Harley in trouble?

ray23

Ol'Timer
Oct 14, 2005
1,985
0
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Yuo know if you can afford it, certainly sounds like fun. But we are in a region where you can buy a house for less. I have met the guys at the new dealerships great people. I doubt that the after market group are pulling for them. almost cheaper to buy a new one then a used one.

Well it's been through tough times before and survived.

Harley's $35,000 Cruisers Caught in Credit Crunch (Update3)

By Alan Ohnsman

Oct. 15 (Bloomberg) -- Advertisements that Harley-Davidson Inc. has been running on the Web since May say to forget the recession and buy a bike.

``Screw it,'' says an ad for the largest U.S. motorcycle maker. ``Let's ride.''

The credit crunch means fewer consumers will be taking the Milwaukee-based company up on its offer. Wholesale shipments of Harleys in the third quarter are down from 2007 and may have fallen below the maker's lowest estimate of 74,000, according to Erik Kolb, an equity analyst for Standard & Poor's in New York.

``They sell an expensive, discretionary item but we're in a period when people aren't making such purchases,'' Kolb, who recommends holding the shares, said in an interview.

List prices for Harleys range from $7,000 to $35,000, and a cruiser can command more than $40,000 when customized with accessories including chrome Screamin' Eagle exhaust pipes.

Tight credit and consumer anxiety are chilling demand for such leisure products, Citigroup analyst Greg Badishkanian said in an Oct. 12 report. U.S. Harley sales fell as much 15 percent last quarter and may be depressed into 2009, said Badishkanian, who rates the shares ``sell/medium risk.''

Harley may report earnings per share of 78.5 cents when it releases third-quarter results tomorrow, according to the average estimate of 16 analysts surveyed by Bloomberg. That would be the lowest in four quarters and a 27 percent drop from a year ago.

Resonant Rumble

Unit sales of the company's cycles, beloved for retro looks and signature ``potato-potato-potato'' engine rumble, peaked at 343,981 two years ago, when net income reached a record $1.04 billion. The slide began in 2007 when a three-week strike at Harley's main York, Pennsylvania, factory cut output of the best-selling models and consumer spending began to slow.

The company in April said it was cutting 730 jobs and paring U.S. motorcycle production by 27,000, or 8.2 percent, in anticipation of sluggish times. S&P, which rates Harley's long- term debt A, the fifth-highest rank among investment grade issues, lowered the outlook to ``negative,'' citing deteriorating sales.

A slowing U.S. economy and consumer spending will ``continue to create challenges at least through the end of the year,'' Chief Executive Officer Jim Ziemer, 58, said on a conference call on July 17, when Harley released second-quarter results of 95 cents a share.

That was before credit markets froze and investors began to dump stocks, sending the Standard & Poor's 500 Index to the sharpest decline in 75 years.

`External Forces'

Harley fell $4.20, or 15 percent, to $24.53 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest decline since April 13, 2005. The stock has lost almost two-thirds of its value since closing at record $75.50 on Nov. 22, 2006. That's almost twice the decline in the S&P 500 during the same period.

``There have not been external forces the company has faced since the early 1980s that really compare with what's happening right now,'' Harley spokesman Bob Klein said. He declined to comment on market conditions before the release of quarterly results.

Harley, founded in 1903, fell on hard times in the 1960s when cheaper models from Honda Motor Co. and Yamaha Motor Corp. grabbed sales. In 1982, a recession and limited funds for new products led Harley to slash the workforce 40 percent and cut pay 9 percent for remaining employees. The company was spared from a bankruptcy filing after arranging new credit lines. A public share offering in 1986, fueled by nostalgia for the brand, raised $25 million more than projected.

`More Than a Motorcycle'

Money was poured into new models with looks that harked back to Harley's glory years in the first half of the 20th century, former CEO Rich Teerlink wrote in his 2000 book about the revival, ``More Than a Motorcycle,'' published by Harvard Business School Press.

Harley changed New York Stock Exchange ticker symbols in 2006 from HDI to HOG, slang for its machines and an acronym for the Harley Owners Group, a company-affiliated club with more than 1 million riders. Fans include U.S. Secretary of Transportation Mary Peters, who has two bikes, and California Governor Arnold Schwarzenegger.

``The company has had tough times in the past -- recessions in the early 1990s and in the 1980s,'' said Tim Conder, a St. Louis-based analyst for Wachovia Corp. who rates the shares ``market perform.''

``What's going on in global markets right now, from a credit perspective, you have to go back to the 1930s since we've seen anything like this,'' Conder said.

`Chrome and Asphalt'

While conditions will likely remain difficult into 2009, ``I think they are fine'' over the long term,'' Conder said. ``Do they have the financial wherewithal to make it through? Yes.''

The company had about $804 million in cash and short-term investments as of June 30, up from $723.4 million a year earlier, according to data compiled by Bloomberg.

Longer-term debts include $2 billion of bonds maturing through 2018 and $1.9 billion of loans through 2011, according to Bloomberg data.

Tight credit is a fundamental challenge for Harley because as much as 75 percent of bike purchases are financed with loans, Badishkanian said. That compares with 66 percent for new autos, according to CNW Marketing Research in Bandon, Oregon.

The motorcycle maker's Web ads say riders will breeze past such concerns.

``We've seen conflicts, recession, resistance, revolutions, but every time this country has come out stronger, because chrome and asphalt put distance between you and whatever the world can throw at you,'' an ad says. ``If 105 years have proved one thing, it's that fear sucks, and it doesn't last long.''

(Harley will release-third quarter results at 7 a.m. New York time tomorrow. A conference call will be Webcast at 9 a.m. at http://www.harley-davidson.com.)

To contact the reporter on this story: Alan Ohnsman in Los Angeles [email [email protected]][email protected][/email]

Last Updated: October 15, 2008 16:33 EDT
 

monsterman

Ol'Timer
Oct 17, 2006
1,830
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they are going to have to cut production and prices seriously to keep cash flow solid.
 

feejer

Ol'Timer
Feb 16, 2007
443
1
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monsterman wrote: they are going to have to cut production and prices seriously to keep cash flow solid.
Absolutely right on. The salad days are over for H-D. Expect the stock to be in single digits mid '09. Many H-D riding baby boomers have watched 40-50% of their retirement savings evaporate this year. Nobody is buying that over-priced iron anymore. If anything, they are trying to sell the hogs they have (adding to the glut).