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Harley-Davidson reacts to the economic slowdown


by Marc Cantin ,

The Motor Corporation has announced 1,100 job cuts and a 10 to 13% decrease in production for 2009, based on 2008 numbers already down compared to 2007. The biggest motorcycle manufacturer in the USA now joins the ranks of the major Japanese manufacturers, Honda and Yamaha, who have also announced lower production numbers for 2009.

2008 results markedly down
HD's 2008 sales numbers outside the U.S. were positive, with a 1.4% increase in Canada, +3.4% in Europe and +28% in Latin America. Asia recorded an 8.9% decrease, however, mirroring the considerable drop in sales in the manufacturer's most important market, the U.S. As a result, this global revenue slump caused a 30% drop in net income for 2008, down to $655 million, a situation that senior management couldn't ignore.

2009 Harley-Davidson Custom Vehicle Operations Road Glide. Buyers pay a significant premium for CVO models, that are modified at the factory and sell out every year thanks to great looks and execution, as well as exclusivity.

Canada well positioned for 2009
The Canadian H-D network increased sales by 1.4% in 2008 - Canada was the leading country in H-D sales increase world wide in 2008 - despite difficult economic conditions that most certainly affected the final numbers. The 2008 pricing policy applied by the Canadian distributor, which passed on to the buyer the savings from the drop in value of the U.S. dollar, enabled dealers to increase sales and ensured the financial health of the Canadian distribution network, which tackles 2009 on strong financial foundations on top of offering a new and very popular Touring lineup.

The immediate corporate future
Despite the job cuts and decrease in revenue, the Motor Company must continue its development and marketing efforts in order to replace clients that are getting older and parking their bikes for good and, especially, recruit new followers. Furthermore, environmental standards could force them to replace the iconic and much loved air-cooled engine or, at the very least, put in some serious - and expensive - developmental efforts. Finally, the Milwaukee-based manufacturer must increase sales in Europe and Asia, where the H-D legend works its magic, but where consumers also demand sportier, more powerful - and more contemporary - machines.

The acquisition of MV Augusta should help on this front while bringing technology and a European distribution network to the aid of the parent company.

The entire industry is looking to Daytona's Bike Week in early March for a hint of what 2009, and we'll report live from Florida in a few short weeks. In the meantime, it's a safe bet that they're working double time at the Milwaukee offices.

Good news
Harley-Davidson announced on February 3 that it offered $600 M in senior unsecured notes on the market, redeemable in 2014, and bearing a very high annual interest rate of 15%. In clear speak, this means that H-D has borrowed that amount to help finance new development and, as per the announcement, to provide more funds for Harley-Davidson Financial Services (HDFS), the arm of H-D that will finance that new Harley for you and thousands of other around the world in the coming years.

So they need the money, we knew that - but there is also some great news behind this announcement, as the offering sold out immediately, and Warren Buffet, the apparently infallible financial guru, has bought $300M of it. To paraphrase a saying, if you see Buffet jump out of a third-floor window, jump right after him, as there is money to be made there!

Buffett believes in H-D - good news for the industry and for The Motor Company, that's is for sure!

Photo Credit : Harley-Davidson