Harley-Davidson Inc. (ticker symbol HOG) is cashless in Milwaukee.
The BizTimes Daily reports Harley-Davidson Warehouse Funding Corp. and Harley-Davidson Credit Corp. subsidiaries’ received $500 million last week in a loan advance from its lenders, which included JPMorgan Chase Bank (recently purchased WAMU) because of their inability to securitize bike loans.
Harley has burned through $221 million for the 9 months ending 28th September. They borrowed over $1B (yes, BILLION) in that same period and paid out $225 million in dividends.
Harley-Davidson Financial Services Inc. (HDFS) continues to carry some significant bad debt. UBS analyst Robert Farley estimated that HDFS will require $1.5 billion to continue funding its loan operations for 2009. The loan last week only provides $500 million thru March 31, 2009. Indicators suggest that HDFS has not reduced its lending to subprime borrowers (25 to 30 percent of loan portfolio) and the issues will only deepen. Is this a sign of the future and one where HD needs to apply for a bailout? Nearly a third of the people holding retail loans are subprime borrowers. The default rates are increasing and HDFS can no longer sell risky loans as it once did.
HD may also be suffering from similar issues as GM — too many dealers (857 according to the dealer locator) and too many models available (6 Sportsters, 8 Softails, 5 Dynas, 3 VRods, 8 Touring, and 4 CVOs — that’s 30 bikes built off just 4 main chassis/engine combos). Add in the Buell models and MV Augusta line-up and you start to get the picture.
Motorcycle dealers are struggling to cope with tightening credit and fewer lending sources. With the exception of BMW, Harley and Honda who have their own financial arms the others rely primarily on HSBC and GE Money to underwrite loans. In fact, Sparta Commercial Services Inc. announced it completed its first commercial fleet leasing transaction exclusively for Harley dealers. Leasing has become popular with some Harley dealers as they can avoid having to buy the motorcycles and free up cash flow.
Is inventory of used motorcycles stacking up and dealers will be forced to stop taking trade-ins? In the Northwest, dealers get some benefit from the unknown Spokane, WA repo auctions. It’s clear the sensible days are over as we live in a rapidly changing financial world.
Disclosure: author owns no HOG.
Photo courtesy of Finviz
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