Even Harley-Davidson not immune to the times

pwd72s · 02-03-2010, 11:53 AM

Harley-Davidson's amazing downhill ride - Feb. 3, 2010

NEW YORK (Fortune) -- Today is an anniversary for motorcycle manufacturer Harley-Davidson that it would just as soon not remember.

On February 3rd a year ago, with the stock market hurtling toward its March lows, Harley (HOG, Fortune 500) announced it had sold $600 million in five-year notes at a nosebleed interest rate of 15%. Yes, 15%, because the company needed the money to fund its finance company and had to pay what the market demanded.

The market, in this case, included Warren Buffett, whose Berkshire-Hathaway (BRK.B) had been husbanding cash for years, and who was pleased to give $300 million of that money to Harley at 15%. The other $300 million was put up by Davis Advisors, a mutual fund company whose Chris Davis saw Harley notes as a fine investment for his funds (which, by the way, also own Harley stock).

The annual $90 million of interest those notes carry certainly didn't help out Harley's 2009 results, though a recession that was killing sales of discretionary goods would have led to a financial wreck in any case. For the year, Harley reported shipments that were down 27% from 2008 and ended up with a $55 million loss -- its first red ink since 1993.

Still, 2009 had its redeeming features for Harley, and these certainly began with its stock price. For the year, as investors anticipated the company regaining its zoom, its stock rose by 53%.

Meanwhile, the great 2009 bull-market in junk-bond prices was producing an astounding turn in interest rates. In December, Harley sold still another block of 5-year notes -- $500 million -- at a 5¾% rate.

For swings in what it costs to do business, and for a reminder of just how remarkable the securities markets were in 2009, a 15% rate down to 5¾% is an amazing ride.

-- The author of this article is both a friend of Warren Buffett and a Berkshire Hathaway shareholder.

jyl · jyl's Garage

Why should they be immune? Big-ticket discretionary product, highly dependent on credit availability and residual values, fairly saturated market and aging customer demographic.

pwd72s · 02-03-2010, 12:09 PM

Quote:

Originally Posted by jyl

Why should they be immune? Big-ticket discretionary product, highly dependent on credit availability and residual values, fairly saturated market and aging customer demographic.

Yep...kind of reminds one of certain car marques, yes?

McLovin · 02-03-2010, 12:14 PM

It seems like a company selling goods like that is particularly at risk to the times.

sammyg2 · 02-03-2010, 12:21 PM

Now wait just a darned minute.
How can a company that sells $8,000 motorcycles for $18,000 be in financial trouble?

legion · 02-03-2010, 12:27 PM

Quote:

Originally Posted by sammyg2

Now wait just a darned minute.
How can a company that sells $8,000 motorcycles for $18,000 be in financial trouble?

Rapid expansion and capital investments (they have opened multiple plants recently), shut down of Buell, sale of some Italian company.

Talewinds · Talewinds's Garage

Quote:

Originally Posted by sammyg2

Now wait just a darned minute.
How can a company that sells $3,000 motorcycles for $26,000 be in financial trouble?

There, fixed. But you make a great point.

LakeCleElum · 02-03-2010, 12:52 PM

Given their outdated design, unwillingness to attract young buyers, and catering to those that were buying their LAST motorycle; the sun has been sitting in Milwaukee for a long time.......Very sad....

rsrfan · 02-03-2010, 01:38 PM

Quote:

Originally Posted by pwd72s

Yep...kind of reminds one of certain car marques, yes?

Mustangs???

varmint · 02-03-2010, 01:45 PM

as much as i came to loathe buell, it was an attempt to pull guys under 50 into the dealerships. the generation who thought easy rider was cool is dying. and harley doesn't have a back up plan. bad times ahead for the motor company.

afterburn 549 · 02-03-2010, 02:23 PM

TO further problem....they have saturated the market. Even in the last few "good" years things were not well.......HD has almost died in the past......I would not be surprised it flat lines this time.
If you like the machine or not the cold bare facts are they have never planed well for the future.
They are 30 years behind at the starting line here.

vwbobd · vwbobd's Garage

Quote:

Originally Posted by LakeCleElum

Given their outdated design, unwillingness to attract young buyers, and catering to those that were buying their LAST motorycle; the sun has been sitting in Milwaukee for a long time.......Very sad....

Another classic example of a great American company ran into the ground by dumb , bullheaded management.

Jeff Higgins · 02-03-2010, 02:59 PM

Harley's troubles do not originate with its motorcycle division. Its financial troubles are entirely stemming from its finance division. They over-extended themselves on very shaky loans, just like everyone else.

That, and there is some bitterness amongst us faithful. They bent me over, and bent me over good on my last new bike purchase in 2000. Several grand over MSRP. Hundreds of thousands of us are in the same boat, and we are bitter. I would dearly love to be able to talk the CFO (otherwise known as "wife") into another new bike purchase, just so I could go back to the same dealer and bend them over but good.

Problem is, it wouldn't be worth it. Nothing they sell today is significantly better, or much different at all, from my 2000 Road King. Seems one has to go in two decade leaps to see any significant changes in Harleys. Besides, it's been the most reliable new vehicle I have ever owned; car, truck, or bike. Over 100,000 miles on it now with no more than routine maintenance. I'm afraid the next one might not be as good.

And yes, the used market is saturated. Values have plummeted on used H-D's. It's no trouble at all to find low milage examples of any model they make, and for significantly less than new. It hasn't always been this way. When I bought my Road King, used ones were actually selling for over MSRP on new ones, because they could. Folks could avoid the six month to one year wait. Today, used ones sit for months as their owners slowly wake up to reality and drop the prices. It's a whole different game today. They have made their own bed...

strupgolf · 05:18 PM

And add to the mix, there are SO many HD dealerships all over the country. The aging population who have the time and money to ride is dwindling. Look at any HD meeting and you will see some very old gals who should be knitting scarfs instead of dancing on the bar. This doesn't surprise me at all, Harley is overpriced and out of date.

Porsche-O-Phile · Porsche-O-Phile's Garage

Let's hope this is the end of the RUB trend and Harley emerges a much smaller (and much more honest) company that actually builds motorcycles again, instead of whoring out themselves pimping a tired old cliche. "Harley" in recent years has been synonymous with "hobby for pathetic old men in denial about getting older and trying to relive their youth the way they never were able to".

Not that different from a lot of guys with P-cars either. Good analogy. I really hope Harley emerges with some dignity and substance - they're become downright laughable in recent years.

pwd72s · 05:06 PM

Quote:

Originally Posted by rsrfan

Mustangs???

Yep...but even if it's value drops to zero, I've suffered less depreciation than a guy who buys a new 911 the moment he turns the key...

Never really considered my Mustang as a "status" machine. Does this mean you do???

Good points made here about the aging of the Harley customer base...

nynor · 02-03-2010, 05:17 PM

Quote:

Originally Posted by legion

Rapid expansion and capital investments (they have opened multiple plants recently), shut down of Buell, sale of some Italian company.

MV augusta wasn't it?

nynor · 02-03-2010, 05:20 PM

Quote:

Originally Posted by LakeCleElum

Given their outdated design, unwillingness to attract young buyers, and catering to those that were buying their LAST motorycle; the sun has been sitting in Milwaukee for a long time.......Very sad....

amen to that. the motors suck, the frames are worse. some dealer told my friend that the "frames are supposed to flex while cornering." brother. while i am sure there is flex in the frame of my ducati, i doubt it is VISIBLE to rider behind me!

strupgolf · 02-03-2010, 05:28 PM

My good friend for 25 years bought a Harley Anniversary model about 4 years ago. It was black and gold and had some badges on the tank. He is the kind of person Harley wanted, 50ish, good job, money, wife, kids grown. But the problem was, he was not a rider, he was a owner. He would ride his bide around town to show off his pride and joy, but when it came to a REAL ride, he said no. He trailered his bike out to the west to ride out there. This is the way he wanted it to be, not to get dirty and tired. But, he OWNED a HARLEY.

911boost · 911boost's Garage

Holy sheat, I own a Porsche, a Harley and a Mustang!!!! What the hell am I going to do. All that needs to be done is someone to rip on my Excursion, and my 3Honda dirtbikes, and everything I own will have been ripped in this one single thread.

Of course my Porsche has a motor that dates backs to the late 70's, My Harley has been dead reliable (and I have seen a younger crowd on Harelys than the BMW I traded in) and my Mustang is just plain cool.

While I don't agree with everything that Harley has done has been great, the economy has been tough on lots of folks.

Bill