Harley-Davidson, Inc. (HOG)

All Comments on HOG

  • commenter
    Saj
    Aug 20 11:37 PM
    My Website
    Is Harley-Davidson Losing Market Share On Purpose? [view article]
    Hi Grant,

    You are right that HOG buyers are getting older. As a result, Harley has been heavily shifting marketing spend towards younger riders (a couple of examples I've noticed personally is they advertise on digg and Ultimate Fighting), but of course there is no guarantee that they will be successful.

    But I think it's important to consider the price of this company. Surely there is a price for which you would buy this company (e.g. if the whole company was on sale for $1, would you buy it?). To me, the stock price has taken into account all the negativity you mentioned and then some.

    Hi Joseph,

    If you look at Harley's margins, you can see that they have a lot of room to cut prices and still make a profit. But rather than produce bikes to capacity, they've actually cut production to maintain price levels. This causes each bike to cost more to produce (fixed costs spread over few bikes). Therefore, what the CEO means by operating for the long term has to do with brand positioning. They'd rather remain a premium product priced at a level that many can't afford, rather than grabbing short term profits now (by filling production capacity and selling more bikes for cheaper) but losing that premium status.     Reply
  • commenter
    mallarde
    Aug 20 05:48 PM
    Is Harley-Davidson Losing Market Share On Purpose? [view article]
    I just can't believe that HOG has anything close to 45% of street bikes over 650cc in the U.S. The market segment has to be broken down into "cruiser" bikes or something. Either way, I don't think market share means all that much -- good or bad.


    On Aug 20 02:39 PM Joseph Wagda wrote:

    > HOG’s market share as a percentage of the U.S. heavyweight (650+
    > cc) motorcycle market for the first half of the calendar year has
    > trended downward from 47.9% in 2006 to 47.3% in 2007 to 44.4% in
    > 2008. Historically, HOG market share has been higher in the second
    > half than the first half.
    >
    > HOG management stated that it lost domestic market share in the second
    > quarter as a result of the company not using financing gimmicks and
    > other dealer sales incentives to move product off the showroom floor,
    > as the author states. However, for competitors such as the Japanese
    > manufacturers, these means of turning over dealer inventory in advance
    > of the new model year are the rule, not the exception. In the past,
    > Harley buyers never would have considered purchasing another make,
    > regardless of what deals were offered by HOG’s competitors.

    >
    >
    > Also, HOG management did not mention the stimulus checks. How much
    > did that (hopefully) one-time political stunt prop up flagging domestic
    > sales?
    >
    > Harley beat analyst estimates in the second quarter by shipping high-dealer
    > invoice product while low-price models such as Dynas and Sportsters
    > were selling through at retail. The result was a loss in market
    > share. For example, had Harley shipped an additional 6,000 Sportsters
    > in the second quarter in lieu of other models (and assuming they
    > also sold through), HOG’s first half market share would have been
    > slightly higher than 46%. During the first half of 2007, HOG shipped
    > 36,317 Sportsters, while during the first half of 2008, HOG shipped
    > 29,517 Sportsters.
    >
    > Also, as pointed out by the author in the comments section, HOG management
    > indicated that the company is not accessing the securitization market
    > for its loans because it does not like the credit spreads available.
    > Conversely, it is likely that some of widening of these spreads is
    > the result of HDFS’ annualized credit loss rate increasing 31% from
    > 1.63% during the first half of 2007 to 2.14% during the first half
    > of 2008.
    >
    > Lastly, during the conference call, HOG’s CEO mentioned more than
    > once that Harley is managed for the long run. I interpreted that
    > as management speak for “business stinks today but we’ll live to
    > cash out our restricted stock awards another day.”     Reply
  • commenter
    Joseph Wagda
    Aug 20 02:39 PM
    Is Harley-Davidson Losing Market Share On Purpose? [view article]
    HOG’s market share as a percentage of the U.S. heavyweight (650+ cc) motorcycle market for the first half of the calendar year has trended downward from 47.9% in 2006 to 47.3% in 2007 to 44.4% in 2008. Historically, HOG market share has been higher in the second half than the first half.

    HOG management stated that it lost domestic market share in the second quarter as a result of the company not using financing gimmicks and other dealer sales incentives to move product off the showroom floor, as the author states. However, for competitors such as the Japanese manufacturers, these means of turning over dealer inventory in advance of the new model year are the rule, not the exception. In the past, Harley buyers never would have considered purchasing another make, regardless of what deals were offered by HOG’s competitors.

    Also, HOG management did not mention the stimulus checks. How much did that (hopefully) one-time political stunt prop up flagging domestic sales?

    Harley beat analyst estimates in the second quarter by shipping high-dealer invoice product while low-price models such as Dynas and Sportsters were selling through at retail. The result was a loss in market share. For example, had Harley shipped an additional 6,000 Sportsters in the second quarter in lieu of other models (and assuming they also sold through), HOG’s first half market share would have been slightly higher than 46%. During the first half of 2007, HOG shipped 36,317 Sportsters, while during the first half of 2008, HOG shipped 29,517 Sportsters.

    Also, as pointed out by the author in the comments section, HOG management indicated that the company is not accessing the securitization market for its loans because it does not like the credit spreads available. Conversely, it is likely that some of widening of these spreads is the result of HDFS’ annualized credit loss rate increasing 31% from 1.63% during the first half of 2007 to 2.14% during the first half of 2008.

    Lastly, during the conference call, HOG’s CEO mentioned more than once that Harley is managed for the long run. I interpreted that as management speak for “business stinks today but we’ll live to cash out our restricted stock awards another day.”
    Reply
  • commenter
    mallarde
    Aug 20 02:03 PM
    Is Harley-Davidson Losing Market Share On Purpose? [view article]
    Grant, great post. Please post more here.

    I am not the first to make this observation, but your tracking-a-generation comment reminds me of it. People do not ride motos forever. It sucks, but most people either choose to stop riding or must stop riding. Others ride more manageable motos.

    HOG needs to start designing bikes for a younger generation. To the younger generation, all this chrome on top of chrome on top of chrome does not a motorcycle maketh.

    Now HOG has started with bikes like the V-rod. But you can't get young people buying your bikes when you sell them for $20K!!!

    My guess is that HOG's management is not as smart or shrewd as people think. They only know how to leverage a preexisting brand image. Real genius would figure out how the brand will survive past the Dennis Hopper generation. Maybe they should consult Steve Jobs on company reinvention.


    On Aug 20 11:18 AM Grant Case wrote:

    > Saj,
    >
    > The fact that price cuts and generous financing by both HOG and the
    > rest of the industry should be fairly indicative of where the consumer
    > is at this point. Consumers are not affording HOG the premium to
    > the market that it once enjoyed. My belief is that the consumer that
    > bought HOG's 10 years ago (and where most of the aura of the stock
    > comes from), is not the HOG buyer today.
    >
    > In 1997, the median buyer age was ~43.6 years of age (I make a correction
    > of 1 year for the change in surveyors in 1999) with an inflation
    > adjusted 2007 average annual salary of ~101K. In 2007, the median
    > buyer age has increased to 48 with an annual salary of 84.7K. Amazingly,
    > 1st time Harley buyers have remained remarkably consistent averaging
    > roughly 50% each year.
    >
    > What this tells me is that HOG buyer is now older, with less disposable
    > income (15% less), and is still targeting customers in the same generation.
    > Where most products track an age (dirt bike rider median ages have
    > been amazingly consistent over time), HOG tracks a generation. The
    > birth year of the median HOG purchaser has only increased from ~1953
    > to 1959 in the last 20 years. The problem with all this is that HOG
    > purcharsers are trending into ages where income begins to decline
    > and customers become more price senstive. While many believe the
    > current price sensitivity is due in large part to the economic enviroment
    > I think has more to do with the customer base.
    >
    > If I am correct and its the customer base and not the economic environment
    > then HOG's long term prognosis is not good. Will HOG go bankrupt
    > tomorrow, no. The company is incredibly consistent and has building
    > motorcycles and running the company down to a science. But it will
    > never be the highflyer it once was because it has never stemed the
    > long-term change in customer demographics.     Reply
  • commenter
    Grant Case
    Aug 20 11:18 AM
    Is Harley-Davidson Losing Market Share On Purpose? [view article]
    Saj,

    The fact that price cuts and generous financing by both HOG and the rest of the industry should be fairly indicative of where the consumer is at this point. Consumers are not affording HOG the premium to the market that it once enjoyed. My belief is that the consumer that bought HOG's 10 years ago (and where most of the aura of the stock comes from), is not the HOG buyer today.

    In 1997, the median buyer age was ~43.6 years of age (I make a correction of 1 year for the change in surveyors in 1999) with an inflation adjusted 2007 average annual salary of ~101K. In 2007, the median buyer age has increased to 48 with an annual salary of 84.7K. Amazingly, 1st time Harley buyers have remained remarkably consistent averaging roughly 50% each year.

    What this tells me is that HOG buyer is now older, with less disposable income (15% less), and is still targeting customers in the same generation. Where most products track an age (dirt bike rider median ages have been amazingly consistent over time), HOG tracks a generation. The birth year of the median HOG purchaser has only increased from ~1953 to 1959 in the last 20 years. The problem with all this is that HOG purcharsers are trending into ages where income begins to decline and customers become more price senstive. While many believe the current price sensitivity is due in large part to the economic enviroment I think has more to do with the customer base.

    If I am correct and its the customer base and not the economic environment then HOG's long term prognosis is not good. Will HOG go bankrupt tomorrow, no. The company is incredibly consistent and has building motorcycles and running the company down to a science. But it will never be the highflyer it once was because it has never stemed the long-term change in customer demographics.     Reply
  • commenter
    Rick Konrad
    Aug 20 08:36 AM
    My Website
    Looking Inside the New Ben Graham ETN Baskets [view article]
    I do appreciate the commentary from everyone.

    Mr. Carson, I especially appreciate your commentary regarding some dividend paying ETNs. The unique features of some of these ETNs are certainly worth exploring. Thanks again!     Reply
  • commenter
    Saj
    Aug 19 03:14 PM
    My Website
    Is Harley-Davidson Losing Market Share On Purpose? [view article]
    Hi Grant,

    Thanks for pointing that out. On Harley's conference call, the growth in the rest of the industry was attributed to the competition cutting prices and offering generous financing.     Reply
  • commenter
    sumosama
    Aug 19 02:55 PM
    Looking Inside the New Ben Graham ETN Baskets [view article]
    GREAT article! Thank you, very informative!
    Reply
  • commenter
    america_f_ye
    ah
    Aug 19 01:35 PM
    My Website
    Looking Inside the New Ben Graham ETN Baskets [view article]
    Just buy the S&P 500, this ETN will do no better than the overall index in my opinion Reply
  • commenter
    Grant Case
    Aug 19 01:24 PM
    Is Harley-Davidson Losing Market Share On Purpose? [view article]
    "It makes sense that the whole industry should shrink, considering the economy, but is there something else going on here? Why is Harley disproportionately affected?"

    If you remove HOG from the industry data you get the rest of the industry,
    Market - HOG = Rest of Industry

    If you look at the rest of the industry YTD it is up .08% versus last year where HOG is -10%. If you do the same calculation for this quarter's sales only you get HOG down ~-9% versus the rest of the industry up ~8%.

    Personally, I believe the difference this year versus last was HOG's big price cut / sales push last year in the 2nd quarter. Of course, HOG now believes they can stablize or raise prices and not be hurt on the sales end. The market share slide in heavyweights and difference in sales between HOG and rest of the industry begs to differ.     Reply
  • commenter
    Chance
    Carson
    Aug 18 09:21 PM
    My Website
    Looking Inside the New Ben Graham ETN Baskets [view article]
    Rick...Excellent article about ETNs!

    Just to clarify, however, there actually ARE 4 ETN's which currently do(or are planning to) pay dividends. (You had mentioned that "ETNs don't pay dividends, interest or capital gains")

    The four ETNs which pay dividends are GCE (Goldman Sacks-Claymore CEF Index Linked ETN), BSR (BearLinx Alerian MPL Select ETN) ,PGD (Barclays Asian and Gulf Currency Revaluation ETN) and JEM (Barclays GEMS Index ETN).

    GCE invests in a basket of 75 discounted Closed-End Funds following a CEF Index selected by Claymore Securities (claymoresecurities.com). GCE's distribution rate is variable with the past three quarterly dividends being $1.66, $0.28 and $0.64.

    BSR is an energy infrastructure play which invests in fifty Master Limited Partnerships (MLPs) which track the "Alerian MPL Select Index" (alerian.com). One unique feature of this ETN is its issuance of a 1099 at year end, rather than the K-1 Partnership tax reports normally associated with individual MLP holdings.

    Both PGD and JEM are currencies bundles pegged, to some extent, to the US Dollar, and were just recently brought to market by Barclays on June 18, 2008. PGD includes currencies of the Saudi Arabian riyal, Hong Kong dollar, United Arab Emirates dirham, Singaporean dollar and the Chinese yuan. The GEM bundle will include currency holdings from 15 Global Emerging Markets (hence the symbol, GEM) in Eastern Europe, the Middle East, Africa, Latin America an Asia. Both PGD and GEM will distribute interest earned on the locally earned currency deposits on a quarterly basis. The rates are yet to be determined. (ipathetn.com)     Reply
  • commenter
    mallarde
    Aug 17 03:46 PM
    Is Harley-Davidson Losing Market Share On Purpose? [view article]
    Ha! That is a really funny market segment. Why not define their market as motos with a displacement over 1250 whose name starts with an "H"? That might put them at 90% market share.

    Market share is an irrelevant figure for them, IMO. Their market share is tiny. But they are a status-symbol. They are not trying to corner any market. If anything, a low market share would benefit them more because that means room to grow -- more people to overspend on outdated tech.


    On Aug 15 09:00 PM Saj wrote:

    > Hi Craigla, the dealer financing is probably not a huge problem,
    > as the financing is secured against new bikes on the floor, and those
    > can be re-allocated among dealers. Consumer financing is where you
    > are seeing more stringent requirements now and where recovery prices
    > are below the value of the loans in some cases. It certainly is a
    > concern that they are holding these loans on the balance sheet. They
    > *could* sell them though, but they don't feel they're getting a price
    > in the credit markets worthy of the sale, which is why they keep
    > them. I do worry about these bloated, somewhat uncertain assets though.
    >
    >
    > Hi Mallarde, Harley defines its market as engine displacements of
    > 1250cc and up, so that's the market share I'm referring to. You are
    > right, this doesn't include all bikes. Regarding the drop in units,
    > I would agree with you that part of this is the fact that they probably
    > don't want to take on risky loans, but its clear they have cut production,
    > whereas they could have taken on the strategy of keeping production
    > where it was and taking on these riskier loans to move product.     Reply
  • commenter
    mallarde
    Aug 17 03:39 PM
    General Discussion on HOG
    In answer to my own question, I suppose that they would say that they will be increasing shipments once they work through inventory. I want to see their raw revenue numbers -- or how many bikes were the dealers able to sell-through. We do not get to see these numbers in HOGs reports, it would seem to me. Reply
  • commenter
    mallarde
    Aug 17 03:19 PM
    General Discussion on HOG
    I studied the latest quarterly numbers and have a question.

    In the latest quarter, they reported a drop of 15.6% of shipments of Harleys to 80,236 year over year. Buell offset the drop slightly, but not much.

    But... their net revenue attributable to Harleys only dropped... 5.4%. What is up with that? Why wouldn't the net revenue dropped in sync with the drop in shipments?

    Is this because "Net Revenue" includes the cost of goods sold? And since they dropped production and focused on selling already-built motorcycles, they were able to keep their net revenue figures somewhat in line with the same Q in 2007?

    Could someone correct me if I'm missing something here? Once they work through their inventory, won't their net revenue -- and net income -- finally drop in sync with their falling sales of Harleys?

    I mean, wow, a drop of almost 25% of U.S. sales of Harleys year over year for the last quarter. That is some scary numbers. This means that Harley buyers are very, very sensitive to the economy and the availability of credit. That says to me that they are a not so good risk.     Reply
  • commenter
    mallarde
    Aug 16 10:01 PM
    Harley Davidson Financing Leading the Pack [view article]
    Sure, there is a cost-benefit to making riskier versus safer loans. I just think about what they are selling and their target market. Seems like some serious risk to me. I would not lend a Harley-rider $22K using his motorcycle as security. No, siree.


    On Aug 15 11:18 PM User 183867 wrote:

    > User, you are getting a little didactic. I never said they could
    > not suffer losses in their lending business. I just questioned whether
    > foreclosing on loans and auctioning off used motorcycles was a good
    > thing or not for HOG. I suspect it is not.
    >
    > ------
    >
    > So they are not supposed to foreclose on loans? This is like saying
    > a car manufacturer should not incur steel costs, labor costs, or
    > costs for tires. It's a fact of life; loans go bad and you have to
    > repossess. The idea is to look at the loss experience via frequency
    > and severity and compare that against net interest income + fee income
    > - noninterest expenses, look at that versus asset and capital, and
    > make your judgment from there. Just saying "they take losses, ergo
    > it's bad" is a pointless argument, if that's what you're trying to
    > say.     Reply

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