Aug. 9, 2010 – Harley will maintain HDFS model

Harley-Davidson Motor Co., in the midst of suffering a $100 million-plus loss last year in its financial services division, started exploring ways to possibly change or sell this part of its business.
But the manufacturer has decided against such a move, keeping its financial services and its wholesale and retail lending capabilities in-house.
“At this time, we believe it’s in the company’s best interest to maintain our current captive finance model,” Harley-Davidson CFO John Olin said during the company’s second-quarter earnings report. “It comes down to this: At this time, we’re not willing to give the keys away to a strategic asset that has served the company, our dealer network, our customers and our shareholders so well in the past and through the recent economic downturn.”
Harley-Davidson, in fact, has seen considerable turnaround in this side of its business. After suffering an operating loss of $118 million last year, the company reported income of $87.5 million from its fiscal first half.
Larry Hund, president of Harley-Davidson Financial Services, says in the earnings report the turnaround is partially a result of the cost of funds decreasing and the performance of Harley’s portfolio improving over a year ago.
Hund says Harley’s retail delinquency levels have dropped to 4.5 percent, a reduction from both 2009 (4.97 percent) and 2008 (4.65 percent) second quarters.
Hund notes Harley Financial Services’ market share is at 47 percent and has declined 1 percent compared to a year ago. However, the company is not making any changes to its underwriting criteria in reaction to the slight decline in market share.
“We believe our underwriting criteria are appropriate at the present time,” Hund said, “but we will continue to evaluate them on an ongoing basis.”
Olin, Harley’s CFO, notes the company looked at a number of options regarding whether to sell its financial services division, partner with another firm or other possible financial arrangements. Olin says Harley explored a possible business change with the following criteria in mind:

  • that any business relationship would provide consistent financing to dealers and customers;
  • Harley would have adequate control or influence over underwriting and pricing;
  • any such long-term relationship would enhance the brand and providing an earning stream back to the company reflective of the value of the financial services business.
    Olin says Harley remains confident of the future of its financial services business. “We believe there is much opportunity to improve our retail financing operations for continuous improvement of our underwriting, collections and service aspects of the business,” he said.
    He also noted Harley “will continue to evaluate financing options and alternatives to diversify HDFS’ funding and manage its risk.”

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