Harley announces more lay-offs
Added on Monday, January 26th, 2009 by Carole Nash Editor | No Comments
Harley announces more lay-offs
The latest corporate results from Harley-Davidson show a worrying slide in revenue during the final quarter of 2008, coupled with an increasing default ratio in its motorcycle finance division.
Motorcycle sales dropped by 28 % in Latin America, 19% in the USA - Harley’s biggest market by a long way - and by 13% in global terms on average. Net revenues were down 58% Oct-Dec 2008, at $77million. The problems in Harley’s finance division are serious, some 35 million dollars were written off in the last quarter of 2008.
Things may worsen there, as more of its customers lose jobs or face hardship and default on their motorcycle loan payments. Interestingly, the head of Harley’s finance operation, Saiyid Naqvi, resigned recently, after just two years in the position. Harley’s CEO also announced his imminent retirement recently. It is rarely a good sign when senior management decide to head for the exit.
Harley announced 1100 redundancies last Friday, plus the closure of its Wisconsin distribution centre and said its paint shop and frame fabrication work would be reduced at its Pennsylvania facility. Motorbike production will be cut by 13% in 2009. Harley’s share price slipped again on the financial news and is now at a ten-year low, although the company is still making a profit.
On the upside, the situation in Europe isn’t as bad for Harley as it is in the USA. For example, Stockport H-D, who exhibited at the Manchester Motorcycle Show in early January reported there bikes sold at the event and reported strong interest in both the H-D and Buell range for 2009. Many European riders are excited at the prospect of Harley reviving the MV Agusta brand and developing new models.
But no matter how strong customer loyalty remains for Harley, wider economic factors may see its European revenues fall further in 2009. The euro is under huge strain from the shrinking economies of Ireland, Spain and Greece, and it may well be the case that some of those nations - and others - consider an exit from the single currency to stave off IMF intervention, or civil unrest.
If the euro falls sharply in value against the dollar as a result of this political turmoil, Harley’s revenues will also fall, even if their bike sales remain static - which seems unlikely. It’s a small point for Harley right now, but UK H-D and Buell sales have already effectively taken a 30% drop as sterling hits the 1.40 level and shows no sign of immediate recovery.
In Spain, unemployment recently hit 13%, Germany announced a sharp rise in unemployment at the close of 2008 and German banks predicted more job losses in 2009. Germany is important to H-D as it remains Harley’s largest EU market for its large capacity cruisers and touring models. The European construction industry is at a standstill and many Harley buyers are self-made, middle-aged men - many of whom have funded their dream motorcycle purchases from profits made during the property boom. That gravy train has stopped, maybe for the next five years.
There is another factor to consider from Harley’s point of view; many of its EU dealers have bought franchises from profits accrued in the new car sales market. That market has also virtually ground to a halt and some dealer chains may face administration in 2009, dragging the bike sales operations down with the car side of things.
There is an inherent strength in the H-D brand, it is an icon, on par with Elvis, Coca-Cola and Cadillac. Like the US car industry, Harley would probably receive support from the US government, if needed, to help the company survive this recession. But some hard choices lie ahead for Harley, and all luxury motorcycle manufacturers as people shift painfully from a debt-fuelled, brand label lifestyle, to something altogether more modest over the next 2-3 years.
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