Harley-Davidson Struggles To Right Once-Profitable Finance Arm
23 Janeiro 2009 - 3:06PM
Dow Jones News
Harley-Davidson Inc. (HOG)'s lending arm, once a huge
money-maker, has become the motorcycle maker's biggest headache as
funding becomes harder to get and customers struggle to repay
loans.
The company, which on Friday reported a 58% slide in
fourth-quarter net income, said its Harley-Davidson Financial
Services unit has $1 billion in unmet cash flow needs for 2009.
Harley said Friday its best hopes for filling the gap are to
borrow unsecured debt or tap a federal fund designed to meet the
credit needs of households and small businesses. Both options are
far from surefire.
"That's really what we're concerned about right now - can they
manage their cash and can they take out new debt?" said Edward
Jones analyst Robin Diedrich.
The lending unit, which helps consumers finance their
motorcycles and independent dealers their inventory, was a drag on
Harley in the fourth quarter.
Lending on the iconic bikes was prime business back when credit
was easy to obtain and Harley's relatively high-income buyers had
little trouble repaying loans. But Harley is no longer immune to
the same troubles racking mainstream manufactures, such as
Detroit's troubled auto makers.
The financial services segment swung to a loss of $24.9 million
on $63.5 million in write-downs due to higher projected credit
losses.
Despite tightening lending standards in 2008, Harley expects
credit losses to continue into 2009.
At the same time, Harley predicts sales will continue to slow
this year. The company's U.S. retail sales dropped 20% last year,
though international sales were up 0.7%.
The results came as Harley said it will cut about 1,100 jobs, or
about 11% of its work force, over the next two years as it
scrambles to restructure. The company expects the job cuts to
result in charges of $110 million to $140 million over 2009 and
2010 and expects to save $60 million to $70 million a year through
the moves.
Adding to the uncertainty at Harley-Davidson Financial Services
is the abrupt departure earlier this month of financial services
chief Sy Naqvi.
"We've been taking good underwriting actions, however we are
facing a lot of headwinds out there," said Harley Chief Financial
Officer Thomas Bergmann, who is heading the financial services unit
on an interim basis.
Bergmann said Harley will look to borrow unsecured debt as one
of its top options. The company hopes to access the federal Term
Asset-Backed Securities Loan Facility put in place late last year
to help struggling small business and consumers. Bergmann said
Harley meets conditions that would make it eligible for
funding.
The company also filed a shelf registration statement last
month, which registers securities that the company may periodically
offer for sale.
The financing unit has participated in the Federal Reserve's
commercial paper facility, even as it taps other sources to meet
short-term funding needs.
Analysts who questioned Bergmann and Chief Executive Officer
James Ziemer during a conference call on Friday were far from
appeased by those options given the inaccessibility of credit and
uncertainty around securing federal funds.
Bergmann made the case that Harley's financial unit is
well-positioned to succeed, despite the challenges.
"Clearly the reality of the capital market and access to funding
has changed," he said. "There is still a lot of great expectations
of the HDFS business as well as the strategic value."
Shares of Harley-Davidson were trading down 10% Friday morning.
The stock has fallen more than 70% in the past year.
-By Sharon Terlep, 248-204-5532; sharon.terlep@dowjones.com.
(Kerry E. Grace contributed to this article).
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