The financial situation is bleak. But at least some consumers can justify buying new cars. Imagine the situation at Harley Davidson (NYSE:HOG), the manufacturer of the ultimate discretionary item.
Wisconsin - Andrew Snyder (TodaysFinancialNews.com) - If I were a General Motors (NYSE:GM) dealer, I would be holding onto every penny I have and praying it gets better. If I were a Toyota (NYSE:TM) dealer I would be saying, “So this is what it feels like to be from Detroit.”
But if I were a Harley Davidson (NYSE:HOG) dealer, oh boy, I would checking the value of my property and working my way into a new franchise. Even during a severe repression, consumers and businesses need new cars and trucks. But almost nobody can justify a must-have motorcycle.
Before I go any further, I have to tell you I hail from the town that hosts Harley’s largest manufacturing plant. And I have spent many nights studying the world of business and manufacturing operations with its engineers and managers. So I have the right to say what I am about to say.
Harley Davidson is in big trouble.
The Big Three may be getting the majority of the media’s attention, but the Milwaukee-based bike maker has many of the same problems. In fact, many of its problems, like demand for its motorcycles, are even worse.
First, Harley’s assembly line is filled with union workers. That means the same expensive labor costs and burdensome contracts that are destroying Detroit are pulling down Harley’s bottom line.
Sadly, if the company could afford to de-value its brand by moving operations offshore and cutting labor costs, I am positive it would have done it ages ago.
Borrowing a hog
We have all heard of the problems facing GM’s lending arm, GMAC. It is much the same at Harley, but bikes are even harder to finance and securitize. Lending is tight and the riders that do qualify for loans are paying higher interest rates.
Proving the difficulties of the current market, the company’s head of its financial services unit, Sy Naqvi, jumped ship last week and is headed for less stressful territory.
This news comes just less than a month after the company’s CEO, Jim Ziemer, announced he is leaving Harley. This turnover creates yet another major obstacle as the company moves forward.
All of this should be a sign that the world of chrome exhausts, leather jackets and oil puddles is not exactly revving up. As the Baby Boomer generation trades its bikes for wheelchairs, demand will slow even further.
The company has relied on its powerful brand for nearly a generation. As that brand power diminishes, shareholders will see the value of their company drop just as quickly.
Over the past 12 months, shares of the company have dropped from over $40 to under $14 today. The decline is not over. Just like a Honda at a Hog rally, this will not be pretty.
This article contributed by editor on Thursday, January 22, 2009 (03:50:24)
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