Harley Davidson

Well, its been quite a while since my last post. I make no excuses; I have been on holidays and had my mind in other places, namely working on an exciting entrepreneurial venture. I realised the other day though that I have gone back to my blog a few times to check on my opinions in the past to see how they hold today, so I will be posting a lot more.

This post will focus on Harley Davidson, but its key points apply to not only HD, but also to the American auto industry who only sold their poor cars through sub prime auto loans and similar businesses who rely too much on their finance arms.

The following is an extract from a report I wrote for University on Harley Davidson midway through last year;

Today more than ever, economic considerations will have an enormous impact on not just Harley Davidson, but very company in the world. The credit crisis has brought global equity markets to a stand still, and will have significant impacts on both consumer confidence as well as other sectors of the Harley Brand, most specifically their financial business.

The whole world is suffering hugely. The United States, being the largest market for Harley Davidson, is amongst the worst affected. As the economic carnage piles dangerously higher, the Federal Reserve is considering again lowering interest rates in an effort to stimulate the economy. This statistic means that consumers aren’t buying, and will have a very detrimental affect on Harley Davidson. Vanishing jobs and diminishing paychecks have forced American consumers to cut back significantly. (Shedlock, M 2008) For a company which is reliant on middle class disposable income as its target demographic (Grant, R 2008) things domestically look very worrying for Harley Davidson.

Europe itself is in a similar predicament. The United Kingdom has experienced a contraction in growth, emerging European markets such as the Ukraine have relied on IMF bailouts to save any remains of their economies, whilst Germany and France are also suffering. (Shedlock, M 2008)

The effect of the US currency on Harley Davidson sales is now a moot point. With deflation occurring and the entire world going into a recession, sky rocketing unemployment and frozen credit markets, Harley Davidson, which are largely bought as weekend toys by the middle class demographic, will likely be a luxury many people can no longer afford. The habit of negative saving by the American consumer(Shedlock, M 2008), has finally caught up with the market, and the unprecedented pain which is about to be felt will severely impact Harley Davidson both domestically and internationally.

Harley Davidson may have prospered from its lending business, but with credit market illiquidity non-bank lenders are experiencing unprecedented levels of suffering as they struggle to raise the credit necessary to operate their lending business (X Inc Finance, 2008).

The economic outlook for Harley Davidson, as well as the rest of the economy, is very poor.

Just yesterday I read in the newspaper how Harley had to lay off 1100 workers after reporting a 6.8% fall in sales and 58% fall in fourth quarter 2008.

So what does this mean for investors? STAY AWAY from companies which relied so much on their finance arms to sell their products; just watch as the US auto manufacturers go begging back to Congress in the next couple of months for even MORE money, because they're dying. I doubt they can all survive 2009.

DS