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Posts Tagged ‘Loan Delinquency’

money_stackBarack said yesterday that I should sacrifice, but I need to ask myself to what extent am I willing to go.  And as it turns out the ultimate discretionary item — Harley-Davidson — is in the same situation…determining how willing they are to sacrifice or jeopardize their company! 

I previously blogged about Harley’s inability to securitize motorcycle loans HERE the delinquency rates HERE and the five quarter earnings decline HERE.  Obviously not good times for the company.

But, like a lot of things these days related to financial issues they change weekly.  On behalf of Harley-Davidson, Sen. Bob Casey Jr. (D-Pa.,) wrote a letter on Jan. 16th to the Federal Deposit Insurance Corp. chairman Sheila Blair, saying Harley-Davidson recently inquired whether its financing company and subsidiaries — Harley-Davidson Credit Corp. and Eaglemark Savings Bank — are eligible for the Temporary Liquidity Guarantee Program (TLGP).  The TLGP guarantees a corporation unsecured debt against defaultA bailout?

The Harley Springettsbury Township plant is the largest of the company’s manufacturing facilities and employs more than 2,800 workers as well as supports approximately 1,500 jobs at Harley dealerships in Pennsylvania.  It’s easy to see why Sen. Casey is supporting the eligibility for TLGP due to the potential negative impact to his state’s economy.  And it’s “pile on” season in reference to the challenging economic environment, lower consumer confidence and banking sector meltdown so why not jump on board.

Demonstration Against UK Gov Bailout

Demonstration Against UK Gov Bailout

This sounds a bit like the ‘ol… “It’s not my fault” redirect the blame to the economy trick?  Do you think this a problem of people not being able to get loans to buy motorcycles?  I have no insider information, but I’m inclined to believe it has more to do with delinquency rates and processing bad loans on the part of Harley-Davidson Financial Services (HDFS).  Sure the economy and financial markets being reluctant to fund higher risk loans contributed, but don’t forget about the MV Augusta acquisition which has been described as an over reach by the company execs. 

Also we should not forget the sudden “personal” decision of Sy Naqvi (HDFS President) two weeks ago to immediately resign.  Mr. Naqvi was HDFS president for 23 months when Harley announced that Tom Bergmann (CFO Harley-Davidson) would assume the the additional responsibilities of HDFS president.  Naqvi joined HDFS from DeepGreen Financial, Inc., an online home equity lender, where he was CEO.  DeepGreen was acquired by Lightyear Capital and had a somewhat sorted history with operations in Cleveland while Naqvi worked out of Chicago.  Efforts to turn DeepGreen into a brick and mortar bank failed.  Is HDFS next?

But let’s think positive.  If Harley obtains eligibility status from the FDIC it (really taxpayers) will guarantee unsecured corporate debt against default.  In addition, Harley would get federal funds if a customer defaulted on his or her motorcycle loan.  Nice!  How do I sign up?

It will be hard to calculate Naqvi’s impact on/at HDFS or what role if any he played in its current set of troubles.  I wonder if the company is “positioned appropriately” for the faltering economy or if it’s another bailout on the list of so many?

Harley-Davidson is expected to report fourth-quarter results this Friday and I’m not hopeful of Q4’08 results.

Photo courtesy Flickr.

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If you have a finance fever then the only prescription is more cowbell – Guess what?!  Harley-Davidson Financial Services (HDFS) has got COWBELL, and when they’re done we’ll all be wearing gold-plated diapers.  NOT!

With credit markets in the deep freeze, financial details are starting to leak out on how HDFS aggressively went after a “lower-quality borrower” to gain market segment share against other lenders.  Sound familiar?  Ever hear of WAMU?  According to new reports between 2003 and 2006, the percentage of HDFS borrowers paying 15% or more in interest — an indicator of credit risk — increased from 8% to 19%.  In addition HDFS’ share of Harley’s operating income grew to more than $200 million or about 15% of the company total, up from 7% in 2000.

Then loan delinquency rates started to rise where they are now more than 4%. The simultaneous reduction of motorcycle production and continuation of chasing marginal borrowers are problematic for Harley.  Remember the “Stick it to the Man” campaign in 2007? An offering of zero money down and teaser interest rates as low as 2.99%.  Everything’s “golden” as long as HDFS could package loans and sell them as securities to investors.  But, in the first quarter of 2008, HDFS was forced to keep $54 million in loans as very few investors would touch them. Then in Q2’08 even fewer buyers stepped-up as loan delinquencies kept rising.  As a result, Harley’s finance arm has increased loan collection staff and is making more calls on weekends and evenings to chase down deadbeats. With credit being nearly “inaccessible” to marginal borrowers, HDFS has eliminated its no-money-down financing offers, reserving them for the most creditworthy customers.

So how will Harley raise capital to fund this business going forward?  They either lack the ability or were unwilling to recognize that the entire economic infrastructure of the U.S. was being undermined by the housing crisis.  As a result producing more and more motorcycles that are being financed by a self-serving organization in a false, paper economy bites you in the butt.

Full disclosure: I own zero HOG stock.

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