant increase in price for that bike. And that might push it out of reach of those new riders who were saying, oh,$2,000, I can stretch to get that. But $2,500, maybe not. Who knows? we also have to be realistic in that Harley's sales were already going down. And this is probably a lot of different factors and probably too much to get into those this specific episode about why that's occurring. But there's a combination of there's people who really enjoy the Harley-Davidsons who are maybe aging out of the hobby. There's some who feel that the bikes have just gotten way too expensive. As they said, the cheapest model you can get from Harley today is $10,000. It's really hard for an entry level rider to say, Hey, I'm going to get into a Harley. It's a big capital investment just to get that cheapest, cheapest Harley today. So their sales in terms of unit sales have been going down. if foreign produced parts are going to be climbing up, then their prices are just going to get even higher and that may further suppress sales. So Harley and Indian sales could actually go down again, not just foreign brands, but even the American brands because of that global supply chain, we don't have everything is built just in one place. It is a fully global economy.
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The other part, and this is the one that I think is the most scary, at least for me in some ways, is with the parts also climbing, it's more expensive to keep your bike maintained. You need to replace tires, you need to replace oil filters. You've got to do all these well, every one of those parts that you need to service your bike is likely to get more expensive. And this is where you think of the American brands. Most of those parts, oil filters, tires, etc.
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A lot of them are not made in the United States. They're made abroad. Well, they're going to be subject to tariffs, so they're going to go up. So it becomes much more expensive just to keep your bike on the road.
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And this may cause some people to say, you know what, it's too expensive. I'm just going to get out of riding. And we lose those people from in the hobby of riding motorcycles. And that I think, is where I'm most worried about these tariffs. So this isn't to get into a political thing. This is really just talking about, hey, what is the impact onto us as motorcyclists?
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How does this affect us? And is it going to make this activity that we just enjoy and love so much? Is it going to make it out of reach for even more people because it gets too expensive You may not agree that this could be a scary situation. And maybe you're right. Maybe it's not. Maybe this is something that is temporary. But if we look at the markets, the markets are certainly spooked about this.
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I mean, they've had declines of more than 10% just over the past week. and are those investors a good proxy for consumer sentiment? Maybe, maybe not. It remains to be seen as to whether these tariffs stick around for the long term or if maybe they're being used as a negotiating tool to reduce trade deficits and they go away in a few weeks, No one knows. And in fact, even some of the comments from the administration have been contradictory. On one hand, they say this is not for negotiation. These are final.
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And then they say no, these are really great for negotiation. So no one knows. And I think that uncertainty is what is making the markets fall. It's where we don't know what's going to be the case that we can rely on for the next year. So I don't know the answer. that's the real that's the real sort of scary bit. I don't know if it's going to be too expensive to maintain a bike in the future. I don't know if it's going be too expensive for anyone to buy a new bike in the future. It's really hard to tell that as I'm sitting here today. So this is, I think, the real struggle So, this is a hard episode to wrap up. We talked about what tariffs are, some history of motorcycle tariffs, what the new tariffs are and how they may affect motorcycle prices here in the U.S.. And finally, some possibilities, assuming that these tariffs stick around for the long term.
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And compared to much of the rest of the world, we're a relatively small market for motorcycles. So the effects here may not be the same as what the rest of the world were to do. so if you're a listener in other parts of the world, you may have a very different experience and this may not affect you as significantly as it could affect U.S. motorcyclists. Does this mean that the U.S. motorcycle market is going to shrink further while the rest of the world continues to enjoy riding?
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Maybe you have the answer. I certainly don't have it right now. my question for you is, Will the tariffs affect your plans for buying a new bike this year? Share your thoughts through the text, the show link in the show notes, or leave us a voicemail at throttle on roast dot com slash voicemail. Thanks for listening. I'll talk to you next week.
