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Posts Tagged ‘Stick it to the man’

About 40 years ago, a social movement arose to destroy the establishment.  People wanted to take on the man and return power to the people, upend the elites and lead a revolution.   Some would argue that today we have a similar movement with the people loosely called the “tea partiers” who today are motivated by runaway federal spending vs. the war during the Woodstock days.

Taking it to “The Man” refers to the government, leaders of large corporations and other authority figures in general.  Sprinkle in an array of conspiracy theories involving the Fed, the big banks and black helicopters and you’ve got Harley-Davidson investing heavily over the last year in what I call taking it to “The Man” advertising.  It’s advertising which appeals to the man who is born free, but he is everywhere in chains…

You see these advertising movements are built by marketing people who hope consumers will put their faith in unrestrained passion and zealotry to buy motorcycles.  The assumption is that the people are pure and virtuous, and that evil is introduced into society by corrupt elites and rotten authority structures so let’s stick it to ‘em.  But, what happens when Harley-Davidson (the motor company) becomes the manipulator and shadowy corporation or the ‘elite and rotten authority figure?’

So it is according to AMC H-D in Albany, OR.  Based on their most recent communiqué, the Milwaukee Motor Company decided that starting in March there would be a policy change which prevents dealers from advertising any sales storewide.  So, taking a page from H-D’s own corporate marketing campaigns and doing their own mini-version of “Stick it to the Man” type of advertising…AMC H-D created their own tea party movement and broadcast there plans to have a 20% off sale (excluding motorcycles) all year long!  If the item you need isn’t in stock then you’ll get a 15% reduction when you place the order.

Talk about counter-establishment.  Pure advertising genius!

So what’s in play here.  First and foremost is a job-less recovery is making it darn hard for any motorcycle dealer.  Second, H-D would like to continue to be viewed as the premium brand or “exclusive” product and thus does not want to be attached to a “sale” image with their brand.  Lastly, the dealers who prefer to operate in the higher margin “dealer markup” mode are likely pressuring H-D to stop the undercutting from lower margin dealers who have yet to succumb to the mega/bistro/resort level expense in renovating a dealership.  Remember Timpanogo?

We all know that if you want service after the sale, knowledgeable and friendly staff, a quality product, and pancakes on Sundays, you’re gonna pay for it!  The question is just how much more.

Photo courtesy of AMC H-D.

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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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