Will Harley-Davidson itself...
Will Harley-Davidson itself ride off into the sunset? Doubtful, but times are tough in Milwaukee.
Detroit's Big Three aren't the only American vehicle manufacturers feeling pain from our nation's economic contraction. Harley-Davidson's fourth-quarter 2008 financial report revealed deep earnings drops and sinking motorcycle sales-sobering news from a company virtually defined in the last decade by soaring profits and seemingly unstoppable growth. Massive layoffs, cost-cutting consolidations and drastically reduced production were also announced, as Harley braces for another rough year-analysts are already predicting the company's '09 sales will decline another 20 percent or more.
Harley's fourth-quarter motorcycle sales slipped 19.6 percent in the U.S. (overall U.S. sales of heavyweight motorcycles decreased by 25.5 percent during that same period), contributing to a 58.2-percent fourth-quarter net income loss (down $108.3 million from '07 levels). Those dismal numbers pulled Harley's full-year net income down almost 30 percent (to $654.7 million), and its full year U.S. bike sales down 13 percent.
In response, Harley announced sweeping plans to reduce production, cut jobs and consolidate manufacturing operations. Bike shipments in '09 will be cut as much as 13 percent (to 265,000 units), in order to reduce dealer inventory levels that are already too high after last year's slow sales. The company will also eliminate 1100 jobs over the next two years by consolidating engine and transmission plants in Wisconsin, frame and paint operations in Pennsylvania, and closing some distribution facilities outright.
Harley also discussed efforts to stabilize its in-house lending division, Harley-Davidson Financial Services (HDFS), which posted a massive $24.9 million fourth-quarter operating loss stemming from write-downs due to higher than projected credit losses. News from HDFS is alarming: To maintain record growth in recent years, it aggressively pursued subprime borrowers and now faces trouble amid rising loan defaults. HDFS has acknowledged that as much as 30 percent of the company's loan portfolio is subprime, and more than 5 percent of its motorcycle loans were delinquent 30 days or more at the end of '08.
As this issue went to press, Pennsylvania Senator Bob Casey was petitioning the FDIC on Harley's behalf for protection under the Temporary Liquidity Guarantee Program (TLGP). This bailout request is not without merit: Harley employs tens of thousands of Americans directly and, much like the auto manufacturers, supports a massive supply chain and dealership infrastructure. A failing Harley-Davidson would be disruptive to the American economy.
Just days before fourth-quarter financials were released, HDFS President Sy Naqvi announced his resignation-this just weeks after Harley-Davidson Motor Company President and CEO James Ziemer announced his intention to resign in '09. Replacements had not yet been named for either position, but clearly a change in leadership is being sought to bring new ideas and direction to meet these economic challenges.
Troubling as this news might be, it's hard not to be optimistic about Harley-Davidson's future. The 106-year-old firm has a strong core business, a unique brand, a loyal customer base and a long history. It's already survived two World Wars and one Great Depression. It should be able to weather this storm, too.
Polaris Pinched Too
Victory Motorcycle's parent company, Polaris, is also feeling the economic pain. Just one day before Harley-Davidson's announcement, Polaris disclosed plans to cut production and eliminate 460 jobs (5 percent of its workforce) in response to weakening retail demand for its powersports products. "The difficult economic environment [is] having an impact on our business," said Scott Wine, Polaris CEO. "These changes will better enable us to remain competitive in the future." Polaris hadn't announced its '08 financial results at press time, but this news indicates that the Minnesota manufacturer is anticipating challenges in '09 as well.
-Aaron Frank