Deadbeat Biker Gangs and Retired Dentists

40 Years Ago...Now What?

It will come as no surprise to you to read that people who bought Harley-Davidson (HOG) motorcycles with sub prime loans have started to default on their payments.  What?  Yep, the crisis has finally gotten ugly for the biker set.

From the New York Times:
In a pattern similar to that of the housing bust, Harley goosed sales by luring many buyers with no-money-down loans. A subsidiary created about 15 years ago, Harley-Davidson Financial Services, made those loans and packaged them into securities to sell to investors. As the credit market skidded, so did this subsidiary.

You would think that this iconic company would have learned it’s lesson, but unfortunately, its a publicly-traded company, which these days means they have to increase sales every second of the day no matter what that will mean in the future.

As much as one-fourth of the $2.8 billion in loans issued by Harley-Davidson Financial Services last year were subprime, with interest rates as high as 18 percent. As the downturn took hold, some borrowers started defaulting on loans and investors stopped buying the securities, forcing Harley to write down $80 million of debt last year, analysts said. Although it recently tightened lending standards, the company is still chasing buyers by offering credit.

The troubles for the 106 year old company, according to the article, are multiplying.

For starters, the average age of Harley riders has crept up to 49, this despite the company’s efforts to train younger riders and the rollout of the V-Rod, which was aimed at the rice rocket crowd to coax them off their Kawasaki’s.

It gets worse…Harley finds itself having great difficulty finding sources of capital to be able to use to make loans to biker buyers.  And this is for good reason, as everyone knows that most consumers will skip a bike payment if they must first pay off the electric company, mortgage payment, credit card bill, child’s college tuition or car lease.  Of course the toy comes last.

In addition, both the CEO and CFO have announced their departures from the company over the last few months.  This is a tough time for any company to stay focused, losing the brass makes it that much more difficult.

I hope Harley can figure it out and perservere through this crisis, but then they must get serious about bringing the younger generations into the fold.  I don’t expect them to add High School Musical decals to the bikes, but to continue to lean on the boomers’ affinity for Easy Rider in 2009 would also be a major mistake. 

Ride on, Harley-Davidson.

Full Story: Harley’s Not Getting Any Younger

Full Disclosure:  I currently have client accounts that are long HOG.  My commentary here should not be viewed as an invitation to buy or sell any securities.