One of the things that I always enjoy as a holdover from my years in an office is reading financials. I certainly don’t have a portfolio worth bragging about (the old lady does, though), but trying to read between the lines is always fun. As a writer, I also like to read the “spin” that companies put on results.
It’s like trying to decide which side of the litter box is cleanest.
Nonetheless, as a stockholder of Harley Davidson, reading 2016’s results that were released ten days ago is pretty telling.
Harley made more money.
Harley sold fewer bikes. How’s that work? Simple, the bikes cost more to buy and less to build, and when you factor in that they brought out a new engine platform for the big bikes, then you’ve got to wonder – where’s the money coming from?
How does it cost less?
We’ve seen Harley trimming the fat from production in recent years – with the layoffs and consolidations on production – and H-D appears to be losing money by the bucketful in Latin America, but guess where Harley is really ginning the revenue?
Financial Services.
Yep. Harley Davidson is a bank of sorts. In house financing. Sneaky and effective, why go to your lender when you can stay in-house and make it a one-stop shop right in the stealership? Perfect.
Even better? With the stated goal from Harley Corporate and Matt Levatich, president and chief executive officer, of, “[The] long-term strategy is all about growing ridership in the U.S., growing reach and impact internationally, and growing share and profit in every market we serve. Our goal over the next 10 years is to build the next generation of Harley-Davidson riders worldwide.”
In short, it’s a near-perfect strategy. They build bikes that cost more, then finance those in-house, then have the benefit of interest payments made on the cost of the more expensive product over the entire life of the loan. If the buyer defaults, they can simply resell in-house.
It’s a license to print money and with Indian as the only real contender for a title in America now, how can Harley not win the battle of the American V-Twin no matter how good or bad it is?
Personally, I find it fascinating. The power to win used to rest in the overall product quality and now it rests in the ability to sell that product and create more income from that sale. If you thought Harley represented heritage and tradition, you weren’t wrong, but this truly is a big business now and with the ability to control both product and finance, Harley really is poised for greatness again.
It’s going to be a very interesting scene to watch unfold as the 2017 riding season begins to open in the coming weeks.