Is Harley Toast

January 18, 2009

All Posts, Features

Harley-Davidson may be the last American icon. It is certainly the only iconic American brand.

For fifty years men have been tattooing “Harley-Davidson” on their arms right under “Mom,” “Betty-Sue,” “USMC,” “Born To Lose” and “Death Before Dishonor.” Harley-Davidson is more than a brand of motorcycle.

To the dwindling American working class, Harley-Davidson in 2009 is what the peyote induced ghost dance was to the last Sioux warriors in 1909.

Aspirational Consumer America

A Harley-Davidson motorcycle is more than an “Aspirational Consumer Product.” A Harley is the part of the vision quest that you can actually sit on and run your hands over. And, right now the company that makes the tangible part of the shared Harley dream is having a heart attack.

Don’t be shocked. You probably voted for George W. Bush at least once. Even if you did not vote for him you said you did. And, this is now America after Bush.

You should also not be shocked to know that the people who run the motor company sold their souls long ago. If they ever had anything in common with you they do not any longer. Which is also part of the new reality in America. Your weakness is that you care. Their strength is that they do not.

Selling The Harley Dream

Listen to what the brand tattooed on your father’s arm is saying to you. Have your life savings disappeared in the stock market crash or a bank failure? Did you lose your job? Are you in foreclosure? “Screw it. Let’s ride.”

The summer before last Harley ran its “stick it to the man” ad campaign. As if, Harley-Davidson is not “The Man.”

“We believe in freedom,” Harley told us. “We believe in the open road. We believe ‘The Man’ doesn’t care what it’s like to belong to something bigger and roar down the open road. For a limited time we’re going to help you stick it to him. You can get a great deal on the Harley-Davidson model of your dreams for $0 down payment and a super low 2.99% interest rate. We’ll even help you with financing for Genuine Motor Accessories, MotorClothes gear, insurance, protection, and more.”

Easy Low Credit

The zero down payment and the “super low” interest rate are what caused Harley’s current heart attack. The branch of the company that might kill it all is called Harley-Davidson Financial Services (HDFS.)

If you bought your bike on credit you probably borrowed the money from HDFS. If you are a dealer and you need a bike to sell you borrow the cost of the bike from Harley Financial Services. Typically, HDFS then sells these outstanding loans to another “financial institution.” And also typically, in the end, the “financial institution” holding your paper is a bank in the People’s Republic of China.

And, that is the current “financial crisis” in a nutshell. The mainland Chinese are very frugal and there are more than a billion of them. They sell to America. They do not buy from America. They lend us the money to buy from them and now, because of a daisy chain of financial complications, we cannot pay them back. Companies like Harley-Davidson have more and more of their operating capitol tied up in loans that they cannot unload.

Why Not Print More Money

And, there is an obvious solution to the current financial mess. Print more money. Duh!

If you want to cut the debt of American consumers by half you print twice as many dollars. If you want to cut it by more you print more money. It is called inflation. And, inflation usually doesn’t hurt people like you. Inflation does not hurt debtors. Inflation hurts lenders.

But, it has been the official economic policy of the Bush Administration to protect lenders, not debtors. That is why Congress lent the banks $350 billion three months ago. Congress did not lend people in foreclosure $350 billion dollars. Nor did Congress lend the money to retirees, the unemployed or to people up to their necks in credit card debt.

The money went to banks. Because banks are holding a lot of paper that they cannot unload. The Chinese do not want to buy our debt anymore. Nobody wants to be left holding a bag of IOUs.

Harley Is A Bank

Holding a bag of debt is what threatens to kill Harley-Davidson. Harley has more in common with banks than it does with you. Harley is holding a lot of paper.

Last summer, which is the most recent period for which figures are available, Harley-Davidson Financial Services’ operating income declined by almost a third. Worse, throughout that entire quarter, HDFS failed to make any income at all from selling the loans it made to somebody else.

The News In This Story

The news in this story is that right now the Harley-Davidson financial crisis seems to be approaching a climax.

A week ago Harley fired the president of its own private loan company, HDFS. He was a man with the all-American name Sy Naqvi. He had had his job since February of 2007 and before that he worked for a loan company called DeepGreen Financial Inc.

This was on top on the announced “retirement” of Harley chief executive Jim Ziemer last month. Some financial wizards have compared Ziemer’s retirement to a rat leaving a sinking ship.

Ed Aaron, an analyst at an investment company called RBC Capital Markets, put it this way: “These moves do not exactly instill confidence that the company has its arms around the issues at hand and has a clear strategic plan in place.”

But wait. There is more. Eight days ago, Standard & Poor’s Ratings Services lowered Harley’s credit rating from “A” to “BBB+.” That means that now it will be even harder for Harley to borrow money to keep its plants open.

Then, this past Monday, the very influential brokerage house Goldman Sachs told its customers to immediately sell their Harley-Davidson stock. Goldman Sachs based its advice on a projected slump in Harley sales and Harley’s inability to sell off the loans it is now holding. Goldman Sachs spokesman Patrick Archambault advised investors not just to sell Harley but called the motor company a “Conviction Sell.”

Can Harley Be Saved

People who are trying to stay ahead of the curve are already beginning to ask, “Can Harley-Davidson be saved?”

You may not know this but Harley already got a piece of the $350 billion bank bailout last October. An “earmark” (officially called “Sec. 301. Extension and modification of research credit”) of the 2008 Emergency Economic Stabilization Act split $19 billion among Microsoft Corp., Boeing Co., United Technologies Corp., Electronic Data Systems Corp. and Harley-Davidson.

But, any government aid Harley-Davidson has received so far is clearly not enough to make a difference. Right now, Harley Davidson is not making enough money to survive and your guess is as good as anybody else’s about what will happen next.

Maybe the company will miraculously get better.

Or, maybe the company will “re-organize” as General Motors is likely to do.

Or, Harley Davidson may become a fully owned subsidiary of Honda, Toyota or somebody even worse.

Or, maybe the brand tattooed on your arm will go the way of Hudson and Studebaker.

Who Cares

Harley-Davidson’s fate largely depends on how much people care. One person who obviously cares is Senator Bob Casey of Pennsylvania. Last week, several sources reported that Casey wants Harley’s HDFS to get some of the money in the next $350 billion bank bailout -which will be called the “Temporary Liquidity Guarantee Program.”

And, you are also probably someone who cares. Whether you care about Harley-Davidson the corporation or not you probably care about Harley-Davidson the icon. Which is why you should know that right now Harley-Davidson is very sick.

You should know because you already get it. You already know that the death of Harley-Davidson would mean much more than the death of just another multi-billion dollar corporation. Whether the people who actually run and profit from Harley-Davidson know this or not.

You know.

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4 Responses to “Is Harley Toast”

  1. Tony Orlando Says:

    I discovered your homepage by coincidence.
    Very interesting posts and well written.
    I will put your site on my blogroll.

  2. Navvy Jiner Says:

    The mufflerless, inconsiderate, arrogant, bike-crazed HD grubbies deserve that the whole industry should go the way of Bonnie, Clyde, and Dillinger. Let them ride bicycles–with mufflers.


  3. Sasha Says:

    Oh gosh. H-D is more than a corporation, more than a brand. Many riders are emotionally connected to that All American ICON at the deepest levels of the heart. How many companies can say they have THAT PRECIOUS of an asset? That kind of loyalty is PRICELESS.

  4. Rashomon Says:

    Ouch. Looks like a lot of bikes to recall. That’s going to cost them a pretty penny – better than people getting injured but …

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