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Production halt, repo woes, shrinking market, Membership Hail Mary
As I reported in Harley-Davidson's War on Old Fat White Guys, the American motorcycle manufacturer is in rough shape. Their customers are aging out, the next gen isn’t feeling it and HD’s financials look… vulnerable. And now Harley’s had to put the brakes on production. Again. From the official presser…
Harley-Davidson, Inc. ("Harley-Davidson" or the "Company") (NYSE:HOG) was recently notified of a potential quality issue relating to brake hose assemblies provided by a tier-2 supplier, Proterial Cable America ("PCA"), a portfolio company of Bain Capital, to the Company's tier-1 brake system suppliers…
Following this notification, Harley-Davidson will be running limited motorcycle manufacturing operations at its York facility. This is a new supplier quality issue, separate from the matter that caused the production suspension in May 2022.
“We have a strong inventory position in the network to help us navigate through this situation,” Harley-Davidson’s Chairman, President and CEO Jochen Zeitz insists. Translation: it’s OK to stop making bikes because we aren’t selling so many.
True story. Harley’s North American motorcycle sales fell 17 percent in 2022. This year’s Q1 U.S. sales tumbled another 17 percent (vs. Q1 2022). Globally, Harley-Davidson sales decreased by 12 percent.
Meanwhile, HD’s LiveWire electric motorcycle division is an abject and ongoing failure. While the 2021 electric bike market was valued at $7b – projected to reach $17.21b by 2030 – Harley’s LiveWire Q1 shipments sank 35 percent, dropping from 97 units to 63.
The LiveWire One starts at $22,799, for a machine with, at best, a 146/95 mile range (city/highway). The motorcycle maker is introducing a smaller, cheaper, LiveWire-branded e-bike, the S2 Del Mar.
“The perfect city bike” can’t come soon enough. Harley’s electric motorcycle division posted a $25m Q1 operating loss, on track for a $100m annual ding. At the same time, there’s big trouble over at Harley-Davidson Financial Services.
Two out of every three motorcycles sold at an HD dealership are purchased through the company’s finance arm. HDFS' operating income declined $28m in the first quarter of 2023, down 32 percent. The company says the situation was “driven by higher interest expenses and higher credit losses.”
To pimp sales of the 2023 Grand American Touring and Adventure Touring motorcycles, Harley is offering 3.99 percent financing with zero money down. The HDFS interest rate on their other bikes currently sits at 6.19% APR – for qualified customers.
Harley’s Eaglemark Savings Bank is taking it on the chin. Their credit loss rate has increased by 46 percent, from just under two percent to 3.2 percent. Bloomberg says HDFS started 2023 with a $52.6m hit.
That’s money Harley-Davidson Financial Services can’t collect; customers won’t/can’t pay it and no one’s brave/stupid enough to try to repo the bikes. The Wall Street Journal:
The Milwaukee-based motorcycle maker said it can’t find enough agents to repossess bikes from buyers who fall behind on their payments, which Harley executives attributed to a shrinking number of professionals willing to take on the task.
No shit Sherlock. Separating the average Harley rider from his ride is a job few repo men would dare.
Vaughn Clemmons, the freshly-minted president of the American Recovery Association, says ain’t nobody got time for that (or words to that effect).
“Who wants to back up in a driveway at 3 a.m. and get shot at?” Mr. Vaughan asks.
Most Harley’s are in locked garages; most states don’t allow repo men to break-and-enter to confiscate a car, motorcycle or other item.
In Texas, for example, repo men can’t create a “breach of the peace.” The Lone Star State’s repo law doesn’t define the term, but opening a closed garage door to grab a Harley fits the bill.
Then there’s the fact that most Harley owners have something of an attitude about such things and (I’m thinking) a higher than average firearm ownership rate. Oh, and HD is paying only slightly above the $350 per vehicle repo industry average.
During a recent investor call, the American motorcycle maker said it’s “making enhancements” to its repossession strategy to staunch the wound. We hear HD HQ wants dealers to perform the thankless task. As the man says in the video above, “get a stab vest.”
Meanwhile, Harley’s just launched H-D™ Membership, “a new industry-leading community platform and membership program.” HD CEO Zeitz is stoked.
"Our community is at the heart of everything we do – building on the success of the Harley Owners Group, H-D Membership will enhance the way in which we engage with our members, leveraging modern tools to connect riders, deliver new benefits and create new experiences. We're excited about giving our community of riders and non-riders a new way to connect on and off the road, while ensuring we deliver unique and tailored content to really make their experience with the brand as personalized as possible."
As the Brits might say, there’ll be tiers before bedtime.
I’m seeing “event access” and “exclusive content” and unspecified discounts on unspecified products. Absent Harley-Davidson data, doing the numbers for this new venture isn’t easy.
A 2018 Motorcycle Industry Council survey reckoned the U.S. was home to around 8.4m registered motorcycles. It said Harley-Davidson accounted for 30.2 percent of the total market: 2,536,800 hogs.
The average Pass fee (the Harley Owner’s Group is already a thing) is $39. If five percent of Harley owners sign up for the new passes, that’s 126,840 owners shelling out nearasdammit $5m per year. As if.
Never mind. Harley-Davidson told shareholders to expect a four to seven percent motorcycle shipment bump in 2023, generating a five to eight percent profit uptick, with margins remaining in the 14.1 to 14.6 percent range.
To be fair, HD pulled in $909m in EBITA revenue last year. Yes but – the motorcycle market’s future looks grim – from 12.7m license holders in 2013 to today’s 8.3m and falling– and there’s plenty of red ink.
Will a corporate raider repo the storied American motorcycle brand? Watch this space.