Harley Davidson Tightens Credit Distribution

Harley Davidson (HOG) has tightened its credit distribution and started to pursue its sub-prime borrowers, who in easier times past have found it easy to borrow $20,000 hogs with no money on the table. This risky lending, which forced Harley to take a $6.3m writedown amid rising default rates and decreasing interest among buyers for its securitized loans - could foreshadow problems in other industries, according to businessweek.com. 

Short investors may have anticipated HOG's entrance into hot financial water, and have increased their positions in the stock by nearly 200% since July, when the percentage of the company's Market Cap out on loan rose from 6%, to 16% earlier this month and then back down to 13.5% as of close of business on Friday. Utilisation is at 53%, and there are 17.94 Days to Cover. The Lendable Quantity has dropped from 63M shares in May, to 51M now, which means that long only investors could be pulling out of lending programs, too.

Other companies such as Caterpillar (CAT), Deere (DE) and Boeing (BA) have also used finance arms to pump sales and maintain additional profit streams. Surprisingly, short interest in these stocks is low: CAT currently has 2.7% MCOL, DE has 0.62% and BA has 0.38% MCOL.

Please see below the chart for HOG's %MCOL, as documented by the red line.

click to enlarge

Disclosure: None

Comments

[Jolly_Rancher:]

Seems obvious to me you can't really compare HOG to CAT or BA. The latter don't have any "subprime" loans. CAT will lose some on construction loans. BA will suffer government budget cutbacks and possible cancelled orders by airliners. But HOG is different in that it sells expensive discretionary consumer items to many people who are egregiously overweight and over their heads in debt.

Yours truly,
Jolly Rancher

2008 Oct 21 12:57 PM

[Lady Rider:]

Jolly Rancher wrote:
"sells to...people who are egregiously overweight and over their heads in debt."

My aren't you stereotypical. My husband owns a Harley and is very thin, with very few debts.

Your flawed statement makes the rest of it invalid.

2008 Oct 28 05:44 PM

[mallarde:]

Oh, I was so off. Because Lady Rider's husband is not overweight and not in debt, all the people that play dress-up on Sundays and ride Harleys are not overweight and not in debt.

Maybe I should return all the money I made shorting HOG.

I do think that there are problems in comparing HOG to CAT and BA that require some elaboration.

2008 Oct 28 05:56 PM

[Jolly_Rancher:]

My profuse apologies. Lost control of my mouth.

2008 Oct 29 01:51 PM

[FUJIMO:]

You the man;

My take on many harley riders is the same as yours. It's just that there are a few who don't fit that stereotype.

I am sure that Lady Rider and mate are stand up people and she " will stay with us " but some days one must put on the thick skin instead of the leathers.

Many of the Harley riders aren't bad boys its just that they missed those youthful rebelious days growing up.

No one can die unless they are feard by someone. Many have lived in fear there whole married life; hence the Harley and the big motorcycle co that has thrived off of fear.
----------------------...

On Oct 29 01:51 PM Jolly_Ranche r wrote:

> My profuse apologies. Lost control of my mouth.

2008 Oct 29 02:32 PM

[Free Spirit:]

Jolly Rancher's comments are right on - he said "many" - that means not all. Look at americans at a whole and "many" people are egregiously overweight and over their heads in debt. Way too many. I agree with his remark even though I'm 5'-11" and 170 lbs and have virtually no debt. Harley makes a great product - I worship the time I spend riding my '09 Low Rider. But I also recognize that Harley is headed for a rough patch along with the rest of the economy. Those of us that are financially healthy HOG owners and riders can "ride this out."

2008 Nov 10 04:28 PM

[rogerlig:]

As a recently retired Boomer, I've noticed another demographic: new retirees who are just now embarking on their motorcycle careers. If HOG would target this group, instead of the egregiously overweight and deep in debt constituency, they might find a whole new market segment.

But I agree that, on the whole, an expensive consumer extravagance justs isn't the right product to be selling today.

Is the dividend safe of HOG? They seem to be earning well in excess of it. It may become an income play at this point.

rogerlig

2008 Nov 18 07:39 AM

[krisg:]

First let me start off my saying that I am a 30 year old, married with kids. I bought my first harley about two years ago brand new and for the record I am not overweight. I CHOOSE to spend my money on a "toy" rather than a moca latte java every morning. I would rather ride my harley for thepary than spend $100 an hour talking about my stresses. Point being that I am young and harleys do appeal to my age group, and that it is a great company that will survive this struggling economy that was damaged by jerks driving a ferrari. Lets sterotype those people instead.

2008 Nov 19 11:37 PM

[bandit:]

Im not rich or fat but I ride my harley to work every day from the time its not freezing in the spring till its freezing in the fall. my car gets 1000 miles a year, harley 4000 miles a year and 50 miles a gallon so when you need $5 a gallon gas ration cards ill have lota fore sale at $10 a gallon while you drive your gas guzzler and as gas goes up and gets rationed the bikes will become not a discretionary item but a big money saver the gas money i save more than makes my bike payment and when i start selling ration cards ill make even more

2008 Nov 20 11:11 PM